Skip to main content

The Globe and Mail

Magna E-car gets $12-million investment boost from Hyundai

Magna International Inc. founder Frank Stronach at the company's AGM in 2011. While not with Magna any more, Mr. Stronach is an investor in the parts maker's Magna E-car project, which has inked a joint venture deal with Hyundai of South Korea.

Adrien Veczan/Reuters/Adrien Veczan/Reuters

As Magna International Inc. assesses the future of its investment with founder Frank Stronach in Magna E-car, the joint venture electric-vehicle business will receive a $12-million boost from Hyundai Heavy Industries Co. Ltd.

Magna E-car and Hyundai are setting up a joint venture that will own a research and development facility the electric vehicle company has established in Aurora, Ont., to experiment with battery cells as auto makers develop battery-powered cars and trucks.

"We've invested roughly $30-million; they're going to take 40 per cent," John Simonetti, Magna E-car's chief financial officer said Monday. "What this does is put $12-million of cash on my balance sheet."

Story continues below advertisement

Magna E-car assembles the battery packs that hold the cells and link the battery power with the rest of a vehicle, but so far is just doing research on cells.

"If we can make our own better next-generation cell, so be it, we'll invest the money in a manufacturing facility and away you go," Mr. Simonetti said from South Korea, where he signed the deal with Hyundai.

Magna holds 73 per cent of the E-car partnership with Mr. Stronach, but he controls the joint venture, which was set up as part of the $865-million (U.S.) buyout of his controlling interest in Magna in 2010. He invested $80-million for the controlling stake while Magna contributed another $145-million in cash and assets related to vehicle electrification that Magna had previously held.

While sales have risen for three straight years – to $92-million last year from $5-million in 2009 – losses before interest and taxes have also risen. Losses deepened to $91-million last year from $45-million in 2009.

That's fairly typical for companies in a startup mode, especially with just a relative handful of electric vehicles on the road in North America.

While auto makers spend tens of billions of dollars to develop battery-powered vehicles and other new, more fuel-efficient technologies, the difficulties facing suppliers of the components were underlined last week when Azure Dynamics Corp., was granted protection from creditors under the Companies' Creditors Arrangement Act.

The company, which is based in Burnaby, B.C., and is listed on the TSE, has much of its operations in the United States and is a key supplier of components to Ford Motor Co. for the auto maker's battery-powered version of the Transit Connect commercial van.

Story continues below advertisement

Azure noted in court filings that sales of battery-powered Transit Connects were forecast at 410 in the fourth quarter of 2011, but totalled just 176.

Magna has deep pockets with more than $1-billion in cash, but it warned last week in the proxy circular for its annual meeting that "it does not intend to extend equity funding for E-car on a pro rata basis under the current ownership structure."

Magna E-car will require additional funding in 2012, Magna noted, possibly as early as the current quarter.

As a result, a special committee of independent directors was set up in February to explore the options Magna has for its investment in Magna E-car.

The special committee chairman is independent director William Young.

Report an error Licensing Options
About the Author
Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More

Comments are closed

We have closed comments on this story for legal reasons. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.