Taxpayer Cash for Ener1 Helped a Thrice-Failed Foreign EV Company
Last week yet another treasured Obama administration “Green” energy company – electric vehicle battery manufacturer Ener1 – went bankrupt, after having been granted $118 million in stimulus funds in August 2009. But the gift did more than just sustain it and subsidiary EnerDel; the cash enabled the company to bail out what would be its top customer, a Norwegian electric car company that had already been drained of cash on at least three previous occasions.
Oslo-based Think Global itself filed for bankruptcy again last June.
Think, whose primary model is a two-seater called the Think City, was to produce its glorified electric scooters at a revamped plant in Elkhart, Ind. – a plan that was also endorsed and supported by popular (with national Republicans) Gov. Mitch Daniels, who is still dreamed about by some conservatives as a worthy presidential candidate. Think’s economic development goals were closely linked to those of EnerDel, which was to produce lithium ion batteries for the City. Daniels, and the Indiana Economic Development Corporation, offered Think $3.04 million in performance-based tax credits and $65,000 for job training in January 2009, even though its operations had been halted the previous month. EnerDel was granted $7.1 million in similar tax credits and $58,000 for training in August 2008.
Think, Daniels and IEDC crowed that Think would bring $43 million in investment to the state and 415 jobs, while 850 jobs from EnerDel were promised through 2012.
“We’ve said we’re out to make Indiana the electric vehicle state,” Daniels announced in January 2009. “It’s beginning to look like the state capital will be Elkhart County.”
Think, whose many previous owners included Ford Motor Company after funding ran dry in 1999, was again suffering from a cash crunch in summer of 2009 after going begging in December 2008 for up to $29 million in loan guarantees from Norway’s government, which was denied. Think ceased production, but in January 2009 Ener1 had provided the bulk of a $5.69 million “bridge loan” (besides the Indiana incentives) to keep Think out of bankruptcy, although not enough to reinstate its manufacturing activities.
Earlier in 2009 Ener1 itself had raised $38.4 million in private investment, announced tentative supply agreements with Fisker and Volvo, and received $3.3 million in research and development contracts with the federal Departments of Energy and Defense. Then, on August 5, DOE awarded Ener1 the $118.5 million from the Recovery Act, with the condition it must spend an equal amount in private funds to renovate plants in Indiana.
Immediately afterward Ener1 announced it would purchase $18 million in common stock from Think Holdings, the Norwegian LLC owner of Think Global. By the end of September 2009 Ener1 reported to the Securities and Exchange Commission that it had purchased $7.4 million worth of stock. The deal gave Ener1 a 31 percent stake in Think, which you might suppose would be enough to lure its operations and associated jobs to the U.S. (Indiana's incentives were contingent on the start of operations), especially since the agreement also included a long-term battery supply commitment for the vehicles. But another investor, Finland’s Valmet Automotive, apparently had an inside track with an existing assembly operation for Porsche, so the Think manufacturing restarted there in December 2009. Production expectations were for “several thousands of cars” annually.
So after a year of dormancy Think Global was operational again, undoubtedly with the help of the U.S. taxpayer infusion of cash to Ener1. In 2010 the company reportedly produced 2,500 City vehicles in Finland, with plans to put the finishing touches (installation of EnerDel’s batteries, and other lesser components) at the proposed Elkhart, Ind. facility, which was to escalate its own manufacturing in early 2011. But most of the cars were kept for sale in Europe, while only about 100 were sent to the United States, where 15 were purchased with federal stimulus funds and private donations, and given to the Indiana Department of Natural Resources. Gov. Daniels showed up for the photo opportunity.
“Think found a great place to establish its business in Elkhart,” the governor said, “and we’re proud to be the first customer. We believe that the coming era of electric cars, like Think, will find its home here.”
Vice President Joe Biden also showed up in Elkhart last January to promote Ener1 and Think. But once again hopes were dashed for the Norwegian electric cart-maker, as it stopped production in March 2011. Automotive News reported Think sold only 1,043 of the City in 2010. And Tribune Media reported that the City launched in the U.S. with a sticker price of $41,695 – “about $8,000 higher than Think’s previously announced target price” – and employment at its Elkhart plant never exceeded 25. The vehicle was plagued with three separate recalls, and “most of the 200 or so vehicles Think City sold in the U.S. were to government fleets, sweetened by government subsidies.”
By March Ener1 stopped shipping battery packs to Think, and had accumulated a 48 percent voting interest and 43 percent in Think Holdings’ outstanding equity securities, parent of Think Global.
“We do not know when or if we will recommence shipping battery packs to Think Global,” Ener1 reported to the SEC, “the timing of which would depend on Think Holdings’ ability to raise sufficient capital to continue operations.”
Think at the time owed Ener1 $14.3 million. At the end of April Ener1 reported to the SEC, “Our investment in Think Holdings and our dependence on Think Global as an automotive customer could materially adversely affect our profitability and business.”
“If Think Holdings becomes our subsidiary and we or our independent registered public accounting firm are not able to provide an unqualified attestation report on the effectiveness of our internal control over financial reporting, the stock price for our common stock and our ability to raise capital through sales of our securities could be materially adversely affected,” Ener1 told the SEC, which had begun to question whether Volvo was even a significant customer.
In May 2011 the battery maker gave up its stake in Think “for no consideration.” Think filed for bankruptcy in June. Despite plans to have 1,400 employees in Indiana by 2015, Ener1 had downsized in the state from 380 to approximately 250 since March.
“Ener1’s shares tumbled from more than $4 a share in January (2011),” Indianapolis Business Journal reported, “when Vice President Joe Biden visited EnerDel’s Greenfield battery plant, to less than a dollar in a matter of months.”
Ener1 was booted from the NASDAQ stock exchange in October, when its stock was trading for less than 20 cents, and then dumped its executive team in November. Then came last week’s bankruptcy filing, after the weight of debt and dependence on Think crashed the company. Ener1 now faces three separate lawsuits from shareholders seeking class action status, according to Bloomberg – much of it over the company’s failure to disclose the level of risk attributed to Think.
Ener1 now seeks permission from a bankruptcy judge to accept $20 million to reorganize from the holding company of its new top investor, Russian timber tycoon Boris Zingarevich, who now also owns Think. Barron’s has reported that Zingarevich “has close ties to Russian President Dmitry Medvedev and Prime Minister Vladimir Putin.”
Not a pleasant mix to hope for the recovery, or the continuation of American jobs, as the result of a $118 million-plus investment from U.S. taxpayers. What did DOE (and for that matter, Gov. Daniels and Indiana Economic Development Corporation) know when it awarded Ener1 millions of dollars in grants and incentives in 2009? Did they understand the company’s dependence on a thrice-failed (perhaps more) EV maker? Did DOE watchdogs know Ener1 would immediately invest in shaky Think after its $118 million award? Was Vice President Biden’s visit to Indiana an attempt to instill confidence in the failing battery maker and Norwegian EV company?
Is this what venture capitalism in the new “clean energy economy” is all about?
Paul Chesser is an associate fellow for the National Legal and Policy Center.