Bloomberg News

Ener1 Delisting Continues Energy Department Aid Woes

November 04, 2011

(Adds EnerDel division in second paragraph.)

Nov. 1 (Bloomberg) -- Ener1 Inc., one of 30 recipients of U.S. Energy Department grants to produce electric-car batteries, is the latest recipient of the agency’s aid to run into financial trouble and draw congressional scrutiny.

Ener1, whose shares were delisted from the Nasdaq Stock Market Oct. 28, was promised $118.5 million in department grants for its EnerDel unit in 2009 from President Barack Obama’s economic stimulus package. Johnson Controls Inc. and A123 Systems Inc. received money for battery production.

The Energy Department, which faces congressional investigations for its support of failed solar-panel maker Solyndra LLC, is “closely monitoring the status” of Ener1, spokesman Damien LaVera said in an e-mail.

“These investments are building domestic capacity for manufacturing advanced-technology vehicles and components,” LaVera said of the battery and electric-vehicle component companies and schools to which the agency has given money.

Republican lawmakers have questioned the Energy Department’s $535 million loan guarantee for Solyndra, which filed for bankruptcy protection after struggling to raise private financing, and Russian steelmaker Severstal OAO, which received a guarantee from an electric-vehicle loan fund.

Ener1, based in New York, received the fifth-largest grant under the stimulus program for electric-drive vehicle batteries and components, according to an Energy Department list.

Johnson Controls Inc., the largest U.S. auto supplier, received the biggest grant, $299.9 million. It was followed by A123 Systems Inc., which last month signed a contract to supply batteries for General Motors Co.’s electric Chevrolet Spark, which the automaker plans to sell beginning in 2013.

Asian Competition

Smaller companies such as Ener1, which had 469 employees at the end of 2010 according to data compiled by Bloomberg, entered the battery market late against established competitors, said Shu Sun, an analyst at Bloomberg New Energy Finance.

“The electric battery market at the moment is a highly competitive one,” Sun, based in London, said in an interview. “It will be dominated by Japanese and South Korean players that have ramped up volume significantly and have secured more partners and customers. Smaller players like Ener1 will struggle in such a competitive market.”

As recently as January, Vice President Joe Biden used an Ener1 plant in Mount Comfort, Indiana, to showcase the administration’s goal of having 1 million electric vehicles on U.S. roads by 2015.

Bipartisan Support

Ener1’s grant application received bipartisan support from Indiana lawmakers, and the company got a $6.5 million Energy Department advanced-battery grant and a $4 million Defense Department research and development contract under the George W. Bush administration.

Ener1, which is trading on Pink Sheets since its Nasdaq delisting, has received $55 million of its grant so far. It must match any further U.S. funding dollar-for-dollar, LaVera said.

Brian Sinderson, a company spokesman, didn’t respond to a request for additional comment.

Sensenbrenner Seeks Audit

Representative James Sensenbrenner, a Wisconsin Republican who is vice chairman of the House Science Committee, yesterday said he’ll propose legislation seeking an independent audit of all Energy Department loan guarantees. Obama’s administration on Oct. 28 ordered a review of the programs that will be conducted by former Treasury Department official Herbert Allison.

Republican presidential candidate Mitt Romney last week asked Congress to investigate loan guarantees given to luxury electric-car makers Tesla Motors Inc., which projects its first annual profit in 2013, and Fisker Automotive Inc., which missed its internal production schedule after awaiting U.S. certification of its first car. Beacon Power Corp., an energy storage company that received $43 million from the same program that supported Solyndra, filed for bankruptcy protection Oct. 30 after failing to attract private financing.

The loan guarantee program, created by President George W. Bush’s administration, was a good idea in the quest to reduce U.S. dependence on imported oil, said Theodore O’Neill, a New York-based analyst at Wunderlich Securities.

“In 2008, when the U.S. government also owned the car companies, it seemed like a brilliant idea to address our oil dependency by creating an electric-car industry using the levers that the government had at hand,” he said in an interview.

Chrysler Application

Chrysler Group LLC and A123 Systems, which makes plug-in car batteries, are still seeking loan guarantees under the Energy Department’s Advanced Technology Vehicle Manufacturing program, which House Republicans tried to cut in September. The program lent Tesla $465 million and Fisker $529 million.

It has $4 billion remaining after also giving loans to Ford Motor Co. and Nissan Motor Co. Ltd., maker of the Leaf plug-in electric car.

The vehicle loans come from one of three Energy Department loan programs. Two others, including the one that issued Solyndra’s $535 million guarantee, are intended to spur development of alternative-energy sources.

Under Obama’s economic stimulus package, the Energy Department awarded grants in an attempt to create a U.S. electric-car industry.

Start-Stop

The grant program is helping the U.S. boost its “capacity to produce electric-drive vehicle batteries from virtually zero in 2008 up to 500,000 per year in 2015,” the Energy Department’s LaVera said.

This year through Sept. 30, 11,094 plug-in Leafs and Chevrolet Volts had been sold, according to Autodata Corp. That was less than 1 percent of the 4.7 million cars sold during the same time period.

O’Neill blamed U.S. fuel-economy standards taking effect for model-year 2012 vehicles for limiting demand for batteries made by Ener1 and its competitors. The standards can be met by using a technology known as stop-start that saves gasoline while cars idle. Johnson Controls is among the companies whose batteries use the technology.

That may mean vehicles can meet U.S. standards through 2016 by modifying conventional batteries, which are cheaper than the lithium-ion batteries used in hybrid and plug-in cars.

“For these companies, it will be extremely difficult to secure any large-scale production contracts,” said O’Neill, who rates Ener1 shares “hold.” “So they will have to look at other revenue, other applications for their battery products.”

--With assistance from Jim Snyder in Washington and Craig Trudell in Southfield, Michigan. Editors: Bernard Kohn, Andrea Snyder

To contact the reporter on this story: Angela Greiling Keane in Washington at agreilingkea@bloomberg.net;

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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