Faded Green: A Car Maker's Woes

Start-Up Lured Venture Capital for Electric Vehicles, but Crisis Took Toll

By LEILA ABBOUD
In the race to get electric cars to market, the Norwegian start-up Think Global AS was one of the front-runners. It snagged big-name venture-capital backing and in 2008 manufactured about 350 of its latest model, a two-seater, plug-in city car. It planned to ramp up production to 10,000 units this year.
Then the financial crisis hit. As Think began its expansion, overall demand for cars fell, and the company wasn't able to raise the $60 million to $100 million it needed to finance the growth. The credit crunch prompted suppliers to demand faster payments. In mid-December, Think became one of the green technology world's first major casualties, filing for bankruptcy protection.
Think
The two-seater, plug-in TH!NK city, a car with zero carbon-dioxide emissions, sold for around $30,000 in Norway. The credit crisis thwarted its manufacturer's plans to ramp up production to 10,000 units this year.
"We were so close to break-even and being cash-flow positive," said Think Chief Executive Richard Canny. "It doesn't seem right that the traditional auto companies are getting massive public money to stave off their decline, while newcomers in the electric-car space are being starved of capital."
Think's travails show how the financial crisis could delay new green technologies by starving innovative start-up companies of capital. They are also a sign of how venture capitalists, who have been pouring money into "clean technology" from wind power to biofuels, could start to see some of those bets go sour. Venture capitalists put $22.8 billion into green firms around the world in the past two years, according to market-research firm New Energy Finance in London.
A raft of upstart electric-car companies is trying to beat the established auto giants to market. The TH!NK city model, a zippy, stylish-looking minicar with zero carbon-dioxide emissions, sold for about $30,000 in Norway.
India-based REVA Electric Car Co. makes cheap minicars that aren't crash-tested, and is backed by U.S. venture firm Draper Fisher Jurvetson. Making higher-end sports cars that cost over $100,000 are Fisker Automotive Inc., backed by venture firm Kleiner Perkins Caufield & Byers, and Tesla Motors Inc., funded by PayPal founder Elon Musk.
But the start-ups might end up being crushed by the big car makers, which finally appear to be moving ahead with electric models. At the auto show in Detroit earlier this month, Ford Motor Co., General Motors Corp. and Chrysler LLC showed prototypes of electric cars. Toyota Motor Corp. and Renault SA are also investing heavily to bring out mass-market plug-in cars as early as 2011.
For some, Think's experience is a cautionary tale about automotive start-ups. "Cars are really difficult to build, the supply chain is long and complicated, and it requires tons of capital," said Christian Reitberger, a venture capital investor at Wellington Partners. "It's not an easy business for venture-capital-backed firms to succeed in." Mr. Reitberger prefers to focus his firm's green investments on companies in more proven markets such as wind and solar power.
However, the downturn could also claim victims in more established green industries. Finance for long-term, capital-heavy projects such as offshore wind farms, solar parks and waste-recycling plants was up 15% to $97 billion last year, said New Energy Finance. But activity was much slower in the second half of the year, as banks became more skittish about lending money.
Think was founded in 1991 in Norway, and in 1999 was bought by Ford, which pumped tens of millions of dollars into developing the Think electric car. But Ford temporarily abandoned electric cars in 2003 because it thought the market wasn't there, and three Norwegian entrepreneurs bought Think for $15 million. The trio, which had founded the world's biggest solar-panel wafer company, Renewable Energy Corp., redesigned the car, retooled it to run on new, more powerful batteries and put it through extensive road and safety testing.
In mid-2008, they hired as CEO Richard Canny, who spent over a decade as an executive at Ford, to help Think ramp up into full-scale production. The company was expected to break even in 2009, according to Mr. Canny.
Trouble struck last summer. As expected, the company needed to buy big stocks of parts, such as engines, batteries and plastic panels to ramp up production. To pay for these large capital outlays, Think hired bankers to raise money from venture capitalists, automotive companies and private-equity firms.
But oil prices fell from a record high around $145 a barrel last year and settled Friday at $46.47 in New York. That reduced the advantages of a tiny electric car that took eight hours to charge and had a range of just 110 miles. Few investors were willing to fund a risky venture in the depressed car industry. Think's Norwegian owners weren't willing to fork out all the money needed, either.
Usually in the auto sector, payment for parts is due 30 to 60 days after the car is built, said Mr. Canny. But one U.S.-based supplier of electronic components shortened the payment delays to 15 days from 30. A European firm that makes metal parts for the car's body asked Think to contribute €500,000 ($649,000) toward the machine tools that it would use to make the parts. Another firm that made plastic parts for the car wanted Think to pay €1.5 million upfront for raw materials.
"Basically, our suppliers couldn't get any working capital," said Mr. Canny. "So they turned to us."
Think even appealed to the Norwegian government to help with loans or bank guarantees. But the pleas were to no avail, and Think sought court protection. It sent most of its 300 employees home on temporary leave, idled its factory and suspended its contracts with suppliers.
Think is now seeking a strategic partner and more funding. Earlier this month it secured $5.7 million in interim financing from a group of lenders, which include Ener1 Group Inc., which was making the lithium-ion batteries that power Think's cars. Mr. Canny said the funds will give Think time to continue restructuring, so it can then raise permanent equity capital and eventually start volume production.
Write to Leila Abboud at leila.abboud@wsj.com