Lordstown Motors has warned that it may soon be forced into bankruptcy as it lacks the cash it needs to finance its operations.
Life is tough for automakers today.
blame the economic slowdown recession In the coming months, as some economists have already predicted.
Consumers are therefore cautious about their spending. For those who need a car, look closely at the price. Not only is the price not going down much, but it’s getting harder to get credit for cars.
Banks have become very selective while raising interest rates. Basically, borrowing to buy a car is much higher than it was a year ago. federal reserve raised interest rates to fight the stubborn inflation.
According to Edmunds.com, the average interest rate on new car loans has increased from 4.4% in February 2022 to 7% in February 2023. Average interest rates on used car loans rose from 7.8% in February 2022 to 11.3% in February 2023.
Adding to these challenges for electric vehicle makers is the rising cost of materials needed to develop batteries, such as cobalt and nickel. They will have to face a price war launched by their main rival, Tesla, so they will have to model or ramp up production. (TSLA)- Get Free ReportThe Austin, Texas-based automaker has slashed the prices of its cars six times this year. This price-cutting strategy includes prices for two of his most popular models, the Model 3 sedan and the Model Y SUV.
How can these young cash-strapped automakers compete when they are not currently generating significant revenue? (LCID)- Get Free ReportRivian (Riven)- Get Free ReportFisker (FSR)- Get Free Reportand Rosetown Motors (get on)- Get Free Report.
A final group answered the question by warning that they may soon file for bankruptcy. The possibility of bankruptcy is due to the fact that the Taiwanese group Foxconn, with which Lordstown reached an agreement for a capital injection, threatened not to keep the deal any further. Foxconn accuses Lordstown of violating its contract by letting its stock price fall below $1 a share for an extended period of time, the automaker said in regulatory filings with the U.S. Securities and Exchange Commission. mentioned in (SEC).
“The company is in discussions with Foxconn to seek solutions on these issues,” Rosetown said in a filing you can read. here“To date, however, Foxconn has refused to revoke the invalid termination notice and has not confirmed whether it will proceed with normal closing or other proceedings thereafter. preferred stock close. “
He then warned that if he did not receive the funds, “the company would be deprived of critical funds necessary for its business.”
As a result of these uncertainties, “there is substantial doubt about our ability to continue as a going concern,” Rosetown continued, noting that the ability to obtain additional funding under current market conditions is “very limited. There is,” he explained.
The automaker said the cost of the materials needed to build its first model, the Endurance, “is and is expected to be significantly higher than our selling price.”
“If we cannot resolve our dispute with Foxconn in a timely manner on terms that allow us to continue operations as planned, identify other sources of funding, identify strategic partners, and resolve material contingent liabilities, we will reduce or terminate our dispute.” You may need to seek protection by filing a voluntary petition for relief under bankruptcy law,” Rosetown warned.
It concluded that in bankruptcy cases, value to creditors and shareholders is “uncertain.”
Foxconn gave Lordstown 30 days to settle the dispute.
Last November, Foxconn, formally known as Hon Hai Precision Manufacturing, acquired an 18.3% stake in Lordstown and two seats on its board of directors for an equity injection of about $170 million. announced that it will acquire
The deal, conducted through Foxconn affiliate Foxconn Ventures Pte Ltd., made Lordstown the largest shareholder, surpassing founder Stephen Burns. Foxconn will purchase Lordstown’s Ohio-based facility in 2022. The plant, backed by Foxconn, produces the automaker’s Endurance pickup trucks.
Lordstown said Monday that Foxconn signed part of an investment deal in November, purchasing about $22.7 million of Class A common stock and $30 million of preferred stock.
The world’s largest contract electronics manufacturer will purchase an additional approximately 26.9 million shares of Rosetown stock for approximately $47.3 million within 10 business days after the company receives clearance from the Commission on Foreign Investment in the United States (CFIUS). agreed.
The automaker received CFIUS clearance on April 25 and was able to complete its latest investment round by May 8.
Rosetown’s stock is down 59% this year, hovering around 46 cents. It’s a stock market nightmare for the upstart EV, which welcomed then-President Donald Trump’s acquisition of the former General Motors in 2019. (GM)- Get Free Reportplant. Rosetown was jumping on the Made in America bandwagon for Republican presidents at the time, promising to revive the region’s auto industry by creating jobs that were lost after the factory shutdown by GM.
https://www.thestreet.com/technology/tesla-rival-struggles-to-survive Tesla rivals struggle to survive