New $25M financing to drive ZAP’s EU expansion

Santa Rosa, Calif.-based ZAP (OTC:ZAAP) said today that it secured up to $25 million in financing, with the majority coming from a new strategic investor that is expected to help the company sell electric vehicles and a charging network in China.

ZAP CEO Steve Schneider told the Cleantech Group today that the money will help fund the company’s new U.S. manufacturing facilities, as well as a new distribution network in the European Union.

Schneider said that small companies developing vehicles are growing thanks to the collapse of the major automakers, which have left talented employees and vendors looking for new opportunities.

“We’re benefitting from the garage sale that’s been taking place,” Schneider said. “Companies like us have been getting things offered to us that we would have never had the opportunity for before: the best designers, the best executives and the best investors. There are vendors that would have never considered dealing with a company our size, and now they’re begging, offering us all kinds of credit terms.”

Schneider pointed to the company’s new president as an example— Gary Dodd was previously an executive at Toyota and is now overseeing the development of ZAP’s new manufacturing facility in Kentucky.

ZAP has secured $68 million from the state of Kentucky, in addition to 150 acres of land worth about $5 million. The company is awaiting word on its application for $200 million in a federal loan guarantee from the U.S. Department of Energy, which Schenider said could come within 30 days. Once funding comes through, the facility could start production of highway-speed electric trucks and sedans in about 18 months.

The new financing is expected to go to the facility, as well. ZAP said it issued 20 million shares of common stock in exchange for $5 million from Cayman Islands-based Cathaya Capital, which is backed by Paris-based Jaccar Holdings. Cathaya’s Hong Kong-based affiliate Better World Holdings plans to manage the investment.

In addition, Cathaya provided a secured convertible promissory note for up to $10 million, and received $8 million in warrants exercisable for common stock. ZAP also issued $2.5 million in warrants to new board member Priscilla Lu, who serves as general partner of Better World.

ZAP outsources its manufacturing and buys its batteries from outside vendors. The vast majority of ZAP's vehicles are manufactured in China, with assembly taking place in the U.S.

However, Schneider said the new Kentucky facility would allow ZAP to manufacture and sell its vehicles in the U.S. market. Those vehicles are also expected to be shipped to Europe to take advantage of incentives for electric vehicles from the governments in France, the Netherlands, Denmark and the UK (see French postal service to buy thousands of electric vehicles, Think goes Dutch, Project Better Place goes to Denmark and UK to spend £250M on electric car incentives). Schneider said the influence of new investor Jaccar Holdings will help build that dealer network.

The company also has a dealer network in Dubai through investor Al Yousuf Group, which contributed $15 million in ZAP through two investments (see Dubai's Al Yousuf Group invests in ZAP). Al Yousuf Group's subsidiary Al Yousuf Motors is a distributor of automobiles, off-road vehicles and boats. The investment group's namesake, Eqbal Al Yousuf, is now chairman of ZAP.

The company’s manufacturing is expected to continue in China, and Schneider said that a long-term goal is to sell EVs there. Last year, the company sold its stake in a joint venture with Youngman Automotive to build hybrid and electric cars because of the capital required for development, but Schneider said today that the sale wasn’t the end of the companies’ work together (see ZAP going big with China venture).

“The relationship is still a very important one, whether it will be the use of their license to manufacture vehicles, or whether to use them as a partner in the very near future,” Schneider said. “The relationship is as strong as ever. We haven’t sacrificed anything because of the delays.”

In addition to selling into the Chinese market, ZAP is also working on a joint venture to develop infrastructure to charge electric vehicles, a project being overseen by Priscilla Lu of Better World. Schneider declined to name ZAP’s partner in the JV but said it was “an extremely large, well-funded company that has more capability to put in infrastructure than anyone else we could come up with.”

The first goal of the JV would be to build the infrastructure to recharge electric taxis in a heavily populated province of China, Schneider said. ZAP plans to own a stake in the venture and contribute technology.

“They have the intention of putting in place a very large infrastructure solution that only China could achieve, and, once success is achieved there, they would take that technology and offer it to the rest of the world,” Schneider said.

For now, ZAP is working to sell its low- and medium-speed electric vehicles to fleet and government customers, including the U.S. Army and the state of Texas (see ZAP: Low price, not top speed, drives electric vehicle market). The company previously said it planned to sell 2,000 vehicles this year, and Schneider said the company “can probably still hit the target.”

ZAP has delivered more than 100,000 electric vehicles to consumers since 1994, with the vast majority being bicycles and scooters. Since June 2006, the company has sold about 1,000 of its Xebra model, a three-wheeled, $12,000 vehicle with a range of about 25 miles and a top speed of 40 miles per hour.

At an Ohio facility, ZAP is producing a limited number of hand-built two-passenger Alias vehicles, which are expected to cost under $35,000 and reach highway speeds. Schneider said ZAP is on target to produce the cars this year, but he isn't sure when the company will enter higher production levels (see ZAP to introduce brother of ZAP-X, and sooner).

In July, ZAP signed a distribution agreement with Advanced Battery Technologies to begin shipping electric vehicles with ABAT's large-format rechargeable lithium ion and lithium polymer batteries (see Advanced Battery to supply technology for ZAP EVs). Schneider said ZAP has taken delivery of the first 100 batteries to be used in scooters. Eventually, ZAP hopes to incorporate them in cars and trucks.

“We’re able to use scooters, motorcycles and ATVs as test beds for all types of technology that can be scaled up for automotive use, whether it’s batteries, controllers or motors,” he said.

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