Milwaukee-based
Mayville Engineering Co. has reached a settlement with New York-based
Peloton Interactive, resolving a lawsuit in which the manufacturer initially sought more than $107 million from the fitness company for breaking the terms of a supply agreement.
Under the terms of the deal, MEC will receive a gross payment of $25.5 million from Peloton. Neither side admits to any liability and the parties agreed to the mutual release of their claims.
Mayville filed its lawsuit in August 2022 in New York state court. The company, a contract manufacturer with around 2,500 employees, originally landed a five-year supply agreement with Peloton in March 2021.
The agreement covered a number of bike frame and handlebar components. The two sides had laid out plans to ramp production up to 3,000 units per day within six months of production beginning.
Amidst the COVID-19 pandemic, Peloton had sought to ramp up production of exercise bikes in North America as demand for its products exploded and overseas supply chains faced a variety of challenges.
After MEC replied to a Peloton RFP, the two sides reached a supply agreement that incorporated volume-based pricing. It also included monthly fixed payments. Over the life of the five-year agreement, those payments would total $107.3 million. Mayville argued in court that those fixed payments were due whether Peloton ordered products or not.
Peloton, on the other hand, contended “to beat out the competition, MEC made an aggressive offer under which it would ‘bear the full investment’ necessary to manufacturer Peloton parts ‘at its expense,’ while agreeing not to impose any minimum order requirement on Peloton,” according to court documents.
In its initial complaint, Mayville said it had invested or would invest more than $50 million to prepare for the Peloton orders that never came. Those investments included a lease for a new manufacturing facility in Hazel Park, Michigan, improvements to that facility and acquiring machinery, tooling, fixture and raw materials for the project.
Mayville also planned to hire 390 people for the Peloton work.
However, Peloton began running into economic headwinds by the summer of 2021. In August of that year, the company told MEC there would be delays in the launch of the project. By November 2021, Peloton told Mayville it would not be launching the product at all.
In December 2021, Mayville told Peloton it would be invoicing the company at the zero product shipment level starting in January 2022. In response, “Peloton unequivocally and emphatically rejected that it owed MEC payments,” according to court documents.
By February 2022, Peloton told MEC it did not forecast any demand for products or parts included in the supply agreement during the entire term of the agreement.
After Mayville filed its lawsuit, Peloton had sought to have the case dismissed. One of Mayville’s claims was dismissed but the courts allowed other portions of the case to proceed in April.
The two sides reached their settlement agreement on Oct. 28.
