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A push for greener cars could be good news for Ener1 (NASDAQ:HEV), a maker of pre-pay electric-vehicle batteries, but much depends on whether the company wins a federal loan. If it doesn't, Barron's Leslie P. Norton says the company faces an uncertain future.

The electric automobile sector carries the potential for strong growth. Ener1 estimates it could win 5-12% of a million-vehicle battery market, creating $2.1B in annual revenue with 15% margins. CEO Charles Gassenheimer sees the company with a $4.5B equity-market cap in that scenario. That's a far cry from Ener1's $480M stock market value last week, and its $7M in revenue last year.

At the center of Ener1's ambitions is a $480M loan it's seeking from the Department of Energy, with the goal of expanding its Indiana facilities. The company also hopes to apply for part of a $2B DoE grant from the Advanced Battery Manufacturing Initiative, part of Obama's stimulus package. According to Gassenheimer, the viability of the U.S. auto industry depends on the development of a high-tech domestic battery industry, since "the last thing we want is to trade dependence on foreign oil for dependence on foreign batteries."

Loan requests aside, Ener1's promise is tempered by several other problems. For one thing, it has just one major publicly disclosed customer: Think Global, a Norwegian electric-car maker that temporarily halted production last year. Another issue is Ener1's ownership. 62% of Ener1's outstanding shares are owned by privately held Ener1 Group, and 66% of Ener1 Group is held by a company whose 'indirect beneficial owner' is Boris Zingarevich, a Russian businessman with close ties to Russian President Dmitry Medvedev and Prime Minister Vladimir Putin. Foreign control theoretically shouldn't matter to the Department of Energy, but it is looking to foster an American advanced-battery industry, not a Russian-controlled one. This is especially true since advanced batteries are likely to have military uses in addition to civilian ones.

Regardless, Gassenheimer hopes the DoE loan will come through this year, but says the company has financing alternatives if it doesn't. Gassenheimer also says the company has more than 90 customers, though he won't name them.

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  • Last week, MBD Capital upgraded Ener1 to Buy with a price target of $5.50 vs. the stock's Friday close of $4.24. "We are revising our earnings model and now anticipate revenues in 2009 of $41M... and $77.5M in calendar 2010. With this revenue potential, we believe there is a high likelihood that the company could breakeven on a cash flow basis late in 2010 and as such deserves a higher valuation."
Source: Uncertain Times for Ener1 - Barron's