Russian Timber Magnate Buys EV Maker ThinkBy Scott Doggett July 26, 2011
Russian timber magnate Boris Zingarevich has revived electric-vehicle maker Think Global from its fourth bankruptcy in 20 years. Zingarevich is a long-time business associate of Russian President Dmitry Medvedev and a director and principal shareholder of U.S. battery-maker Ener1. Zingarevich purchased the privately held Norwegian company for an undisclosed sum, the automaker reported Monday. Until it severed its ties with Think in March, Ener1 had supplied the lithium battery in Think's sole product, the City battery-electric car (above), and Ener1 had been a major investor in Think.
A court-appointed trustee selected Zingarevich as the winning bidder following a bankruptcy proceeding initiated by the Norwegian carmaker last month, Think said in a statement today, adding that the Russian "is committed to maintaining the company's key role in global transportation electrification." By purchasing Think Global, Zingarevich is clearly trying to resurrect the automaker in order to give Ener1 a desperately needed customer for its batteries, a move that protects his substantial investment in Ener1. In addition, Zingarevich has signed a memorandum of understanding with Ener1 and Finnish automobile engineering and manufacturing concern Valmet Automotive to cooperate in re-launching Think. Valmet manufactured the City battery-electric vehicle (BEV) in Finland, and Think has an assembly plant for the model in Elkhart, Indiana.
Assembly in Elkhart "is expected to resume shortly," Brendan Prebo, a spokesman for Think's North American operations, told AutoObserver. "We are waiting on the delivery of several critical parts required to restart production. Those parts should be arriving soon, now that the European bankruptcy has been resolved. European production, on a refined version of the City BEV, is scheduled to begin in the first quarter of 2012." Think had assembled about 100 City cars in Elkhart from December until the plant was idled soon after, due to what Think described as a shortage of parts from Europe (as opposed to a shortage of interest from consumers).
Small BEV, Big Price
In the City model, Think was trying to sell to U.S. consumers a two-door BEV with a top speed of about 68 mph and a driving range between recharges of about 99 miles. At $36,495, it could not possibly compete with the four-door Nissan Leaf BEV ($35,200) or other BEVs expected to launch in America in the coming year. The City is not a finished vehicle by any means compared with a Leaf or, for that matter, the Chevrolet Volt plug-in hybrid sedan, priced at $39,995
An historic October 2007 contract between Ener1 and Think called for Ener1's battery-manufacturing subsidiary to deliver production prototypes in March 2008 and pre-production parts in July 2008. Once these milestones were met to Think's satisfaction, production orders under the contract were expected to result in Ener1 battery sales of $70 million over the two-year period ending in 2010. Under Think's growth plan, the total value of the contract was to eventually have exceeded $200 million, which was enough enticement for Ener1 to gradually invest more than $90 million in Think.
But in a federal tax filing in January, Ener1 stated that Think had stopped taking battery shipments due to intermittent sales of the City in Europe and the U.S., which resulted in an unfavorable inventory balance of battery packs at Think that caused Ener1 to idle its production of battery packs for the BEV. Five months later, Ener1 reported a widening first-quarter loss with results weighed down by a $59.4-million impairment charge related to stalled operations of its electric-car-market partner. On May 9, Ener1 surrendered to Think Holdings [Think's parent], for no consideration, all shares of Think Holdings' voting equity held by Ener1, based on our determination that our investment in Think Holdings was impaired and written down to zero," the company said.
Ener1 Seeks Think Contract
Ener1 is currently producing batteries for only one BEV, the all-electric Volvo C30, which is being produced for several fleet customers in the U.S. and Europe right now. Ener1 spokesman Brian Sinderson told AutoObserver that while the company has a memo of understanding with Think, it does not have a firm contract to resume the sale of batteries to Think. "As soon as we get that firmed up, I'm sure they will be a viable customer again. So we're looking forward to that," he said.
Ener1 and Valmet were the senior secured creditors of Think when the company filed for bankruptcy last month after failing to raise adequate capital to continue financing operations. Ener1 and Valmet are negotiating stakes in the new company on the basis of a debt restructuring. The name of the new company that will market Thing brand products is Electric Mobility Solutions AS, registered in Norway. A new sales and service structure for Think will be announced soon.
Zingarevich said in a statement that "with the potential of working with the leading American automotive lithium-ion battery maker and Europe's top automobile engineering and manufacturing company, I believe we could have exactly the right combination and value chain to ensure that the brand will be increasingly competitive in the worldwide electric vehicle market." It was an odd thing to say, considering the principal players have not changed. The 52-year-old businessman has been a major investor in Ener1 since 2002 and provided bridge funding for Think while the company attempted reorganization before its most recent filing for bankruptcy. He became director of Ener1 last month.
Member Of The Oligarchs
According to a July 2009 report in the Washington Times, Zingarevich was frequently listed among the powerful and influential businessmen known in Russia as oligarchs and is the "provider of substantially all of the funding" for Ener1 and its wholly-owned subsidiaries. The companies he owns, controls or is associated with - including Bzinfin SA, an off-shore firm that holds 66 percent of the shares of Ener1's parent company - have the potential to exercise substantial sway over Ener1's operations, the newspaper said, citing documents filed with U.S. securities regulators state.
At the time, Indiana lawmakers had secured $6.5 million in congressional earmarks for Manhattan-based Ener1 and had talked up the company's efforts to secure a slice of nearly $3 billion in two U.S. Department of Energy (DOE) programs offering grants and loans as part of President Obama's stimulus package. The DOE funding to Ener1 raised concern among some members of Congress. Rep. Duncan Hunter, California Republican and a member of the House Armed Services Committee, said there should "definitely be concern" about foreign-controlled or -owned companies attempting to break into the lithium-ion market in the United States and using multimillion-dollar government loans and grants to aid their development and production.
"It also presents significant security concerns that need to be thoroughly examined before any decisions are made," said Hunter, a former U.S. Marine who served two combat tours in Iraq and one in Afghanistan. "Our nation's energy market should be reserved for U.S. companies and workers, especially now when we are looking to be a global leader in this technology."
Consorting With The Enemy
According to the Washington Times, some security experts saw a risk in giving Ener1 federal money and access to hybrid technologies that are supposed to fuel the next generation of American products and U.S. military equipment. They noted that Russia has taken an increasingly competitive stance toward the U.S. under Medvedev and his mentor, Prime Minister Vladimir Putin. Frank J. Gaffney Jr., former assistant secretary of defense for international security policy in the Reagan administration, described as "insanity" any plan that would allow "building a national battery infrastructure in the pockets of the oligarchs of the past and future Soviet Union."
When asked to comment upon the concerns expressed by Hunter and Gaffney, Sinderson said "the main response is the DOE did approve our loan based on the fact that they didn't find anything to be an issue. So that's probably the best response we can tell you. We have not had any issues with that at all, so we don't see it as even relevant to the conversation at this point."
The assets of wholly owned subsidiaries Think North America and Think UK, which have remained going concerns during the bankruptcy proceeding for Think Global, were also acquired in the latest transaction. Think North America will continue to support service and warranties for existing owners and future buyers of the Think City vehicle in the U.S., the subsidiary said in a statement. "Think is continuing to sell pure electric vehicles in the North American market from the company's Elkhart-based assembly facility," it said. There were said to be 400 City cars at the plant when it was idled.
Angling For Fleet Customers
Think North America said it will continue its strategy of marketing vehicles primarily to fleet customers, as well as to retail customers on a limited basis, in Indiana and what it described as a number of other designated electric-vehicle-ready states. The company said it will also maintain its active participation in public efforts to further advance the mass deployment of electric vehicles throughout the U.S.
Zingarevich co-founded Ilim Pulp Enterprises in 1992, building it into the largest vertically integrated forest products company in Russia. He has served on the board of Ilim Group, a joint venture between Ilim Pulp and Memphis-based International Paper, since it was formed in 2007. With $2 billion in annual sales, Ilim Group is a strong international industry player with an emphasis on the Chinese market, according to Forbes magazine. It is the largest such enterprise in Europe and the sixth largest in the world in forest reserves and timber-harvest rates.
In 2007, Zingarevich founded Ilim Timber Industry, which is based on former assets of Ilim Pulp that were not included in the joint venture with International Paper, and has served since then as chairman of the board. Ilim Timber is a leading global manufacturer of dimensional lumber and plywood. In 2010, the company acquired the two largest sawmills in Germany from the Klausner Group and entered the ranks of the top five milling companies in Europe according to production volume, Forbes said.
As previously mentioned, Zingarevich first invested in Ener1 in 2002. Since then, he has become the company's principal shareholder, assisting with the capital formation of the business and reviewing capital investment in both the U.S. and South Korea. He has worked closely with the company to assist in its global expansion.