A British investment company has thrown in the towel on an electric delivery truck manufacturer that it once wholly owned, saw fail, then spun off in the United States at the height of President Obama’s green energy stimulus subsidy mania.
U.K.-based Tanfield Group announced at the end of June that it wrote down the value of the last 5.76 percent ownership stake it held in Smith Electric Vehicles, which received $32 million in U.S. taxpayer funds as a formerly British entity that reconstituted and relocated in Kansas City in 2009. The move by Tanfield followed Smith’s legal action filed against business partner FDG Electric Vehicles, in which it alleged “fraudulent misstatements” against the Chinese company that had enticed it into an agreement.
“The [Tanfield] board of directors has carried out a review of the investment in Smith resulting in a decision to impair the investment value to nil,” the investment firm reported. “The board came to this decision due to the uncertainty around the level of funding required before Smith is able to achieve profitability and become self-financing as well as the disruption, costs and delays as a result of the relationship with FDG which the board acknowledges Smith are now trying to remedy via legal proceedings.”
Even though it wasn’t the taxpayer cash throwaway that larger failures like Solyndra and Fisker were, Smith could be the most absurd story of undeserved Recovery Act “investment.” As NLPC reported in 2011, the company relocated to the U.S. from the U.K., where it had been a subsidiary of the financially stumbling Tanfield Group. Despite the fact that its stock “collapsed” on London’s Alternative Investment Market in 2008, and alleged customer orders of its trucks could not be verified, the Obama administration gave Smith $32 million within its first year after reorganizing in the U.S. Unsurprisingly, the company lost $17.5 million in 2009, $30.3 million in 2010, $52.5 million in 2011, and $27.3 million through mid-2012.
It has worsened since. NLPC reported in 2013 that the evidence showed that Smith could not convince customers such as Frito-Lay and Staples to take their electric trucks unless they were almost entirely subsidized. Because its business model pushed the idea of using delivery trucks on short routes in urban settings, plans were announced to locate assembly plants in Chicago and New York, which never materialized because those were also dependent on the availability of local subsidies that never came through. By the end of 2013 Smith had halted production, and completed a restructuring that converted debt to equity, which shrank Tanfield’s ownership stake from 24 percent to 5.76 percent.
In 2014 Smith sold $11 million more in stock and engaged in a scheme to pay $340,000 for a majority stake in a small Colorado company, which ultimately was supposed to help it accomplish a reverse merger in which it would “gain access to capital without attempting an initial public offering,” according to the Kansas City Business Journal. Smith would then be able to do so, theoretically, because ABS is traded on something called the “Over the Counter Bulletin Board.” That scheme didn’t work.
Then late last year Smith warned Tanfield it was on the verge of bankruptcy if it did not immediately raise $10 million. Within two weeks Smith told Tanfield it had “raised a loan” of $2.9 million from China’s FDG Electric Vehicles, which already had an ownership stake. FDG said it would cover any shortfall in raising the remaining $7.1 million needed, according to Tanfield. A financial analyst specializing in clean technology markets characterized the agreement as “a desperation move.”
At the time, according to the KC Business Journal, Smith owed $543,346 to the city aviation department for space it occupied near the airport. The aviation department CFO said the company fell behind on rent “a few years back” and negotiated a plan to pay balances that were in arrears, while also keeping up with its current obligation. They stopped fulfilling that agreement in April 2015.
A November 2015 report in the KC Business Journal said dozens of rusted chassis were found stacked outside Smith’s production facility.
“The company is in deep financial trouble,” the Journal reported, “and its corporate leaders are scarce.”
Now Smith is accusing FDG of deceptive statements so it could consummate their working agreement, and has asked a court to terminate or rescind the partnership. Tanfield’s public financial filings in the U.K. say Smith needs to raise another $15 million through a “Series F” financing round to remain viable – thus the decision by Tanfield to “impair the investment value to nil.”
That’s what Smith Electric was always worth – in economic value and in future promise – when it staggered out of Great Britain and landed in Kansas City. And the Obama administration gave them $32 million of U.S. taxpayer money to flush down the toilet.
Paul Chesser is an associate fellow for the National Legal and Policy Center.