Failed solar car: Sono Motors faces trouble because of questionable financing

Carsten Bruch has long hoped for his solar car.

Failed solar car: Sono Motors faces trouble because of questionable financing

Carsten Bruch has long hoped for his solar car. "For me, Sono Motors was like the Gallic village of the auto industry," says the family man. A small team that takes on the big car companies. The Munich start-up promised mobility without regrets. Green, sustainable, affordable. Bruch, who does not want to use his real name in public, liked the vision of the young founders. At the end of 2019, he transferred 1,000 euros as a deposit on the car, which was to roll off the assembly line two years later.

He was not alone in his hopes for the eco-rebels from Munich: By the end of the project, around 21,000 private individuals had advanced almost 44 million euros to Sono Motors as part of so-called "community funding".

It has been clear since February 2023 at the latest: The electric car, which is supposed to produce part of its own drive energy with the help of solar panels, will never come.

At Bruch, the euphoria has now turned to anger and disappointment. "Meanwhile, I feel like a participant in a Ponzi scheme," he says. Because now that the start-up has announced the end of the solar car project, he is having trouble getting his money back. Breakage is not an isolated case. Capital is aware of several cases where depositors are still awaiting reimbursement.

The question now also arises as to whether "community funding" itself was legal at all. "I wouldn't be surprised if criminal courts dealt with the case from a wide variety of perspectives," says Andreas Walter, a lawyer at the Frankfurt law firm Schalast in an interview with Capital and Finance Forward.

Sono Motors has repeatedly called for swarm financing since it was founded because negotiations with professional investors failed and the start-up kept running out of money for development. First it was about a few hundred thousand euros, then about 50 million euros, later even about 100 million euros.

For larger crowdfunding sums, a prospectus is required in Germany. It is usually expensive to create and can take months. From 2019, Sono Motors decided on a way without a lot of paperwork and called the concept "Community Funding".

The fans should make a "reservation deposit" of up to 25,500 euros on a car that doesn't even exist yet. No interest, no collateral. According to the terms and conditions, there is not even a direct claim to a car, in the worst case there is a risk of total payment failure.

"I entered my IBAN on the website and ticked three boxes, and the general terms and conditions came by email," remembers Carsten Bruch. He did not receive a risk explanation at the conclusion.

Several lawyers that Capital spoke to see "community funding" as a conflict with the German Banking Act. "From my point of view, this is a banking transaction that requires a license," says attorney Walter. It is crucial that Sono Motors' terms and conditions do not describe any real consideration. "It doesn't matter what the contract is called. In any case, the model has nothing to do with reservations in the classic sense," says Walter.

For legally compliant deposit transactions, Sono Motors would need approval from the financial regulator Bafin, which according to the official register it does not have.

Lutz Tiedemann, a specialist lawyer for banking and capital market law from Hamburg, also sees "community funding" as a prohibited deposit business. According to information from Capital, he is currently representing a small investor in the matter who, like Carsten Bruch, is having difficulties getting his money back.

The financial regulator Bafin does not see itself as responsible for Sono Motors. From their point of view, there is no evidence of transactions requiring a permit, the authority said on request.

Sono also sees himself in the right. "It was always important for us to work with the community to get affordable solar electric mobility on the road, and so we didn't want to offer an investment option or a return-on-investment project with Sion reservations," said a company spokesman. We plan to repay all deposits.

At the end of February, Carsten Bruch gets a letter about the repayment of his reservation. Sono first asks him to give up part of the money, as a kind of donation. When he declines, the start-up asks him to agree to a repayment in installments until 2025. The community should step in one last time so that at least the solar business can continue.

Bruch no longer believes in the future of Sono Motors. "The community should always help and is then led around by the nose," he says. After repeated urging, he has meanwhile got his 1000 euros back. Other supporters are still waiting for their money: According to information from Capital and Finance Forward, Sono Motors has only repaid 1.7 million of the 44 million euros to its customers. According to Sono Motors, another 800,000 euros are in the backlog.