Some green-tech auto startups struggle for funding
Small automotive companies launched in the green fervor of the past few years have begun to bump up against financial reality. Some of the startups are ready to go another round, but others are wobbly.
Henrik Fisker, CEO of Fisker Automotive, says the period when investors shoveled money at green automakers has passed.
"There was a moment of opportunity in 2007-08-09 to get into this space of creating a new car company," Fisker says. "If you didn't get the funding, I don't think there will be another opportunity for the foreseeable future."
Other sources say funding is available, particularly for component makers who don't face the high capital costs of would-be automakers. The shakeout, they say, is normal in an entrepreneurial sector.
"The fact that there have been some failures is reflective of the natural Darwinian process of venture capital," says Ira Ehrenpreis, head of the clean technology practice at Technology Partners, a venture capital firm in Palo Alto, Calif.
Ira Ehrenpreis: Failures are part of the process.
The long lead times, complexity of product development and high costs of the auto industry have hit some small companies hard.
Consider what happened as 2011 drew to a close:
-- California electric vehicle maker Aptera Motors closed, with CEO Paul Wilbur, a Chrysler veteran, saying that previously enthusiastic investors had cooled toward EVs.
-- Next Autoworks Co., planning an energy-efficient small car, closed its California headquarters, consolidating operations into its Detroit-area engineering center as it sought capital. Next Autoworks, backed by natural-gas supporter T. Boone Pickens, had been turned down for a U.S. Department of Energy Advanced Technology Vehicle Manufacturing loan -- the lifeline sought by several startups.
-- Battery maker A123 Systems Inc. laid off 125 workers as its prime client, Fisker Automotive, saw sales of its Karma plug-in hybrid falling short of Fisker's 7,000-unit sales goal for 2011.
-- Wall Street firm Morgan Stanley downgraded the stock of EV maker Tesla Motors Inc., saying EVs are "not ready for prime time."
-- Carbon Motors Corp., a Connersville, Ind., startup seeking to make clean-diesel police cars, sent a public letter to Obama administration officials pleading for a DOE loan.
Federal spigot shut?
A number of startups have tied their hopes to getting a DOE loan. The loan program, funded in 2008, so far has committed only $9.13 billion of its total $25 billion budget.
The government's normally cautious style has been heightened by presidential politics, a source knowledgeable about the program says. Republican candidates have criticized loans to Fisker and Tesla, after solar-panel maker Solyndra went bankrupt after receiving a loan guarantee under a different DOE program.
"It is really a long, arduous process to go through -- the due diligence -- and a lot of that is the risk-aversion of government," the source said.
One example: EV maker Bright Automotive, planning to sell vans to fleets, has gained a $5 million investment from General Motors and has made a deal to use the AM General plant in Mishawaka, Ind., for production. But CEO Reuben Munger says Bright is awaiting a decision by the DOE on its loan application.
Oliver Hazimeh, leader of the global eMobility practice at consultants PRTM, says the Solyndra issue has spilled over to the auto loan program: "Right now any government money is basically on hold. Everyone is very nervous about giving out any government money."
Aptera's Wilbur says that's a problem for startup automakers facing high capital costs. Aptera budgeted $300 million to launch its first vehicle, he says. The snail's pace of DOE loan applications, Wilbur adds, "just wears out your investors."
Jean-Francois Tremblay, advanced powertrain task force leader at consultants Ernst & Young, says startups sometimes are too hasty in approaching venture capitalists. Tremblay's advice to startups: Have a salesperson focused on getting customer deposits before production, and show that to the venture firms.
"What they want to see is a book of business that proves demand for the vehicle," Tremblay says. "They don't want to do the final stage of the beta testing."
There is also doubt about how viable automotive green technology will be in the marketplace. The relatively low initial sales of the Nissan Leaf and Chevrolet Volt have shown that gaining share with electric-drive vehicles will be a slow process.
Another problem for small EV companies is that established automakers can match their products. That, plus moderate pump prices for gasoline, have created "a tough environment" for startups, says Xavier Mosquet, leader of Boston Consulting Group's global automotive practice.
And, Mosquet adds, rapid increases in gasoline-engine efficiency have created an unforeseen threat to EVs burdened by costly battery packs.
"In the past three years, we have seen the expected improvements in battery costs, but with gasoline engines we have seen much faster improvements and at a lower cost than we expected," Mosquet said.
In Mosquet's view, EVs won't be viable mass-market products for at least five years. That timetable favors big automakers that can afford to develop the technology and wait to see if the market develops.
Technology Partners' Ehrenpreis says prospects are brighter for lower profile companies, such as battery makers and suppliers of mild-hybrid technologies such as stop-start systems. In his view, too much attention is focused on "a small slice of companies trying to build end-to-end new vehicles."
Phil Murtaugh: Coda moves forward.
Some EV makers say they have adequate capital and are pushing forward. Fisker has started production of its Karma plug-in hybrid, thanks in part to a $529 million DOE loan. Likewise, Tesla Motors is tooling up the former New United Motor Manufacturing Inc. plant in Fremont, Calif., to begin U.S. sales of its Model S mid-sized EV this summer.
Tesla spokesman Ricardo Reyes says the company plans to sell 5,000 to 6,000 units this year. Its target for 2013 is 20,000 annual sales.
"We are on schedule," Reyes says. "Since October, we've completed several cars on the line, mostly Beta testing vehicles, but also a number of [bodies in white] for testing as well, and also a number of marketing cars."
Aided by a $465 million DOE loan and a successful initial public stock offering, Tesla can cover the cost of production, he says.
"We definitely have the funding in place to get the Model S to production," Reyes says. "We don't expect to do any more fund raising."
A smaller EV maker, Coda Automotive, raised $147 million in new investment last September and has begun production of its Sedan EV after opening a Los Angeles headquarters and retail store.
CEO Phil Murtaugh wrote in an e-mail that the funding "enabled us to bring engineering, marketing and sales under one roof in Los Angeles, and move into production and sale."
The Sedan is largely built by Hafei Motor Co. in China, with final assembly in the United States. Coda has a battery joint venture with Chinese energy company Lishen Power Battery and will develop future EVs for global markets jointly with Chinese automaker Great Wall Motor Co.
Chinese connections also have helped another small automaker, ZAP. The Santa Rosa, Calif., company combined with Chinese automaker Zhejiang Jonway Automobile Co. to form ZAP Jonway. The joint venture is selling EVs and gasoline-powered cars in China and plans to begin U.S. sales of a Chinese-built EV van for fleet customers in the first quarter, says CEO Steven Schneider.
One company trying to set up an EV infrastructure, Better Place, in November announced a new round of investment totaling $200 million. Better Place, which offers battery switching and recharging stations, is building networks in Denmark and Israel, among other projects. Better Place investors include General Electric, UBS AG, HSBC Group, Morgan Stanley Investment Management and VantagePoint Capital Partners.
Spokesman Joe Paluska says he knows that smaller companies face a challenge finding financing.
That's especially true because governments are hard pressed to support green technology, Paluska says: "It's a difficult environment right now for large companies and small companies, and for large countries and small countries."
Mark Rechtin contributed to this report
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