Rose Town Motors files for bankruptcy after Foxconn withdraws investment, leading to lawsuit

U.S. electric vehicle startup Rozetown Motors has ultimately filed for bankruptcy protection. Earlier, it also filed a lawsuit against Taiwan's Foxconn for failing to fulfill an investment agreement.

[Image source=Reuters Yonhap News]

On the 27th (local time), Rozetown Motors announced that it filed for Chapter 11 bankruptcy protection in Delaware Bankruptcy Court and is pursuing the sale of the company. In a statement, the company claimed that the contract with Foxconn, the Apple iPhone contract manufacturer, to invest up to $170 million in Rozetown Motors was not fulfilled, leading to bankruptcy.

Edward Hightower, CEO of Rozetown Motors, said, "Despite serious commitments to the partnership, Foxconn deliberately and repeatedly failed to execute the agreed strategy, leaving us with no option but to file for bankruptcy protection," adding, "We will therefore pursue legal action against Foxconn."

Rozetown Motors is an electric vehicle startup founded by acquiring the Rozetown plant in Ohio, which was closed by General Motors (GM). It grew rapidly thanks to support from the former Donald Trump administration and the SPAC investment boom, but financial difficulties worsened as plant operations began in earnest. Contrary to the announced annual production of 100,000 vehicles, actual production remained limited. Last year, Rozetown Motors sold the plant to Foxconn for $230 million. Along with this, Foxconn had also agreed to invest an additional $170 million in Rozetown Motors to acquire equity.

However, Rozetown Motors claims that this investment promise was not properly fulfilled. Foxconn made a first investment of $52.7 million last year, securing an 8.4% stake in Rozetown Motors. However, the second investment of $47.3 million, scheduled for this spring, was not made. This was because Rozetown Motors' stock price had fallen below $1 for a prolonged period, violating the investment conditions stipulated in the contract.

This broken partnership between the two companies further worsened Rozetown Motors' financial difficulties. Shortly after Foxconn notified its decision not to invest due to the stock price, in early May, Rozetown Motors admitted to investors that its cash reserves were nearly depleted and that bankruptcy protection filing was possible. Rozetown Motors had previously halted production of its main product, the Endurance electric pickup truck, and laid off workers. Some of these workers reportedly were employed by Foxconn.

On the same day, Rozetown Motors stated, "Foxconn's fraud and repeated contract violations have caused irreparable harm to Rozetown Motors," adding, "This lawsuit will demonstrate that Foxconn had no intention of fulfilling its promises, especially regarding the new vehicle development platform." The company also claimed in relation to the lawsuit that "Foxconn used various contracts as tools to maliciously and dishonestly destroy Rozetown Motors' business."

On the other hand, Foxconn dismissed the lawsuit filed by Rozetown Motors as a "baseless legal action" and said it had no merit. Foxconn responded, "We attempted constructive negotiations with Rozetown Motors to help resolve financial issues, but Rozetown Motors continuously tried to mislead the public."

Local media reported that with Rozetown Motors' bankruptcy, except for the market leader Tesla, most of the U.S. electric vehicle market is now left with traditional automakers. The Wall Street Journal (WSJ) noted, "Tesla, the market leader, is a rare surviving EV company," pointing out that relatively large companies like Rivian and Lucid Group have also failed to meet initial production targets due to parts shortages and manufacturing issues, resulting in sharp stock price declines.

On the New York Stock Exchange that day, Rozetown Motors' stock price was trading more than 34% lower than the previous session. The stock price has dropped nearly 90% so far this year. The market capitalization, which reached $5 billion in February 2021, has shrunk to about $29 million.

This content was produced with the assistance of AI translation services.