Taxpayer-Funded EV Company Abandons IPO It Thought Would Save It
The failing British electric vehicle company that pretended to become an American one in order to save its U.K. investors has scrapped its planned initial public offering that it hoped would save it in Kansas City.
Smith Electric Vehicles, recipient of $32 million in taxpayer stimulus, had reportedly fantasized it would raise $76 million (down from $125 million) via an IPO by selling roughly 4 ½ million shares at $16 to $18 each. CEO Bryan Hansel bowed to reality Thursday night and rescinded those plans.
“We received significant interest from potential investors,” he said in a statement. “However, we were unable to complete a transaction at a valuation or size that would be in the best interests of our company and its existing shareholders.”
Hansel said that the company will pursue “private financing opportunities” instead, which is also likely a fantasy – at least one that will enable it to survive for the long term. Despite that sizable government “investment” (initiated by those stellar venture capitalists, President Obama and Energy Secretary Steven Chu), Smith Electric lost $17.5 million in 2009, $30.3 million in 2010, $52.5 million in 2011, and $27.3 million through June 30 of this year. The Kansas City Star reported earlier this month that Smith cut its production expectations and warning it is running low on cash, citing filings with the Securities and Exchange Commission.
The green stimulus promoted by the administration and Democrat-controlled Congress in 2009 was supposed to make demand for electric vehicles and renewable energy magically appear. Instead we have seen bankruptcies (like Solyndra, Abound Solar, and Ener1 batteries), near ones (like Fisker Automotive, A123 Systems, and Smith Electric) and failed electric vehicles (like the Chevy Volt, Nissan Leaf and Ford Focus Electric).
In the case of Smith, it was Missouri Sen. Claire McCaskill who announced in March 2010 that the $32 million given by taxpayers to Smith would inspire consumers to buy into electric trucks. After the company received $10 million the previous August – with no track record of business or sales in the U.S. whatsoever – the Department of Energy awarded another $22 million for a “demonstration” project in which Smith Electric’s customers would be given the trucks nearly for free. Smith then went to companies like Frito-Lay and Coca-Cola, which could only use the electric trucks only in inner cities where the routes are short and don’t need lengthy recharging times during the day.
As McCaskill told the Kansas City Business Journal in March 2010, data from the demo project would be shared with government agencies about the viability (or more likely, the lack of it) of the trucks and their performance as delivery vehicles. According to the newspaper, McCaskill said the project “could result in additional sales because agencies are being required to cut their emissions as well as help overcome businesses’ concerns about buying an ‘experimental’ vehicle.”
“Having the data that has been gathered in a scientific way and available in an objective format is the way that you spread the sale of this type of vehicle,” McCaskill said.
That’s government logic for you: because government is demanding the transportation and electric industries to unnecessarily reduce carbon dioxide emissions and trying to force them into more expensive vehicle and power alternatives, it is supposed to overcome the impractical and business-unfriendly nature of those alternatives and thus stimulate “demand.” As a recent viral video put it, “If I wanted America to fail, I’d make cheap energy expensive, so that expensive energy would seem cheap.” Instead we see demand stifled, not stimulated.
As for Smith Electric, this particular electric vehicle failure is a European import. As NLPC has reported, Smith was already a deeply failed company based in the United Kingdom – a division of a larger company called the Tanfield Group.
Smith-U.S. established itself in Kansas City, Mo. in January 2009, following a precipitous drop in Tanfield’s U.K. stock value in mid-2008. Financial analysts became troubled because claims the company made about matters such as vehicle orders could not be verified. The company was accused of exercising poor disclosure standards and weak financial controls, according to the London Telegraph. Tanfield’s cash evaporation led the company to lose 97 percent of its value in 2008, prompted inquiries by the London Stock Exchange and by the U.K. Accountancy and Actuarial Discipline Board.
As the independent Smith Electric Vehicles in the U.S. was launched at the beginning of 2009, Tanfield called it its “associate company.” Almost immediately upon incorporation Smith Electric CEO Bryan Hansel informed the Securities and Exchange Commission of his intent to sell $15 million of debt or equity investment in the company.
In August 2009 the Obama administration announced a $10 million award to Smith-US – less than eight months old in America – as part of $45 million in grants for the manufacture and distribution of electric vehicles and advanced batteries, which came out of the $2.4 billion in Recovery Act funding. The following March McCaskill announced the additional $22 million for the truck demonstration project.
As a lawmaker or bureaucrat, it’s one (inappropriate) thing to give taxpayer money to a fledgling company that may or may not be able to survive. It’s quite another to give public funds to a company that has already proven it’s a failure, as with Smith Electric (in the U.K.) – and a foreign one at that. But it’s an even worse thing to give that money to this failed foreign company only so it can give away its products, as Smith did with the “demonstration” project by offering its trucks to capable and well-financed companies such as Frito-Lay, Coca-Cola and Staples. Besides throwing the money down a rat hole, this exercise gave the public impression that Smith Electric is a legitimate company that boasted the (highly subsidized) “sale” of its vehicles to large, reputable corporations.
The truth is, no one in his right mind would consider Frito-Lay and Coke as real “customers” of Smith Electric. Giving the product away for next-to-nothing is not proof that the client would willingly pay full price for it if it had the choice. It’s like saying Government Motors has “customers” who buy the Chevy Volt when they don’t pay even close to what the car’s full-price is – in GM’s case, $30,000 less thanks to taxpayers.
Now Smith Electric, which always existed on so much puffery, can’t get investors excited about the promise of its future because it doesn’t have one. And Tanfield Group, which still owns roughly 25 percent of Smith, saw its shares in the U.K. drop 38 percent (scroll down at link) upon news of the abandonment of Smith’s IPO.
That’s what President Obama’s green “stimulus” has created: a phony “market” for products nobody wants unless they are almost free. Many investors bought the lie believing the future was bright because government money made the business look legitimate. It’s an economy fitting for Mr. Rogers, in his Neighborhood of Make-Believe.
Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.