Ever since the bankruptcy of Think last spring, Indiana based battery manufacturer Ener1 has been in trouble. Not only was Think a major customer of Ener1, Ener1’s large stake in Think was a big bet on that company. As we predicted last November, Ener1 has sailed into rocky waters, a fate that was somewhat obvious last summer. Today we learned the company’s debt holders are on board with a rescue plan to steer Ener1 back to safe waters.
As a lithium-ion battery manufacturer, Ener1 is one of the companies President Obama referred to in the State of the Union when he said “I will not cede the wind or solar or battery industry to China or Germany”. Obama was referring to the international competition for leadership in the clean technology and clean energy industries. Many see the United States as dithering while other countries take leading and dominant roles in these industries, ones that will be the pre-eminent industry of the future.
Obama has repeatedly said throughout his Presidency that the U.S. must gain a leadership position in these industries, and Ener1 was one of the companies receiving government support in the form of loans and grants. The company received its first grants during the Bush administration, and was a recipient of the large package of grants in August 2009 that was meant to spur development of an electric vehicle industry in the U.S.
Because of this history we can expect a chorus of Republican mongerers of hate towards Obama to start crowing about another failure in Obama’s green tech green jobs vision. But should we see Ener1’s bankruptcy as an abysmal failure, or a chance to steer Ener1 back to safe waters?
First let’s review how Ener1 steered their ship onto the rocks. A couple years ago they’d made a large investment in Think, a Norwegian based electric car maker. That company has had a complicated history of going bankrupt and then being rescued by investors. Along with buying into Think, that company became a major customer of Ener1. Fisker Automotive had considered buying batteries from Ener1 before eventually choosing to buy them from A123 Systems instead. In the meantime Think received a couple rounds investment funding from its investment group, and also delivered a few cars to the State of Indiana. If Think’s plans had gone according to plans they’d have been manufacturing and selling cars for several months now, but instead they ran into another bankruptcy. In May 2011 it got so bad that Ener1 simply returned to Think all the stock certificates representing Ener1’s investment in Think. A couple months later Ener1 had informed the SEC it would have to restate all their earnings statements over the last year or so prior. Additionally Ener1’s CEO departed and a new management team came on-board, and Ener1’s stock itself was delisted from the stock exchanges.
Ener1’s woes clearly were not entirely due to the actions of Ener1’s management. The failure of Think to develop according to its plan threw a spanner into Ener1’s plans.
Ener1’s management explained the cause of the bankruptcy as “the marketplace did not evolve as quickly as anticipated” (interpretation, sales didn’t ramp up rapidly enough to support the business plan), “business plan was impacted when demand for lithium-ion batteries slowed due to lower-than-expected adoption for electric passenger vehicle” (interpretation, they failed to sell batteries to both Fisker and Think), the problems were “exacerbated by volatility in the debt and equity markets that further limited our borrowing ability” (interpretation, the global debt crisis), and then they mention “the loss of a major customer”, Think Global.
The company is seeking a pre-packaged Chapter 11 process in the Southern District of New York. Ener1 has worked with their primary investors and lenders on a unanamously agreed restructuring plan and injection of new capital. All of the companies subsidiaries will continue operating and fulfilling obligations, employees will continue to be paid, and if the bankruptcy goes according to plan, in 45 days it will emerge as a reinvigorated company ready to take on the world. The plan includes $81 million of funding to recapitalize the company. Unfortunately the common share-holders will be wiped out.
If we read between the lines it’s clear that everybody involved knew that Ener1 was in trouble last summer if not earlier. The stake-holders will have been negotiating this over several months, and have unanamously agreed to keep the company in operation rather than let it collapse into dust.
Is Ener1 an abysmal failure? Sure doesn’t look like it. Instead it looks like the honcho’s involved want Ener1 to succeed, have put together a plan for that to happen, and are putting their money on the line. Looks like healthy capitalism in operation.