Lordstown Motors Goes Bust
On Tuesday, Lordstown Motors Corp. (LMC) officially filed for bankruptcy and sued Foxconn. Though the writing was already on the wall for the Ohio-based electric vehicle manufacturer. Lordstown’s share price collapsed in 2021 and the company has suffered numerous production delays. This seems to have encouraged the Hon Hai Technology Group/Foxconn to back out of its strategic partnership.
But it’s not bad news for everybody. Former chief executive of Lordstown Motors, Steve Burns, managed to sell off every share of his stock before the company filed for Chapter 11. You might remember him as the executive who abruptly quit the company without explanation shortly after LMC's stock valuation slammed into the pavement.
While it was already known that Burns had sold off some of his shares in November of 2021, Matthew Guy presented us with a recent regulatory filing with the U.S. Securities and Exchange Commission (SEC) showing the ex-CEO had dumped the rest of his shares roughly a month before Lordstown announced its bankruptcy.
By early 2023, Burns had sold roughly $59 million worth of stock — including a disposal of 5 million shares in January. Interestingly, this was shortly before the company disclosed quality issues and warned the public of difficulties it was having ramping up production of the Endurance pickup. While this still left him as Lordstown Motor’s biggest shareholder, that would change in the coming months.
Based on a report by The Review, Burns sold his remaining shares in three transactions since May 23rd. This included two transactions that happened after a reverse stock split on May 24th, netting the former executive more than $3.8 million.
From The Review:
All told, since Burns started unloading shares in the company in November 2021, he took away about $66 million.
The filing with the U.S. Securities and Exchange Commission shows Burns sold 581,000 shares May 23 at 27 cents per share for $156,870.
On May 24 — the day of the 1:15 split — Burns sold 200,000 shares at $3.74 per share for $748,000 and on June 16, he sold the last 591,752 shares at $4.99 per share for more than $2.9 million.
While he could have made more money by selling shares earlier on, the public faith had been rattled after short-seller Hindenburg Research released a scathing report about the company having lied in regard to Endurance pre-orders and its general production capacity. The report, published in March of 2021, suggested that Lordstown was little more than another “electric vehicle SPAC with no revenue and no sellable product, which we believe has misled investors on both its demand and production capabilities.”
The document goes into great detail explaining how it saw the CEO as intentionally misleading investors — citing former employees who referenced Burns as a “con man” or “PT Barnum” type. One senior employee even told the group that they had seen more questionable and unethical business practices under Burns than they had seen in their entire career.
Sounds like the guy was very fortunate to have dumped his shares when he did. Because whoever was steering the company appears to have run it straight into an iceberg….
Meanwhile, the Lordstown Motors of today is on damage control with the business issuing a press release explaining the bankruptcy and what it intends to do.
The bankruptcy documents include motions to continue operations and uphold its responsibilities to stakeholders. But Lordstown also stated that it’s in the midst of trying to sell the Endurance vehicle and related assets. Considering Foxconn was supposed to handle production of those vehicles, had been given most of the company’s valuable assets (including the factory in Ohio), and is now being sued, our guess is that you’ll probably never see an LMC-branded pickup hitting the streets.
But, hey, maybe someone will come along and turn things around. Anything is possible.
“We remain confident that an orderly, expedited sale process will maximize value for our stakeholders and enable the talent and technology behind the Endurance to find new and supportive ownership,” stated Edward Hightower, CEO & President of Lordstown. “While in Chapter 11, Lordstown will continue to support our customers. We are grateful for the Lordstown team for their commitment and dedication to our vision and to our customers, suppliers and business partners for believing in the Endurance and in the EV evolution.”
The lawsuit against Foxconn was already known of, as Lordstown issued an announcement earlier in the month stating that the Taiwanese firm had failed to adhere to its part of their corporate agreement.
“As one of the early entrants to the EV industry, we have delivered the Endurance, an innovative and highly-capable EV with significant commercial and retail potential – and had subsequently engaged with Foxconn in a purposeful, strategic partnership to leverage this expertise into a broader EV development platform,” said Hightower. “Despite our best efforts and earnest commitment to the partnership, Foxconn willfully and repeatedly failed to execute on the agreed-upon strategy, leaving us with Chapter 11 as the only viable option to maximize the value of Lordstown’s assets for the benefit of our stakeholders. We will vigorously pursue our litigation claims against Foxconn accordingly.”
Lordstown’s release goes on to state that it believes Foxconn had “no intention of living up to its commitments, particularly with respect to the new vehicle development platform.” It likewise alleged that Foxconn “used its variety of contractual arrangements with the company as a tool to maliciously and in bad faith destroy Lordstown’s business—while leveraging resources gained through the partnership to advance its own business interests.”
The deal between Lordstown Motors and Foxconn was finalized in May of 2022, with the latter entity buying the former General Motors plant for roughly $230 million. Foxconn was intended to assume production responsibilities after buying $50 million of LMC stock, with an anticipated $170 million being invested later on.
Truth be told, it always seemed like an odd arrangement. Foxconn assumed the brunt of Lordstown’s tangible assets, including the factory it had purchased from GM for an estimated $20 million — a fraction of its total value — in exchange for some worthless stock, millions in cash, and some promises that would only come into play if LMC survived.
Foxconn released its own statement in response:
Hon Hai Technology Group (Foxconn) has been holding a positive attitude in conducting constructive negotiations with Lordstown Motors Corp. and in assisting LMC in finding a solution to its financial difficulties. However, during this time, LMC has continuously attempted to mislead the public and has been reluctant to perform the investment agreement between the two parties in accordance its terms.
Foxconn originally 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.
The business added that LMC’s litigation announcement included “false comments and malicious attacks” about Foxconn, noting that it reserves the right to pursue legal actions and also suspend subsequent good faith negotiations with its business partners.
Documents pertaining to the bankruptcy estimate that Lordstown has 5,001 to 10,000 creditors and estimates $100,000,001 to $500 million in assets and liabilities.
Lordstown, Ohio, always had a lot riding on the factory being a success and things appear to be imploding. But Lordstown Mayor Arno Hill has said he doesn’t want to assume the worst just yet, noting that Foxconn is currently operating at the facility without any tax breaks and has between 600 and 700 employees.
“We have a lot of unknowns also, but you know, anything we get in that plant is a bonus for the village and the Valley,” he said.
[Image: Lordstown Motors]
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