Zenn edges closer to electric-car battery: analyst

OTTAWA (Reuters) - Zenn Motor Co appears a step closer to its goal of making electric car drivetrains, a Paradigm Capital analyst said on Friday, but he halved his stock target citing the prolonged wait for a key component.

To build and sell its drivetrain, Zenn, a developer of zero-emission automotive technology, first needs a potentially groundbreaking battery, or energy storage unit (ESU), currently being developed by privately held EEStor Inc.

EEStor’s delivery of a production-quality battery is the last of four milestones tied to a final $500,000 in Zenn funding. The Toronto-based company has already invested $7.5 million in EEStor and owns a 10.7 percent stake.

The battery promises to power a car up to 400 km (250 miles) on one charge and can be recharged in minutes rather than hours.

Investors had anticipated delivery by the end of 2009, but low-profile EEStor, which is not obliged by contract to meet a deadline, has yet to give Zenn a prototype.

“We understand that EEStor has been making rapid and numerous strides toward delivering a pre-production ESU to Zenn and that the unit delivered will be consistent with Zenn’s specifications,” Paradigm analyst Marvin Wolff said in a note.

“Zenn management remains confident that EEStor will deliver a pre-production ESU to Zenn in ‘the not-too-distant future’.”

Citing the delays, Wolff cut his one-year target price to C$5.45 from C$10.90.

Several blogs this week said that EEStor was granted a U.S. patent related to the use of ESU technology for power averaging on utility grids.

The battery is a potential “silver bullet” for Zenn, whose stock has taken a nosedive over the past two years as investors lost faith in the company’s promise. Trading as high as C$6.89 in early 2008, the stock was worth C$2.30 on the TSX Venture Exchange on Friday, up 22 Canadian cents.

Wolff has a “buy” rating on Zenn shares because test results on EEStor’s technology development to date have eclipsed the performance of other electrical storage units.

“While development risks still exist, we believe one of the larger risks of this technology has been overcome,” Wolff wrote.

Zenn has exclusive global rights to sell the battery for mid-sized vehicles under 1,400 kg (3,086 pounds) and to retrofit vehicles more than one year old.

Thomas Weisel Partners analyst Dilip Warrier cut his sales estimates and chopped his stock target to C$2.50 from C$5.00 after Zenn reported quarterly results last week. He cited “increased uncertainty” of the battery being commercialized.

“With no incremental news on the EEStor front, we remain neutral on Zenn until we see evidence of progress toward a commercial (battery) prototype and obtain a better understanding of the company’s business model moving forward,” he said in a note.

($1=$1.06 Canadian)

Reporting by Susan Taylor; editing by Rob Wilson