August 24, 2010 / 4:40 PM / in 8 years

UPDATE 2-Zenn stock sags on worries over EEStor project

* Zenn denies it is distancing itself from EEStor

* Analyst says broader patents a positive for shareholders (Recasts with stock drop; fresh analyst comment)

By Nicole Mordant

VANCOUVER, Aug 24 (Reuters) - Shares of Zenn Motor Co Inc ZNN.V fell 14 percent on Tuesday on investor concerns the maker of drivetrain components for electric vehicles was distancing itself from its much-hyped battery supplier, EEStor Inc, despite denials from Zenn.

Pouncing on statements in Zenn’s quarterly results statement on Monday, blogs and websites were full of chatter the firm was looking for partners outside of EEStor, a privately owned company that is developing what is promised to be breakthrough battery technology.

Until now Zenn, a tiny Toronto-based developer of zero-emission vehicles, has tied its future almost exclusively to low-profile, Texas-based EEStor.

The long-awaited battery, or electrical energy storage unit as it is known, could revolutionize the electric car industry if it lives up to predictions of being able to power a vehicle up to 400 km (250 miles) on a single charge and recharge in minutes rather than hours.

“In my opinion people are reading too much into the (Zenn) press release because there isn’t very much to read,” Paradigm Capital analyst Marvin Wolff said.

In a statement accompanying its quarterly results, Zenn said on Monday that it is “actively engaged” in trying to forge relationships or invest in, “third-party companies that can provide complementary technologies”.

The company also said it is pursuing a number of patents that could work with both EEStor and non-EEStor systems.

“This is a huge potential positive for Zenn shareholders. If the company has something covered by a patent, I want it to be as broad as possible,” Wolff told Reuters.

Earlier on Tuesday Zenn spokeswoman Catherine Scrimgeour said “nothing has changed” between the company and EEStor and that people were “misinterpreting” Monday’s press release.

“Management is still very confident in EEStor”, she said.

She added that a lot of the work Zenn has been doing while developing its drivetrain technology could be used with other applications and it would be a waste not to capitalize on it.

“If there is an opportunity to patent some of this expertise ... into something that can work for us, even though it is perhaps outside the EEStor box, we are going to pursue that,” she told Reuters.

Zenn was a darling of the stock market a couple of years ago when its stock soared close to C$7 on high hopes for the EEStor unit.

But the continued wait for delivery of a production-quality battery, and silence from EEStor, has seen Zenn’s shares slide.

By mid-afternoon on Tuesday the stock was down 30 Canadian cents or 14 percent at C$1.80.

Zenn has exclusive global rights to sell the EEStor unit for mid-sized vehicles under 1,400 kg (3,086 pounds) and to retrofit vehicles more than one year old. It owns a 10.7 percent stake in EEStor.

Investors had anticipated delivery of a battery by the end of 2009, but EEStor is not obliged by contract to meet a deadline.

Zenn halted production of its low-speed electric cars earlier this year. The vehicles were typically used in controlled-access areas such as campuses, parks or retirement communities, where speeds are lower than on public roads.

$1=$1.06 Canadian Editing by Rob Wilson

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