Business

How a Concord company landed millions in tax breaks despite questions over its finances

Swiss battery maker Alevo announced at a 2014 event that it would hire about 500 workers by the end of 2015, but hiring and production at the plant have lagged projections
Swiss battery maker Alevo announced at a 2014 event that it would hire about 500 workers by the end of 2015, but hiring and production at the plant have lagged projections ogaines@charlotteobserver.com

North Carolina officials repeatedly raised questions about the finances of a high-tech battery company before pledging millions of dollars in tax incentives for a Concord plant expansion earlier this year, documents obtained by the Observer show.

With great fanfare in 2014, Swiss-based Alevo took over the former Philip Morris cigarette plant in Concord, northeast of Charlotte. But hiring and production at the plant have lagged projections. The company also gained attention recently because a Russian billionaire has quietly become a major investor.

In February, N.C. Gov. Roy Cooper praised Alevo’s plan to add more than 200 jobs in Concord in return for $2.6 million in tax incentives over 12 years. But during months of negotiations, Commerce Department officials pressed the company for financial information and raised questions about whether it could pull off the expansion, emails and documents obtained through a public records request show.

“Did you have a discussion with the company re their losses???” commerce department official Stewart Dickinson asked a colleague only a day before the state approved the incentives package.

Hours later, Dickinson directed the colleague to add a provision requiring Alevo to submit annual financial statements and show positive cash flow before receiving any payments.

The documents and emails provide a window into how the state weighed taxpayer incentives for a company with a minimal track record. When recruiting jobs, state officials often target big-name public companies such as Mercedes or Boeing, where competition with other states is the main concern. In the case of Alevo, officials appear to have been more focused on evaluating the viability of a riskier startup.

The documents also give a glimpse of the financial health of the privately held company that has gained global attention for its promises to revolutionize the battery industry. During six months of talks, the number of planned jobs dropped by 40 percent and the proposed tax incentives fell by nearly 60 percent.

Under the incentives package, the state only makes payments once the new jobs are created. The company is also receiving more than $10 million in performance-based incentives from the city of Concord and Cabarrus County, plus about $303,000 for employee training.

Beth Gargan, a commerce spokeswoman, said the agency couldn’t comment on the financial situation of a private company but said it’s customary to request annual financial information. The department wants “to make sure that companies that receive state incentives stay financially sound,” she said.

Gargan said she didn’t have details on why the job number changed, but said it’s “very common in the extended time period that we work with companies.”

Scott Schotter, Alevo’s chief marketing and sustainability officer, said the company looks forward to continuing to grow in Concord in line with the state’s Job Development Incentive Grant, or JDIG, program.

“Alevo is on track to meet or exceed the job creation requirements of the program and is delighted that it chose a state with such a robust and technical workforce,” Schotter said in a statement. “It is important to note that all incentives are performance-based – if Alevo does not meet or exceed the requirements agreed to with the state, the state will not disburse any grant money.”

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Russian connection

Alevo (pronounced a-lay-vo) aims to shake up the energy industry by selling boxcar-sized batteries that store excess electricity generated by power plants. The company’s innovation is an inorganic electrolyte that means its lithium-ion batteries won’t catch fire or explode.

The company’s decision to launch a new factory in the former Philip Morris campus was a boon for local officials who had seen thousands of jobs and tax dollars depart when the tobacco giant shut down operations there.

Alevo founder Jostein Eikeland is a Norwegian entrepreneur whose business career has seen hits and misses. His website portrays him as a pioneer in cloud computing, but he also helmed a company that filed for bankruptcy in 2008. He has faced questions about his taxes in Norway, although an Alevo spokesman told McClatchy last month that he no longer has any liabilities in that country.

As Eikeland has built the company, he has needed more capital to expand operations. Enter Dmitry Rybolovlev, a Russian oligarch who made his money as a fertilizer magnate. Now the owner of a Monaco soccer team, he has gained notoriety for an expensive divorce and for buying Donald Trump’s Palm Beach mansion in 2008 for about $100 million.

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Russian billionaire Dmitry Rybolovlev is a major Alevo investor. AP Lionel Cironneau

In recent months, the Russian also set the Internet abuzz over a visit he made to Charlotte last fall at the same time then-candidate Trump was in the city for a campaign event. Their planes parked near each other on the airport tarmac, generating questions about another possible Trump tie to Russia. But a Rybolovlev spokesman has said the Russian was in town to check on Alevo and hasn’t met Trump.

Eikeland stepped down as Alevo’s CEO in May 2016 but stayed on as executive chairman. At the time, he faced health problems from which he has since recovered, the company has said. In March, after North Carolina had already granted its incentives, Alevo announced a new CEO, Rybolovlev associate Vladislav Baumgertner.

With then-Gov. Pat McCrory on hand, Alevo in October 2014 said it planned to hire 500 employees at its Concord plant in its first year. So far, the company has about 215 workers, a number that is set to nearly double with the planned expansion.

The company announced in March 2016 that its first “GridBank” battery deployment would be in the Delaware city of Lewes. But 13 months later it has yet to deliver on what it called the “largest energy storage system” in the state. The general manager of Lewes’ public works department, Darrin Gordon, in a brief email said: “They don’t have the batteries installed yet.”

A single GridBank battery does appear to be in operation in Hagerstown, Md. Energy stored in the giant battery can be injected into a private electrical distribution system there, said Michael Spiker, utilities director for the city.

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A Gridbank made by Alevo at their manufacturing facility at the old Philip Morris cigarette plant in Concord in 2016. Robert Lahser rlahser@charlotteobserver.com

David Doctor, CEO of the Charlotte-based energy trade group E4 Carolinas, called Alevo an “extraordinary startup.” But he said the company faces challenges in rolling out its products, including state-by-state regulations in the U.S.

“The scale is large, and it requires very, very large capital investments,” Doctor said. “You can expect that with such a large undertaking that their progress is going to be uneven.”

Wait for financials

Alevo’s efforts to secure tax incentives began heating up in August 2016, according to the documents.

Consultants hired by the company contacted the Economic Development Partnership of North Carolina, the public-private group that spearheads recruiting in the state, and officials responded quickly. They codenamed the effort Project Grid, a reference to the company’s batteries.

Alevo told the state it was looking to make a $259 million investment in Concord, adding 345 jobs at an average salary of $95,729. While the company had already started operations in North Carolina, China was willing to offer incentives to lure the company to that country, a memo on the project states.

Soon after officials toured the Concord plant in September, Ryan Nance, a recruiter with the partnership, sent an email to a commerce department official saying Alevo’s finance chief needed “to get a proposal from NC quickly, and their hope was that it be significant.” Days later, Nance offered a $6.3 million grant.

“The circumstances of this opportunity are outside the realm of usual grant consideration, but the state recognizes the level of investment and enormous potential this technology could have on the market both domestically and abroad,” Nance wrote in an email to the consultants.

Mary Wilson, a spokeswoman for the partnership, said the “outside the realm” comment didn’t refer to the company’s finances but did not elaborate.

To get the tax incentives, there was a catch: Alevo needed to provide three years of financials for review. It would take weeks to get the numbers.

Still waiting in early November, Dickinson, the commerce department official, told Nance the company couldn’t apply for a grant until the state determined whether Alevo has “the financial capacity to do the project.”

About a month later, consultants for the company sent statements, but Alevo’s U.S. subsidiary only had audited numbers for 2015. As a new company, it didn’t have three years of financials, one of the Grant Thornton consultants wrote.

In early December, the state told Alevo it now needed to provide three years’ worth of numbers from its Swiss parent. The U.S. statements “do not support a (grant) application,” Nance wrote.

Fewer jobs, lower incentives

In February, the city of Concord and Cabarrus County approved a total of $10.6 million in incentives for the project. But on Feb. 27, only a day before the state’s Economic Investment Committee was set to vote on its package, state officials still had questions.

That’s when Dickinson emailed a colleague, Mark Poole, asking if he had discussed Alevo’s losses with the company. Poole forwarded an email with the company’s response, which was blacked out in the records provided to the Observer. Dickinson then told Poole to add the additional terms to Alevo’s grant. A commerce spokesman said posting losses doesn’t disqualify a company from getting a grant.

The committee approved $2.6 million in incentives the next day, down from the original $6.3 million offer. Alevo now planned 202 jobs and a total investment of about $251 million. Average wage for the jobs would be $56,327 – a drop of 41 percent from what the company originally outlined.

Announcements touting the expansion went out soon after.

“It’s exciting that a global company like Alevo chooses to manufacture its cutting-edge energy storage products right here in North Carolina...,” Cooper, who had been elected during the recruitment, said in a news release. “We need to continue to recruit and train for 21st century jobs like these.”

Kevin G. Hall in the McClatchy Washington Bureau contributed

Rick Rothacker: 704-358-5170, @rickrothacker

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