After months of technical problems, the latest attempts by Zenn Motor Company (
TSX:V.ZNN,
Stock Forum) to help its EEStor battery development group prove their technology works in a commercial capacity have, it appears, only managed to send the company closer to failure.
EEStor was the stored energy option of choice well back in the development of the ZENN prototype, which promised to be a 'Zero Emission-No Noise' transportation product.
But the automobile never really put the rubber to the road, selling only 500 cars and shutting down production in 2010, with a new plan to sell its drive-train technology to other manufacturers.
However,
problems arose late
last year as battery tech
testing proved inconsistent and previous successful testing proved not repeatable.
As EEStor executives blamed testing standards and independent testers for the inconsistent results, ZENN execs appeared to believe the excuses and backed their partner to the hilt. To that end, as EEStor quickly ran out of cash, the company had to make a decision on whether to sever the relationship or double down.
ZENN chose to double down, purchasing control of the privately held EEStor for an amount that reduced by half from $2m to $1m by the time the deal closed as the testing failures racked up.
So enamored was the company with its new prize, it offered to
buy out remaining investors in mid-February, looking to increase its share from 68.4% to 75.3%.
In late February, as the newly acquired battery outfit continued to struggle to demonstrate its technology had commercial potential, Zenn put out a news release that, buried beneath its most recent financial results,
spoke of problems ahead but revealed what it thought was a good fix.
“Recent EESU layers produced by EEStor have shown improvements in resistance, however, capacitance remains low,” the company said, adding, “The EEStor team feels that as the fill factor of composition- modified barium titanate powder (CMBT) is increased in these layers,
the capacitance should increase significantly.”
This has been a common theme for Zenn – or, more specifically, EEStor - over the last year, with failure after failure excused as just another road bump as executives continued to throw money into what appeared to be a bad bet going back as far as 2007.
On January 16, 2007, according to Wikipedia, "EEStor announced it would ship 15 kilowatt-hour Electrical Energy Storage Units (EESUs) to ZENN Motor Company by end of 2007 for use in the ZENN electric vehicles. In a July 2009 interview, ZENN CEO Ian Clifford stated that EEStor anticipated 'delivery of production prototype EESU to us by the end of 2009.'"
Rather than cut its losses and leave their supplier to sink, finding a new partner for its battery sourcing, ZENN instead bought into the EEStor fantasy, seemingly believing a technological win was just around the corner.
But, today came
news that ZENN’s latest fix has, perhaps predictably, failed.
“EESU layers previously provided to the [Technical Advisory Committee] by EEStor did not show commercial potential. EEStor continues to work with its new and latest polymer and is trying to address issues that affected the homogeneity of the layers. As the fill factor of composition modified barium titanate ("CMBT") was increased the consistency of the distribution of the CMBT powder in the layers was not optimal, but progress has been made in creating layers with better consistency.”
It continued, “The TAC noted that permittivity did rise in the layers as the amount of CMBT in the layer was increased, over five times when fill was increased from 40% to 65%. However,
based on the preliminary results the TAC has not seen indications that the layers have commercial potential for energy storage.”
ZENN boosters need to see these words for what they are: The end of the road. This technology has been reworked and retested and rejigged for almost a year and has yet to show anything close to commercial capacity.
So much so that ZENN executives are (almost) ready to call it quits on their EEStor investment.
“To date the examples provided to the TAC do not show that permittivity improvement will increase sufficiently for the commercialization of an EESU. Both EEStor and ZENN are operating with limited financial resources. They will have to raise additional capital in the near term if work at EEStor is to continue.
Without meaningful technological progress it may be difficult to access sufficient capital and the companies are therefore reviewing their options including exploring the possibility of partnering with companies with greater financial resources and capabilities. ZENN and EEStor are in discussions at an early stage with a number of potential partners.”
This may be the moment where ZENN could chart a new course and tell investors how it will replace EEStor with something it knows will work. Unfortunately, they’re still not there yet:
“Unless the companies are successful in their attempts to attract partners or capital, which is uncertain, there can be no assurance about their ability to continue development of the EESU.”
ZENN lost $384,000 in Q1 2014, and $1.625 million in fiscal 2013. Working capital remains at $1.9 million. The company has a market cap of $22.5 million with 53.5 million shares outstanding.
ZENN lost 33% of its share price today, with the stock plunging from $0.63 down to $0.42 on 1.3 million volume.