Lordstown Motors, U.S. commercial electrical vehicle startup which specializes in pick-up trucks, filed for Chapter 11 bankruptcy on Tuesday and sued its former parted Foxconn after a failed attempt to solve an investment dispute. The news comes after a long period of turmoil for the company caused by production-related challenges.
Lordstown Motors was established in 2019 after it took over a former General Motors factory in northern Ohio. The company had big plans, aiming to deliver 50 trucks to customers in 2022, and 450 in the first half of 2023. in order to meet its production goals, Lordstown entered a partnership with Taiwan-based electronics manufacturer Foxconn in 2021. Under the agreement, Foxconn acquired Lordstown’s assembly plant for $230 million. The deal was meant to provide the EV startup with much-needed capital while giving Foxconn the possibility to break into the electric vehicle market.
Despite the financial support, the automaker fell short of its objective, only being able to produce only 65 pickups in total, and two months ago, they announced they were on the brink of failure. Lordstown also accused Foxconn of pulling out of an agreement and not complying with its contractual obligations, which according to the Ohio company caused them extensive material damage.
Unfortunately, Lordstown is not the only EV startup experiencing difficulties. The race towards electrification has led to the emergence of numerous EV companies around the world, many of which have come to experience countless obstacles or declare bankruptcy for not being able to deal with the complexities and high costs of production. Lordstown’s resounding failure shines a spotlight on the crisis unfolding behind the scenes in the EV industry, especially since the automaker was one of the best-rated companies in the sector. These events signal a shift in the EV market, with fewer startups and a clear dominance of big players such as Tesla.
It should also be noted that current economic conditions and the Federal Reserve’s 10 straight rate hikes over the past 14 months are causing corporate bankruptcies and defaults to spike across all sectors. According to Moody’s Investors Service, there have been 41 corporate defaults registered in the U.S. this year, almost double the number reported last year. Bankruptcies are also on the rise, reaching the highest levels registered since 2010.
As Dallas Bankruptcy Attorney explains, filing for Chapter 11 bankruptcy can help companies on the brink of collapse deal with debt while also allowing them to continue their activities. That’s why many failing businesses choose this route when trying to resolve their debts and liabilities. However, the large number of companies that have filed for bankruptcy this year shows that weakening economic growth, high interest rates and high inflation are taking a toll on all industries and sectors, and startups are usually the most affected. Lordstown Motors is just one of the many examples of recent startup failures, and we might see many more in the near future.
