Equity links can increase the risk at EV startups
Dave Guilford is enterprise editor of Automotive News.
For a while, it looked like we were seeing the first stirrings of electric-vehicle keiretsu.
In 2010, battery maker A123 Systems took a $20.5 million stake in Fisker Automotive and supplied the batteries for Fisker's first car, the Karma.
Likewise, Ener1 won a contract to supply lithium ion batteries to Norwegian EV maker Think in 2007. Ener1 took a 31 percent stake in Think. Ener1 CEO Charles Gassenheimer became chairman of the Think board.
It seemed sensible: Invest in a customer to help it grow. Perhaps such linkups could evolve into keiretsu, the clusters of affiliated companies that benefit Japanese automakers.
Not everyone loved the idea. One veteran of the EV wars told me that having a supplier as an investor can bias purchasing decisions.
But there was a more fundamental problem -- seen, of course, with 20-20 hindsight. Tying a small, new-tech supplier and a small, new-tech automaker compounds the risk that each company has.
In May 2011, Ener1 took a $73.3 million charge to dump its stock after Think's disappointing sales. Think entered bankruptcy in June 2011 and is working to revive operations.
The Ener1 board fired Gassenheimer last September, and the company went through Chapter 11 bankruptcy this spring.
Now A123 is struggling to limit cash burn as Fisker, in turn, struggles to bring its second vehicle, the Atlantic, to market.
A123 has worked out a tentative plan for Wanxiang Group, a Chinese components and EV maker, to invest up to $450 million in A123.
A123 has written down its investment in Fisker by roughly half and cautioned in its first-quarter report on May 15 that it could be at risk from lower-than-expected orders from Fisker. Fisker accounted for 26 percent of A123 revenue in 2011.
Equity links can make a group of strong companies stronger. But, it seems, they can complicate the struggles of emerging companies.
You can reach Dave Guilford at email@example.com. -- Follow Dave on