SOCIAL: long article about Zap electric cars

[brian kusler]

waaaay back in the day i acutally used to own stock in them. luckily i  
didn't lose any cash like the guy in this story...



Published Monday, March 24, 2008, by Wired

Hype Machine: Searching for ZAP's Fleet of No-Show Green Cars

By Randall Sullivan

In September 2006, Ehab Youssef, an intellectual property lawyer in
San Jose, California, was shopping for a new car. With gas prices
surging above $3 a gallon and headlines warning of a disappearing
ice cap, Youssef and his wife were looking to offset their Toyota
Land Cruiser with something more fuel-efficient. One day, while
researching vehicles on the Web, he came across ZAP Corporation
<http://www.zapworld.com>.

A small California company, ZAP seemed to be doing what Detroit
couldn't: bringing environmentally friendly cars to the masses. For
starters, ZAP was selling the Xebra, an electric three-wheel buggie
imported from China. The Xebra wasn't quite ready to take on the
freeways of Silicon Valley, but it was cute and cost less than
$10,000. Then there was the Obvio 828, a sleek vehicle from Brazil
capable of running on pure ethanol. It was expected to reach
showrooms in 2007. ZAP also had a $99,000 fuel-cell vehicle called
the Worldcar in the pipeline, and the company said it would soon be
selling the Smart Fortwo — the dramatically designed, Mercedes-
engineered micro-vehicle from DaimlerChrysler. The Fortwo ran on
gasoline but got 37 miles to the gallon and fit in nicely with
ZAP's eco line.

The topper, however, was the ZAP-X. Youssef learned about the
company's planned supercar from ZAP's chair, Gary Starr, when he
visited the company's headquarters that fall. The all-electric
crossover SUV — due sometime in 2007 — would not only produce 644
horsepower, rocketing it from 0 to 60 miles per hour in a Ferrari-
esque 4.8 seconds, but would travel 350 miles on a single 10-minute
charge.

Youssef was no longer just shopping for a car; he was ready to change
careers. In November, he and his wife plunked down $100,000 for a ZAP
franchise territory covering most of Los Gatos, a wealthy town near
San Jose. "We felt that we could do something that was not only good
for society but also profitable for us," Youssef says.

The first disappointment came in January, when Youssef went to ZAP
headquarters to pick up the new Smart car he intended to drive as
his personal vehicle. There were "some problems" getting Smart cars,
Starr told Youssef. What Starr didn't say was that DaimlerChrysler
had told ZAP more than a year earlier that it wouldn't sell the
California company any of its vehicles.

Youssef was frustrated, but he still believed in ZAP's vision. "I
thought, Well, OK, at least they have these great new vehicles
coming out — the Obvio and the ZAP-X. And the Xebra cars, which are
available now, do incredible things for under $10,000.'" It wasn't
long, though, before Youssef learned that the Obvio was not coming
anytime soon.

Even more crushing, Youssef discovered that the all-electric Xebra
sedan did not come close to achieving the 40-mph speed and 40-mile
range ZAP claimed. In fact, the Xebra "went about 34 miles per hour
on very flat ground with the wind behind it," Youssef says. It
stalled on steep hills and, worst of all, had a range of less than
20 miles. When he complained that it would be impossible to sell
an electric vehicle with such limited range, Youssef says, he was
referred by ZAP's dealer liaison to a larger and more powerful
battery set; with that installed, the Xebra would go almost 40 mph
and travel nearly 40 miles on a single charge. "Only they wanted
us to pay for the battery upgrade out of our own pockets," recalls
Youssef, who realized that after expenses he would be making, at
most, $100 per vehicle.

Youssef tried to persevere. The ZAP-X was in the news, and he was
getting as many as 20 calls a day from people asking to sign up for
the supercar. In February 2007, he asked when exactly the company
intended to begin delivering the ZAP-X. "Gary Starr told me, Well, it
may be two years out, it may be four years out, it may never happen.'
I was stunned," Youssef recalls. "That was when I realized what an
idiot I had been to trust this guy."

He was hardly alone. Over the years, ZAP has taken millions from
investors and dealers eager to see the company's line of green cars
hit the road. But that line has never materialized. Of nearly a dozen
groundbreaking eco-vehicles ZAP has promised in public announcements
and on its Web site, only the Xebra and its sibling, a truck version,
have ever made it to market. As a result, fans of electric cars have
grown disillusioned, while individuals like Youssef have been
financially devastated. What's more, investment firms around the
country have become cautious about financing electric vehicles after
being repeatedly misled by one of the industry's most visible
companies.

In spite of all this, the pair now running the company, Starr and CEO
Steve Schneider, enjoy lucrative employment packages that have made
them millions. Their compensation — and ZAP's continued existence as
a business — heavily depends on the continual issuance of new stock
shares. And although ZAP has earned an annual profit only once in its
16 years of existence (even that was the result of a one-time debt
conversion) and its stock has been delisted from the New York Stock
Exchange, Nasdaq, and the Pacific Stock Exchange, Starr and Schneider
have managed to keep ZAP shares from becoming worthless. They've
achieved this almost entirely through a relentless flow of press
releases in which ZAP describes itself as "a world leader in electric
transportation" and constantly claims to be on the verge of
innovations and business deals that will yield breakthroughs in green
transportation — claims that consistently fall short.

None of this would be possible without the optimism and naïveté of
those eager to put their faith in the electric car future. When it
comes to green technology, some people just want to believe. It's
easy to see why: Electric cars, after all, don't run on gas, so they
produce virtually no emissions. They do consume some fossil fuels,
since they charge their batteries from the grid, which mostly uses
coal and natural gas to generate power. But because electric cars are
more efficient than gas cars at turning energy into miles, their
carbon footprint averages out to be 50 to 90 percent less than that
of traditional vehicles. (And that figure drops to nearly zero if the
car is plugged into a renewable energy source like a solar panel
array.) Electric cars could decrease dependence on oil, reduce global
carbon emissions, and save consumers money. But while Honda, Toyota,
Nissan, Ford, and General Motors all toyed with electric vehicles in
the '90s, these companies had effectively ended development by 2003,
when California stopped requiring automakers to offer zero-emissions
vehicles. Since then, electric car enthusiasts have been forced to
pin their hopes on small independent companies — like ZAP.

"They tug at your heartstrings," says Joseph Gottlieb, a ZAP dealer
from the San Diego area who has filed an official complaint against
ZAP with the Securities and Exchange Commission. "If ZAP was in any
other business, the company would have been dead long ago. But they
keep taking advantage of how much environmentalists — like me — want
to see electric cars come to market."

ZAP declined to comment on the allegations in this article on several
occasions. Starr and Schneider cut off communication with Wired when
they learned "the direction you're going with this story," as
Schneider put it. Wired also ran the major points of the story by a
PR consultant working for the company, but ZAP again declined to
address most of the issues raised here. Schneider will only say that
he and Starr never knowingly committed any illegal acts. While
"mistakes have been made," he admits, "it's all been based on trying
to make the company work."

ZAP began as the vision of the aptly named Jim McGreen. In 1991,
McGreen, then 38, was looking to start a business that would be
"both green and profitable." A consummate garage inventor, he began
building and selling parts and kits for electric bicycles. The next
year, McGreen launched ZAP Power Systems (for zero air pollution),
his electric vehicle company.

Based in Alameda, across the bay from San Francisco, McGreen was
looking for cash to expand his operation when he met Gary Starr. A
short, wiry fellow with bushy brown hair and a habit of giggling at
awkward moments, Starr had founded the electric vehicle division of
Solar Electric Engineering, a struggling solar cell company based in
Sonoma County, California, in 1983. After settling in Santa Rosa, the
company changed its name to US Electricar in February 1994. Soon
thereafter Starr was asked to leave, according to a former company
executive.

McGreen knew only that Starr had departed US Electricar with a pile
of cash and was looking for investment opportunities. "There were a
lot of money people who came to Jim," McGreen's wife, Nancy Cadigan,
says, "but Gary was the first one who wrote a check."

On September 21, 1994, ZAP filed incorporation papers. There were
four people on the board of directors: McGreen, Cadigan, Starr, and
Starr's wife, Susan. The next year, ZAP moved to Sebastopol, a hamlet
just west of Santa Rosa. In the fall of 1996, ZAP made a direct
public offering of its stock, eventually netting over $2 million.

In 1997, McGreen invented the Zappy, a two-wheeled stand-up scooter
with a top speed of 15 mph. It quickly became a national
sensation. "When Kevin Spacey rode it on Letterman's show, we felt
like screaming," Cadigan recalls. "Edward Norton was calling me,"
McGreen says, "saying he wanted his Zappy to be faster than
Spacey's."

In 1998, ZAP sold more than 2,000 scooters at $650 a pop — for a
total of $1.4 million. But the company still wasn't making a profit,
and tensions started to grow between Starr and McGreen. Starr wanted
to relocate manufacturing to Asia to cut costs, but McGreen worried
quality would suffer.

Starr, who had persuaded investors to support the expansion of ZAP's
board to seven members, decided to push McGreen out. In September
1999, the board voted five to two (McGreen and Cadigan being the only
dissenters) to remove McGreen as president and CEO. Gary Starr was
now in charge.

Under starr, ZAP all but collapsed. The trouble started right away:
Between December 1999 — the month McGreen officially resigned from
the board — and April 2000, ZAP's stock price dropped from an all-
time high of $13 a share to $5.50. This fall was fueled in part by
the company's botched attempt to purchase a North Dakota-based
electric cart maker named Global Electric Motorcars.

To repair the damage, ZAP's new board brought in electric-vehicle
veteran John Dabels to manage operations with Starr. Dabels, who was
appointed president in June 2000, made rapid progress: In just seven
months, year-on-year sales more than doubled. But Dabels, like
McGreen before him, fought with Starr over moving manufacturing to
China and resigned in January 2001.

As always, Starr was hungry for more money. But a deal he started
shortly before Dabels left ZAP would soon make raising capital almost
impossible. According to Scott Cronk, ZAP's chief engineer at the
time, Starr told the board that the investment group Union Atlantic
was going to buy several million dollars worth of ZAP stock. The
plan, Starr said, was for Union Atlantic to quickly sell the shares
if the price increased. Starr assured the board, however — according
to both Cronk and Dabels — that Union Atlantic couldn't sell below a
certain price.

By the summer of 2001, with Dabels gone and the threat of Zappy
knockoffs hurting ZAP's share price, Union Atlantic had started
unloading its investment. In September, the share price fell below
50 cents, but the sell-off continued. "That's when we all knew there
was no floor," says Cronk, who resigned a short time later.

By 2002, the company had laid off 80 of its 100 workers and moved the
bulk of manufacturing to Taiwan. Cheap Zappy copies from Asia soon
flooded the market. "ZAP was still selling the Zappy for $500," Cronk
says, "while Wal-Mart was offering knockoffs for a quarter of that."
Annual revenue, which had reached $12 million in 2000 under Dabels,
was down to less than $5 million. Operating expenses, on the other
hand, continued to rise.

With its stock price decimated and its sales sinking, ZAP filed for
Chapter 11 bankruptcy reorganization on March 1, 2002. The company's
stock was suspended by Nasdaq with a final share price of 21 cents.

Convinced that Starr had destroyed the value of the options he and
other employees had taken in lieu of higher salaries, Cronk contacted
the SEC in May 2002, faxing a detailed summary of concerns to the
agency's San Francisco office. In his complaint, Cronk alleged that
Starr had guaranteed Union Atlantic a return and cost the company $25
million in market capitalization. Cronk also provided the SEC with a
chart correlating the decline of ZAP's stock price with the Global
Electric and Union Atlantic deals, which he said were promoted with
false or misleading press releases.

Cronk says an SEC rep told him that the agency was swamped with
complaints against small-cap companies and might not be able to take
immediate action. Pat Huddleston, a former enforcement branch chief
with the Atlanta office of the SEC, isn't surprised. "Because of its
limited resources, the SEC has to target bigger companies first,"
says Huddleston, who now runs the site Investor's Watchdog. "The
commission simply can't investigate all the companies it should." SEC
spokesperson John Heine will say only that the commission refuses
comment "on any case other than those in which we have filed a
complaint."

In July 2002, ZAP emerged from the Chapter 11 reorganization with
Starr as ZAP's new board chair. This position would permit him to
bring in a new partner, Steve Schneider, a used-car dealer with
stable cash flow and his own grandiose ambitions. Their new direction
would drastically reshape ZAP, enrich both men, and leave a new round
of green believers feeling burned.

Schneider is handsome and charming, though he can come across as the
used-car salesman that he is. In the late 1990s, he made his living
as owner of the Repo Outlet, a lot specializing in automobiles that
had been seized for nonpayment. The business is a quarter-acre of
asphalt just beyond the city limits of Santa Rosa in a neighborhood
inhabited primarily by working-class Latino immigrants. Repo Outlet
did well, but Schneider's methods were sometimes questionable.
According to the Santa Rosa Press Democrat, in 1997 the Sonoma County
District Attorney sued Schneider's enterprise for selling unsafe
vehicles and engaging in misleading advertising. Schneider settled
for $9,382. Then, in 2001, the business was fined $40,000 by the
state of California for importing uncertified Volkswagen Beetles from
Mexico.

Schneider joined ZAP while it was going through bankruptcy
proceedings. The idea was that Schneider, as a car guy with steady
income, would help the company move from electric scooters and bikes
to selling full-blown electric cars.

ZAP purchased Schneider's business with stock (which it also used
to pay off its creditors), giving him 39 percent of the company and
making him the largest single shareholder. Since Starr held on to
16 percent of ZAP, the pair were now in control of the company.

In April 2003, ZAP relocated its headquarters to one of the most
historically significant buildings in Santa Rosa, which the company
purchased with stock, warrants (the right to buy stock at a preset
price), and a $2 million note. In fact, according to SEC filings,
after the bankruptcy ZAP began using stock to cover a range of
expenses, from legal fees and advertising to "janitorial services."
As it happened, Schneider and Starr had written themselves employment
agreements — still in effect today — that allowed them to issue stock
freely: Every year, each receives "a grant of stock options or
warrants equal to 1 percent of the outstanding common stock of ZAP."
In other words, the more shares ZAP issues, the greater the number of
options or warrants the duo gets annually. "This is the sort of thing
that can happen when the officers of a company control its board of
directors," says Huddleston, the former SEC enforcement branch
chief. "Investors should realize that, unless they're prepared to
read and understand SEC filings, they can't possibly understand what
they're getting into with a company like this."

Although Schneider boasted about how little he was paid as CEO of a
publicly traded company ($74,100 in 2003, ZAP's first full year of
business after emerging from bankruptcy), the truth was that his
portfolio, like Starr's, was expanding. Schneider's holdings of
stock, warrants, and options ballooned from the 2,822,222 shares he
received after the bankruptcy deal to more than 14 million in 2004.
Starr's holdings rose from around 1 million shares to more than 5
million during this period.

Such massive issuances of purchase rights dilute the stock, of
course. In fact, even as their holdings increased, the percentage of
Starr and Schneider's stake in the company had actually slightly
declined. And all those warrants and options weren't worth very much
at the beginning of 2004, when ZAP stock was trading at a mere 60
cents a share. But soon a wave of press releases promised new
business connections and potential acquisitions. That was on top of
the introduction of new vehicles, like the remarkable $99,000 fuel-
cell Worldcar that ZAP said it would soon be importing. All the
attention helped push ZAP's stock to $1.85 a share by May. The share
price jumped to $2.60, though, after Schneider announced later that
month that DaimlerChrysler Smart cars — all but unavailable in
America — would soon be sold through "ZAP dealers in select states."

In the fall of 2004, Steven Kim, an analyst at the Bank of New York,
flew to California to hear Steve Schneider lay out the company's
ambitious Smart car plan. Kim was so impressed that he decided to
take a pay cut of more than 50 percent and relocate to become ZAP's
director of investor relations. He was convinced that the stock
options he received as a signing bonus would more than make up the
difference in his salary.

For the first few months, the news was good. ZAP had managed to
purchase roughly 100 imported Smart cars from a US dealer and
reported that they were being converted to meet US emissions
standards at a plant in Southern California. Once it secured approval
from the EPA, ZAP planned to begin selling Smart cars to American
customers by mid-2005 at the latest. The only sour note, Kim says,
came when several institutional investors he knew refused to buy ZAP
stock, citing the company's history of promising things it couldn't
deliver.

In January 2005, Schneider created a sensation at the annual
convention of the National Automobile Dealers Association. Standing
in front of a gleaming new Smart car, Schneider offered dealers the
opportunity to take delivery of the micro-vehicles within the year,
and returned to Santa Rosa claiming $55 million in purchase orders.
Soon, investors all over the country began to pony up as much as
$150,000 to secure their territorial rights as ZAP dealers.

Though ZAP still hadn't sold any Smart cars, Schneider was styling
himself as an auto industry big shot. He and Starr tooled around
Santa Rosa in cars that were hardly the eco-vehicles ZAP promoted — a
Porsche for Schneider and a BMW for Starr. And under Schneider's
leadership, ZAP started recruiting a team of attractive young
women. "Get Known as a ZAP! Girl," urged the heading on an
application asking for both a full-body photo and head shot. At
zapgirls.org, the company depicted the life of a ZAP! Girl as one of
almost constant parties and public promotions. Photo galleries
provided "the Latest, Hottest Pics of ZAP! Girls in Action."

The ZAP! Girl-in-chief was Renay Cude, who, according to former
employees, including a president and a director of consumer products,
had been engaged in a romantic relationship with the married
Schneider for several years. (Cude declined to comment for this
article.) The two allegedly became involved during the Chapter 11
reorganization, when Cude was working for the attorney who
represented Schneider. The affair was an open secret at ZAP
headquarters, where Cude rose rapidly through the ranks. She had
earned an associate's degree in general education from Santa Rosa
Junior College but now served as ZAP's corporate secretary. She also
had a seat on the ZAP board, which included Starr and Schneider among
its five members, allowing the trio to exercise control of the
company. And Cude, now 31, received the same generous package of
options and warrants as Schneider and Starr.

While ZAP execs worked at getting the Smart cars it already owned to
pass US emissions standards, company reps traveled to Germany on
March 21, 2005, to propose a direct relationship with
DaimlerChrysler. Daimler executives heard the pitch but said they
wouldn't consider a deal until ZAP signed a nondisclosure agreement
and revealed more about its plans. Schneider refused to sign the
agreement. Instead he simply submitted a purchase order to Daimler
for 76,500 Smart cars — worth more than $1 billion. Never mind the
fact that ZAP had only a few million in cash and the garage it was
using to bring Smart cars up to US standards could convert only
15,000 vehicles a year.

The audacious move was met with silence. "Steve heard nothing," Kim
recalls. "It was obvious the company was blowing him off." Early on
the morning of May 24, 2005, ZAP turned up the pressure, publicly
announcing the deal with a florid press release. Later that day,
DaimlerChrysler informed Reuters that the company had no idea what
Schneider was talking about. Two weeks later, DaimlerChrysler made
its first formal statement regarding ZAP. Ulrich Walker, head of
DaimlerChrysler's Smart division, said he and his associates had
decided not to sell any Smart cars to ZAP. The automaker had taken a
closer look at the California company, Walker explained, and "decided
that we do not want to have any kind of business relationship with
ZAP, either now or in the future."

By June, after touting its Smart car distributorships for more than a
year, ZAP had sold just one of the vehicles. Nevertheless, Schneider
told the Press Democrat that ZAP was negotiating with unidentified
secondary dealers for the purchase of Smart cars to meet US demand
and even claimed ZAP would begin delivering vehicles to dealers
within the week.

Eventually, ZAP would manage to buy and sell just over 300 Smart cars
through the gray market. But without Daimler's support, ZAP wouldn't
come close to delivering as many cars as the company had promised.

In October, ZAP sued DaimlerChrysler in Los Angeles County Superior
Court. In the complaint, ZAP claimed that it had been "systematically
targeted for destruction by one of the world's largest auto industry
conglomerates." More specific charges included defamation and unfair
business practices; ZAP was seeking more than $500 million in
damages. DaimlerChrysler filed a motion to dismiss the lawsuit,
declaring that ZAP's behavior revealed "both the sham nature of its
purported business and a lack of trustworthiness that is nothing
short of stunning." Daimler's filing also said that the company's
Smart division never had any intention of engaging in a partnership
with ZAP, despite ZAP's "misleading press release clearly issued to
create the false impression that ZAP would have a steady supply of
Smart vehicles." In June 2006, a superior court judge ruled that ZAP
had no jurisdiction to sue Daimler in a California court. (ZAP lost
its appeal and is taking its case to the California Supreme Court.)

Meanwhile, ZAP was turning to other ventures. Just prior to filing
the lawsuit, the company announced it had signed an agreement to
become the exclusive US distributor for the Obvio 828, a Brazilian
subcompact under development that would run on gas, pure ethanol, or
a blend of the two. ZAP said it planned to start selling
the "trybrid" in 2007.

Disillusioned, Kim was preparing to resign when he learned the
company had hired a new consultant: Max Scheder-Bieschin. "I did some
research on Max and found he had amazing credentials," says Kim, who
was impressed with his track record at Deutsche Bank in Germany. "I
thought I'd stick around and see what happened."

A tall, trim triathlete with an easy smile and elegant manners,
Scheder-Bieschin grew up in New York, earned his bachelor's in
economics at Stanford, and worked for several years in Europe. He
moved to Sonoma County in 2005 at the behest of his wife, who had
family nearby, and followed the Smart fiasco at ZAP through the pages
of the Press Democrat. "I thought I could be of assistance," says
Scheder-Bieschin. Like others before him, Scheder-Bieschin loved the
idea of building a profitable company on a foundation of
environmental idealism. "I am for electric vehicles," he
explains. "The electric motor is just a much more efficient
technology than the internal combustion engine, far superior in terms
of emissions and noise. We as a society will go that way eventually."

Scheder-Bieschin became ZAP's president in December 2005. Six months
later he was in negotiations with the brokerage and investment firm
National Securities for an infusion of $15 million to $20 million to
help ZAP further develop its vehicle line. But, like so many before
it, the deal fell through. There were several reasons, according to
both Scheder-Bieschin and National Securities. The first was that
Schneider and Starr refused to tear up their stock-contingent
employment agreements. "Those two have a staked interest in
continuing to issue more and more shares to anybody," Scheder-
Bieschin says. "No bank is going to loan money to a company run that
way." Another problem was that ZAP's board was controlled by the
company's executives rather than independent outsiders. But what
really killed the deal was ZAP's refusal to address these
issues. "ZAP's management made absolutely no effort to correct any of
the problems we pointed out to them," says a National Securities
official involved in the negotiations who asked not to be identified.

As he watched the deal fall through, Scheder-Bieschin realized how
little influence he had, even as president. Melissa Brandao, hired by
Scheder-Bieschin to serve as ZAP's director of consumer products,
felt similarly powerless. She says Starr not only interfered with her
sales, but he and Schneider also refused to honor warranty claims on
recently introduced Xebras, leaving her to deal with irate customers.
After six months at ZAP, Brandao says, the only time she felt
enthusiasm for her job was when someone brought in one of the old
Zappy scooters built by Jim McGreen for service. "They were 10 years
old but beautiful, like vintage cars," she recalls. "They make the
stuff ZAP sells now look like crap."

"From a fundamental standpoint, the company has never been at a
better place," Schneider told reporters at the San Francisco
International Auto Show in November 2005. The company's display
unapologetically included a Smart car alongside the flex-fuel Obvio,
the fuel-cell Worldcar, and the all-electric Xebra. Schneider urged
investors "not to wait another second" before purchasing ZAP stock.

Not everyone was impressed. Larry Martin, a Bay Area investor in
clean-air companies, told the Press Democrat that ZAP had marketed "a
fabulous dream" but that "consistently, the results have disappointed
us." And Wayne Schenk, owner of Subaru Santa Cruz, who had signed up
as a ZAP dealer, also complained to the paper that ZAP has issued "a
million press releases on stuff that has never happened." By the end
of 2005, ZAP's stock price was back down to 26 cents.

Starr and Schneider, though, would demonstrate once again the power
of PR. On March 22, 2006, USA Today ran a story that sympathetically
chronicled ZAP's efforts to sell the Smart car in domestic markets.
The day the article came out, ZAP's stock price shot up, closing at
$1.23. That same day, SEC records show, Schneider cashed out 200,000
warrants. (He also notified the commission of nine other transactions
dating back to January 2005 for which he had yet to file paperwork.)
Two days later, Renay Cude exercised 75,000 ZAP options at a price of
25 cents per share. During the next three weeks, as ZAP's stock price
climbed steadily, Cude sold that same number of shares in eight
separate transactions for an average price of over $2 per share,
netting more than $150,000. These cashed-out shares were soon
replaced. On August 11, 2006, ZAP awarded Schneider, Cude, and Starr
an additional 355,424 in warrants and 355,424 in options — part of
their yearly compensation package, which would come to just over
$500,000 each. In fact, even though Schneider had unloaded more than
a million and a half shares in 2005 and 2006, his total holdings of
warrants, stock, and options reached 15 million in April 2006.

By early 2007, Kim, Scheder-Bieschin, and Brandao had all resigned
their positions. Brandao filed a sexual discrimination complaint
against ZAP with the state of California, alleging that she had been
underpaid because of her gender and that Starr had verbally abused
her.

Scheder-Bieschin says that Starr and Schneider have been insulated
from criticism because of the business they are in. "Steve plays the
game that nobody's ever gonna be tough on us because we're the EV
guys.'" (Indeed, Robert Taicher, a consultant for ZAP, called Wired
editors as this story was in process, asking the magazine to tread
lightly on ZAP, given that "we're in the green space.") "Gary Starr
and Steve Schneider have likely done more damage to the EV industry
than Detroit and the Japanese combined," Scheder-Bieschin says. "And
the failure of this industry to thrive has affected everything from
global warming to the war on terror. How do you put a price on that?"

Brandao thinks the EV industry itself bears some responsibility for
ZAP's depredations. "Nobody wants to talk about how bad ZAP is," she
says. "Everybody wants the EV space to be protected from scandal or
bad publicity."

There have been a few official complaints, however. In addition to
Cronk's grievance to the SEC, Gottlieb, the San Diego-area ZAP
dealer, also filed a report with the agency, alleging that senior ZAP
executives had misled him when he purchased 100,000 shares of ZAP
stock in exchange for a dealership territory. So far, though, Wired
has found no evidence that the SEC has followed up on either
complaint.

Meanwhile, ZAP continues to do what it always has: claim it is on the
verge of delivering the dream. In February 2007, Schneider officially
unveiled plans for the ZAP-X supercar at the National Automobile
Dealers Association convention in Las Vegas, telling potential
dealers and customers that they could place a $25,000 deposit on the
vehicle. The ZAP-X, Schneider said, would be based on a car design by
Lotus, much like the Tesla Roadster electric sports car, which had
been unveiled six months earlier. A Lotus Engineering official
confirms that Lotus made a deal with ZAP allowing the Santa Rosa firm
to use Lotus' gas-powered APX prototype as a physical model for a new
car, but that was all. And the deal, as far as he knows, has gone
dormant. Though the APX could conceivably be adapted to an electric
motor, the exec told Wired, the expense and engineering challenge
would be enormous. Would it be possible to manufacture and sell such
a vehicle for ZAP's promised price of $60,000? "That depends," the
exec replied with a laugh, "on whether you want to make money or lose
money."

Regardless of the limited nature of the official relationship between
Lotus and ZAP, Lotus CEO Albert Lam was clearly impressed with the
California company. In September, Lam brokered a joint venture
agreement between ZAP and Youngman Automotive Group, a Chinese bus
maker, that ZAP says will allow it to get the fabled ZAP-X on
American roads in 2009. Lam — who had been with Lotus four years —
left the company a month later and signed on with Starr and
Schneider, first as a new member of the ZAP board, then as part of
ZAP's management team. (Lam didn't respond to Wired's requests for an
interview.) Almost as soon as he arrived, ZAP unveiled specs for a
second high-performance electric vehicle — a three-wheel, 322-
horsepower two-seater called the Alias.

The Alias, ZAP says, will be built and marketed by the venture
jointly run by ZAP and Youngman Automotive Group. The name of this
partnership is Detroit Electric, a brand originally created by the
Anderson Electric Car company, which existed between 1907 and 1939.
Detroit Electric (now located in California and run by Lam) says it
will be bringing a whole range of electric vehicles to market in the
next 14 months. "Our plan is to launch with a 12-meter pure electric
transit bus, the ZAP Alias, and two family sedans as early as the
summer of 2009," Lam said in a press release. Analysts familiar with
the Alias say delivering even that car on this timeline is unlikely,
given that ZAP is reportedly still looking for suppliers to design
components to make the car feasible.

In February, after losing more than $500,000 on his dealership, Ehab
Youssef was preparing a lawsuit against ZAP when the company offered
to settle his claim for 50,000 shares of ZAP stock. Youssef declined,
and a few weeks later ZAP filed a suit of its own claiming that
Youssef hadn't lived up to the terms of his ZAP dealership contract.
At press time, the matter was pending in Sonoma County Superior
Court, and Youssef was preparing a counter claim. Earlier, Youssef
had talked to a number of other dealers about a possible class action
case. Among those who considered joining was John Martin, a
schoolteacher from Austin, Texas.

Martin says he met Schneider once, in spring 2006, when "I flew to
California to sign the papers and write a check." He says he made it
clear that he had limited funds — less than $160,000 from savings and
a small inheritance. Company officials assured Martin that this would
be enough to get "up and running."

After quitting his job, Martin leased a prime Austin location and
spent much of his remaining cash remodeling and rewiring the building
for his new dealership. He was thrilled by the publicity his October
2006 grand opening generated among the local media. Attracted by
stories in the newspaper and on TV, dozens of potential customers
showed up at the dealership that first week, though Martin could
offer them little more than a ride in the Xebra sedan he had
purchased as his personal car — ZAP had failed to deliver any
vehicles for him to sell.

In December 2006, Martin laid off his staff and became a one-man
operation. He received his first shipment of Xebras shortly before
Christmas. But by then, Martin explains, he had realized how quickly
the Xebras ran out of charge. "When I had to tell people about the
range, I could see it in their eyes," Martin recalls. "This was the
deal killer."

Martin sold one Xebra in January 2007, two in February, and three in
March. "Then business just dried up completely," he says. Martin's
first customer, an attorney, had to have his car hauled back to the
dealership for warranty repairs four times in the first month. Martin
managed to remain optimistic, he says, because he knew that the new
Obvio model was supposed to begin arriving from ZAP sometime in the
spring. "But of course the Obvio never came," Martin says, and he was
forced to close the doors of his new business at the beginning of
August. By then, his $160,000 was gone. The lawyer who bought that
first Xebra from Martin sent a threatening letter to ZAP on Martin's
behalf, and ZAP replied by promising to repay at least some of the
money he had lost. Then Martin heard nothing for five months — ZAP
didn't return his calls. Finally, in January, as Wired prepared this
story for print, ZAP settled with Martin, giving him 50,000 shares of
ZAP stock in exchange for his agreement not to sue and not to talk to
the media.

Martin was able to get his teaching job back, but the school soon had
to lay him off. Strapped for cash, he had to pull two of his three
young daughters from the private school where they had been enrolled
since kindergarten. (Parents, teachers, and friends took up a
collection to pay the tuition of his oldest daughter.) As of January,
Martin was supporting his family by working construction during the
day and delivering pizzas in the evening.

"I wanted so much to believe," he says.

Randall Sullivan (randysul at aol.com) wrote about the rise and fall of
game device outfit Gizmondo in issue 14.10.
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