Lordstown Motors Corp. executive Ed Hightower flew to Taiwan from Detroit last year for meetings with leaders of Foxtron, a company affiliated with iPhone assembler Foxconn Technology Group, for talks he thought would kick off development of a new electric vehicle. The CEO ghosted him.
(Bloomberg) — Lordstown Motors Corp. executive Ed Hightower flew to Taiwan from Detroit last year for meetings with leaders of Foxtron, a company affiliated with iPhone assembler Foxconn Technology Group, for talks he thought would kick off development of a new electric vehicle. The CEO ghosted him.
Hightower spent three days in isolation due to Covid-19 protocols before he could meet with the Taiwanese executives. He got face time with Young Liu, Foxconn’s chairman, and some of his lieutenants. But the crucial work was to be done with Foxtron, which Foxconn majority owns. The idea was to partner on a mid-size crossover SUV that would be built in the Lordstown, Ohio, plant formerly occupied by General Motors Co.
The Foxtron boss refused to meet, Hightower said in an interview. Hightower couldn’t get engineering drawings, data and essential licensing agreements needed to get the project going. Liu was chair of both companies, but said he couldn’t compel Foxtron to meet with Hightower. After almost two weeks, the American executive said he gave up and flew home.
“I made the trip to Taiwan to break the logjam,” said Hightower, who was Lordstown’s president at the time of the trip and is now its chief executive officer. “A lot of times it is about relationships,” Hightower said, but in this case, “I was not able to meet my objective.”
The incident was an early sign of the trouble that lay ahead. On Tuesday, Lordstown filed for bankruptcy after struggling to build its electric trucks and failing to consummate a partnership that would have made it the engineering arm for Foxconn’s US electric-vehicle operations. Lordstown also sued Foxconn, alleging breach of contract and fraud.
A representative for Foxconn declined to comment beyond a statement issued after Lordstown announced its bankruptcy. The Taiwanese company said it had “a positive attitude in conducting constructive negotiations with Lordstown Motors and in assisting Lordstown in finding a solution to its financial difficulties.”
“However, during this time, Lordstown Motors has continuously attempted to mislead the public and has been reluctant to perform the investment agreement between the two parties in accordance with its terms,” Foxconn said in the statement. It had “hoped to continue discussions and reach a solution that could satisfy all stakeholders, without resorting to baseless legal actions, but so far the two parties have yet to reach a consensus.”
Lordstown is one of the first casualties of the easy-money era in which cash was rained on startups seeking to disrupt the auto industry with EVs and self-driving software — often even if they didn’t have working vehicles or revenue.
In a passel of splashy newcomers that included Nikola Corp. and Fisker Inc., Lordstown stood out in part because its origin story was rich with symbolism. Its founder, Steve Burns, bought a shuttered GM plant in a downtrodden region of northeast Ohio for $20 million and vowed to resurrect it. Along the way, Burns made audacious pledges to beat Tesla Inc., GM and Ford Motor Co. to market with an electric pickup. That dream of domination never became a reality.
‘GREAT NEWS FOR OHIO!’
Lordstown’s tumultuous run began with a surprise announcement, and a mistake. Then-President Donald Trump announced in May 2019 that General Motors would sell the Ohio factory to Workhorse Group Inc., a money-losing EV startup where Burns had once been CEO. “GREAT NEWS FOR OHIO!” he tweeted.
But GM wasn’t in agreement with Workhorse on the sale — it had agreed to sell the plant to the newly created Lordstown Motors.
Burns nonetheless rode the Trump administration’s support — hosting Vice President Mike Pence and visiting the White House — on the way to a public listing in late 2020 via a reverse-merger with DiamondPeak Holdings, a special purpose acquisition company. That raised $675 million to develop the Endurance pickup, which features one small electric motor on each wheel.
Months after the merger, short seller Hindenburg Research published a report accusing Burns of misleading investors, particularly with respect to claims to have accumulated 100,000 pre-orders for the Endurance.
Burns responded by quoting Taylor Swift. “Haters gonna hate, hate, hate, hate, hate. You gotta shake it off,” he told local television station WKBN.
The Hindenburg report tipped off the US Securities and Exchange Commission and Justice Department, which began probing Lordstown. While neither law enforcement agency announced a conclusion, the company’s own internal investigation found that Burns had indeed made inaccurate statements about pre-orders, and he resigned. In the first sign that the company might not survive, Lordstown issued a going concern warning.
Icahn Connection
That’s when Dan Ninivaggi entered the scene. The former deputy of billionaire investor Carl Icahn came on as CEO to clean up the mess Burns left.
Ninivaggi reached an agreement in late 2021 to sell the plant to Foxconn in a $280 million deal that included an equity investment from the Taiwanese company. He’d hatched plans to not only build the Endurance, but also use the company’s engineers to develop EVs for any carmaker using Foxconn’s EV platform and production capabilities.
Late last year, Foxconn replaced the initial agreement with Lordstown with a new deal and investment in the company. It still looked like Foxconn was all-in when it agreed to buy an 18% stake and some preferred stock for $170 million. Lordstown shares initially jumped 29% on the news.
But Lordstown claims that soon after, Foxconn began taking steps to slow-walk the relationship from becoming a true joint venture. The startup says that Foxconn dangled assurances that it would support the Endurance and other future projects in order to more easily acquire the factory as a base of operations for its EV ambitions in the US. These promises, Lordstown says, were “designed to string the company along so that Foxconn could starve it out of existence.”
After taking over the plant, Lordstown alleges that Foxconn didn’t make payments toward the development of certain vehicles and failed to answer repeated requests from Lordstown for access to the engineering drawings and vehicle designs from Foxtron, which is what precipitated Hightower’s doomed trip to Taiwan last summer.
Read More: Foxconn Finds EVs Are Harder to Build Than iPhones
Lordstown claims in its lawsuit that Foxtron planned to sell its own vehicles in the US in direct competition with the Lordstown joint venture. Foxconn executives told Lordstown that Foxtron was considering selling its vehicles through used-car retailer Carvana Co., Hightower said. A spokeswoman for Carvana didn’t respond to an email seeking comment.
Foxconn said in its statement that Lordstown had made “false comments and malicious attacks” in its lawsuit, adding that it “reserves the right to pursue legal actions and also suspends subsequent good-faith negotiations.”
Winning over consumers might have helped Lordstown overcome behind-the-scenes turmoil. But several of its early Endurance trucks failed on the road, including at least one that had been handed over to a customer. Lordstown asked Foxconn to suspend production in February as it recalled 19 of its pickups.
Soon after, Lordstown dropped a bombshell: The company said it would need the expertise and collaboration of another outside partner because working with Foxconn wouldn’t drive down costs enough to make a profit on its truck’s $65,000 sticker price.
Downward Spiral
That signaled the partnership was deteriorating and sent Lordstown’s shares into a tailspin. By April, the stock had traded below $1 for long enough that the Nasdaq sent a delisting notice. Foxconn cited that as reason to hold up its next round of investment, which Lordstown claims the Taiwanese manufacturer didn’t have the right to do.
When Lordstown executed a reverse split the following month to lift its stock price above $1, Foxconn said it would make the $47 million investment after all, but at the split-adjusted price, according to the complaint, which would have given the conglomerate more than 60% ownership of Lordstown.
Lordstown is still looking for another automaker to partner up with. The Endurance could be used by another manufacturer to quickly enter the electric truck market or be adapted for a battery-powered SUV, Hightower said.
Barring the emergence of a new partner, Lordstown’s lawsuit may be one of the only ways to recoup money for shareholders.
Burns has already moved on. He sold off all his Lordstown stock — about $66 million worth — before it went bust.
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