Santa Rosa, Calif.-based ZAP [1] (OTC: ZAAP [2]) CEO Steve Schneider spent many hours flying to China and waiting in airports to meet with Pang Qingnian, Youngman Automotive Group's chairman, but it was time well spent.

The two companies announced a joint venture today to build electric and hybrid cars on a large scale in a deal that could be worth billions.

Numbers are still being worked out. It's Youngman's turn to send a group to California in two weeks to iron out the details. But with seven new factories and a capacity to build 200,000 vehicles per year starting in 2008, this would be quite a boost for ZAP.

ZAP has sold 100,000 electric vehicles worldwide since 1994, including electric scooters, ATVs, motorcycles, cars, and trucks.

Youngman expects capacity of 300,000 in 2009.

Youngman, which is covering the manufacturing side of things, will hold 51 percent of the venture. Schneider said the value of the manufacturing is probably in excess of $1.5 billion. ZAP, handling marketing and sales, will hold 49 percent.

This isn't ZAP's first trip to the China. In July, the company made a deal to buy $5.2 million worth of polymer lithium and nano batteries from New York-based Advanced Battery Technologies, which maintains R&D and manufacturing facilities in Harbin, China (see ZAP makes battery deal [3]).

Jinhua City-based Youngman, which has 70 percent of the luxury bus market in China, has been manufacturing buses and trucks since 2004 for Asia, Europe, the Middle East, and the U.S.

The partnership has its roots in ZAP's and Youngman's relationship with Lotus Engineering, with Lotus CEO Albert Lam acting as matchmaker between the two companies.

Earlier this year, Youngman awarded a number of vehicle development projects to Lotus Engineering, and has since signed a vehicle distribution and technology licensing agreement with Proton, the Malaysian national car company and Lotus' owner, estimated to be worth several billion dollars.

ZAP also made a deal with Lotus earlier this year, announcing that it was developing a crossover SUV based on a Lotus Engineering platform (see the Cleantech Group's Look out Tesla... ZAP building electric supercar [4].)

Pang and Schneider, hands across the Pacific

With volume manufacturing, Schneider said ZAP's target is to not have any passenger vehicle over $30,000.

He spoke today with the Cleantech Group.

What kind of volume will you be producing under this venture?

We are going to be producing an entire line of electric vehicles, and hybrid vehicles, in probably the largest commitment, I think, in history to electric vehicles.

There are up to 60 different electric vehicle platforms available to this joint venture.

Not that we're going to do 60 platforms out of the gate by any means, but part of the business plan is to take what we want out of those 60 platforms and start to develop them as electric vehicles for sale in China, and the Middle East, and South America, and here in the United States.

Does this give you any markets that you weren't already in?

Well, it gives us the China market, of course. But what it really gives us is tremendous manufacturing capability. The China Youngman group is funding the lion's share of all of this, which is all of the manufacturing costs—the tooling, the dies, the molds.

And just in our ZAP-X alone, the market feasibility study called for a $300 million investment just for one vehicle platform. And we'll be introducing a dozen vehicle platforms out of the 60, most likely, including electric buses, trucks, vans, passenger cars.

And we're going to be able to produce them at pricing I don't think anyone in the industry will be able to compete with.

How were the two companies brought together?

The CEO of Lotus Engineering [Albert Lam] was with us the whole time in this transaction. It wouldn't have happened without him as middle man.

He put the deal together with Proton, the parent company to Lotus, and that was a deal that was worth billions, and this deal is quite a bit larger than that one.

The scale on which we're able to build cars and the markets that we're going to be building them for, and the pricing. It's a little difficult for me to give you some exact numbers because that's part of the business plan that's going to be developed here in the next three weeks.

Preliminarily, the numbers are quite large, and the capacity is very real. China Youngman is a privately held company, but their relationships at the central government level are at the top. In China, it's all about your relationships at the government level. And Youngman certainly has them.

So, our ability to actually do this is real, and the licensing they have is absolutely impossible to get in China now. They have a license to build every kind of vehicle, including cars, trucks, motorcycles, heavy equipment and buses. It's called a Series 7 license in China.

That, and their manufacturing capacity and financial capacity, made this a dream partner for us.

Continued on page 2 [5] ...