Darryl Siry's Blog

TrueCar and the nutty world of state franchise laws

2012-01-06T17:15:00.000-05:00

If anyone feels that government bureaucracies are good at protecting consumer interests, they need look no farther than the state franchise laws governing automotive sales and auto dealerships.

A recent article in Automotive News (sub req'd) chronicles the latest chapter in what I see as the dealership lobby crying foul at TrueCar's service, which enables customers to get the lowest price by having dealers bid for their business. Lowest price wins. Nice win for the customer, and I suppose good for moving the metal for dealers who are OK with that.

I think I can communicate the bizarre world of franchise laws with a few select quotes from the article:

"The state laws in question were enacted in previous decades to protect interests of dealers and consumers. For instance, some states prohibit the use of the word invoice in advertising."

Makes perfect sense. The word invoice is very concerning to me.

"Also, some states ban bird-dogging -- paying a third party a fee that is results in a sale. Some states ban brokering, which is charging a fee to a retail customer to find and negotiate the purchase of a vehicle."

God forbid I would want to pay someone to do something for me that I hate doing and that they are good at.

Not mentioned in this particular article are other laws, which ban manufacturers from being directly involved in warranty work, ostensibly to protect the consumer from those nasty manufacturers but in reality it is to make sure the dealers hold on to those profits. Or the laws banning "internet sales."

While some of the laws genuinely are designed to protect consumers, too many of them are obviously designed to protect the interest of dealers at the expense of the consumer. It's an embarrassment.

Oh, did I tell you the one about the $2,100 quote for my "blown cooling system" on my BMW that was actually just a $2 bleeder screw?

Healthy, Wealthy and Wise

2012-01-03T06:35:00.001-05:00

Well, we'll see about that, but I have decided to wake up at 5:30 am everyday. The timing of this decision might make it seem like a New year's Resolution, but I don't see it that way because that would make it unlikely to stick. I see it more as one of the nice outcomes that come from a little downtime over the holidays.

Ben Franklin may have created the proverb of "Early to bed, early to rise, makes a man healthy wealthy and wise" but on reflection this morning it occurred to me that the inspiration was more likely James Altucher in this great post. (There is a lot of good stuff in that post and on his blog in general which has influenced my thinking. I suggest you read a post and I'd be surprised if you didn't find yourself reading many of them.)

So why am I waking up at 5:30 every day? I'm not quite sure, but I think it will lead to good things. I made sure not to resolve to do anything in particular with the added morning time. I just want to see where it leads. So far I've written a blog post (something I rarely have time to do but enjoy very much) and I am watching the BBC because they are all awake over there.

Tesla in 2012: When Vision and Reality Converges

2011-12-21T11:17:00.000-05:00

2012 will be a very interesting year for Tesla, particularly from the point of view of an investor. I'm not talking about the obvious scheduled launch of Model S in mid-2012. I'm talking about the fact that as Tesla moves toward production, the vision of the company, as communicated in these past years, will ultimately have to converge with reality. Tesla has done a good job communicating a clear vision for what they plan to do. The problem with communications is that you strive to boil things down to a simple and powerful message, and the more you succeed in doing that, the more room you leave for disappointment or confusion when real data points start to emerge.

In the last few years, the majority of "normals" out there have heard the following about the Model S (UPDATE: I've added a web archive photo of how the Model S was advertised courtesy the teslamotorsclub forum):

$49,900
300 miles range
0-60 in under 6 seconds
45 minute charge
7 seats

Combined with the car's great looks this is obviously a very compelling offer, especially when compared to the nearest "competitors" in the EV space - the Nissan Leaf and the Chevy Volt.

Last night, Tesla announced pricing and options. To those who have been watching this very closely, there aren't that many surprises (aside from some options like the tech package that people thought should be standard.) To a large number of people looking at the details for the first time, reality (as defined as a "$50,000 performance EV") now looks like this:

$49,900
160 miles range (at 55mph)
0-60 in 6.5 seconds
4 hour charge
5 seats

In my opinion, that is actually a very compelling value proposition as well, unless you have grown accustomed to the much publicized set of features and prices. So there will inevitably be a great deal of consternation and anger among those customers who didn't read the fine print. The same thing happened when the Roadster was finally priced. Ultimately, the anger subsided and the Roadster settled into its own version of reality. Instead of a $100K car selling 1,800 units annually in the US, it is a $125-140K car selling 600 units annually globally.

Incidentally, if you add the options you might have thought were standard, in particular the tech package, leather seats, and metallic paint, the price you will see on the sticker of the car will be about $64,400. Note I added the tax credit back in and also $1,000 destination charge, which I am just guessing.

If you further load up the base 160 mile model with some of the features that have been highlighted in much of the press coverage and events (adding 21" wheels, panoramic roof, upgraded sound, 7 seats, active air suspension, 20kw charger, high powered connector) your sticker will say about $76,050 for the base car that will go up to 160 miles.

If you want 300 miles with that, the sticker will say $96,050.

If you want Porsche 911 acceleration of 4.4 seconds, your sticker will say $103,800.

But you know what? That's a hell of a car even for $103,800! It may surprise some that the 2012 BMW M5 is going to cost about the same as that.

The convergence of vision and reality is playing out in two ways today. First is a messaging issue and some angry customers. They will get over that as they did when Roadster pricing was announced (albeit with some level of reservation cancellations and increased mistrust.)

The more meaningful issue is that 20,000 units is starting to look a lot harder to achieve at the actual level of pricing that was revealed today. The stock is down 5% as of this writing, but I think investors might cheer up when they consider that the 25% gross margin target is looking a lot more achievable. It will all boil down to how many units they can sell on a continual basis at these prices.

The next place where vision and reality will have to converge is in the cost of goods sold, which directly relates to gross margin now that pricing has been pinned down. Tesla likely has good visibility into supplier pricing by now but the actual COGS can't really be known until they are in production for several quarters.

After that, the final convergence of vision and reality will be sustained annual unit sales (after the pipeline is empty). That won't be known until mid 2013. Stay tuned!

Shuttering NewsBasis

2011-12-08T14:57:00.001-05:00

Yesterday I wrote a post on the NewsBasis blog notifying folks that the service will be shut down December 16th. You can read more about it there, including the fact that I hope to start posting some things here about my experiences as a founder and lessons learned.

MS downgrade of TSLA reveals wacky world of sell side analysts

2011-12-08T14:46:00.001-05:00

Today Morgan Stanley downgraded TSLA from "Overweight" (Buy)with a $70 price target to "Underweight" (Sell) with a $44 price target. How do you slap a sell rating with a $44 price target on a stock trading at around $35?

South by Southwest Homesick Blues

2011-03-14T19:35:00.000-04:00

A day in the life of an early stage startup

2010-09-24T10:31:00.001-04:00

The following question was posted on Quora and I saw it at the end of the day as I was winding down. The question was very relevant to me, and I wanted to share my answer here on my blog as well. I will also be starting to post more startup related topics and fewer cleantech related topics, as that is where my attention is these days.

From Quora:

What does a day in the life of a SaaS startup CEO/founder look like post product-launch?
Especially when the founder is scaling up the business.

Wow this question is very relevant to me. Good on you, Quora. I will try my best to capture a day in the life for me but obviously everyone is different. Lets actually start before I wake up. I dream about the business, usually about some challenge or problem we want to solve. If it is a good night's sleep I actually generate insights and ideas I think might be useful and I wake up energized to try them or tackle whatever challenge. A bad night's sleep means that my dreams are more about what might go wrong or negative feelings. Then I wake up grumpy and annoyed. Sometimes I wake up in the middle of the night and then I have to decide to go back to sleep to make sure I am rested or just get up and do something productive since I'm up anyway.

Once I roll out of bed and go into my home office, I tackle whatever customer issues have come up and emails. We are 2 people and we have a lot of east coast customers so even if I'm up at 6 the day has started over in NY so stuff is already happening.

I keep a list of all the discrete tasks that I need to accomplish in a separate project in Pivotal Tracker. I'm sure this will annoy any agile developers out there to no end, but since we use it for development tasks it is convenient to keep my "to do" list there too. The problemis that the things I have to simultaneously deal with every day are not remotely serial tasks that can be prioritized simply. I wear so many hats and my list of to-dos is vastly longer than I can hope to get to so every day is an exercise in getting extremely focused on what will make the most difference. The problem is there is no easy answer to that.

The reason it isn't easy is that for an early stage company everything needs to be done right now, but that isn't possible. I focus a lot on customer acquisition which is critical, but customer acquisition is a combination of many things. There are the tactics of trying to get people to sign up (marketing and sales stuff) and then there is obsessing about all the shitty UX aspects of your product that you know are preventing people from making it to the next step in the funnel or prevent them from enthusiastically recommending to a friend. Even if I make things much better it's still way worse than we want it to be ultimately. This sounds negative but its not - I think its an important part of having the drive to continually improve things.

We are still in the rapid prototyping and test/learn phase, so I obsess about what features we could develop that would reduce friction in the system or increase virality or utility. We also think about what we can remove or simplify. I meet with my CTO at 10am in a cafe somewhere and I bounce my ideas of him to get a sanity check since I think that it is dangerous to follow the siren call of "if we only built this then more people would sign up and use our service". After he and I have had our morning pow-wow I go home and get back into execution mode. We interact for the rest of the day over Campfire.

I try to make sure that every day I accomplish one or more major tasks that relate directly to customer acquisition or otherwise driving brand awareness or user growth. If I don't I feel that I accomplished that then I am not a happy camper in the evening which is my family time. The problem is that the more focused you get on execution the harder it is to pull up and really thing strategically about what direction you are going and how you should be doing things differently. Until you have achieved real product/market fit and just need to scale, I think its important to spend a good amount of time thinking about how the business needs to evolve and adapt. I have no problem with strategic thinking but I have to get over the fact that stepping away from the computer and spending time thinking and pondering and not "doing" is not "being unproductive."

At some point I try to shower and shave, especially if I will be seeing other humans that day. Shaving is highly overrated.

By 6 or 7pm I try to start winding down and focusing on tasks that are repetitive or boring but serve to clam me down in a zen sort of way (think of sorting or de-duping lead lists or something along those lines). I do this because I want to ease into a more calm state of mind before going upstairs and spending time with my wife and 3 year old daughter before she goes to bed.

Evenings are for me and my family, and while my phone or iPad is always nearby, I really try to just veg out and recharge. Belgian beer is a critical component of this. I tell myself that when we close the Series A things will settle down. I know thats a load of B.S., but its nice to think about anyway.

Tesla jabs GM, may trademark very insidery term

2010-09-01T19:29:00.000-04:00

I received this forwarded email with a concise comment from a prominent journalist at a major news organization:
_______________________________________________________________________________________

WTF?

From: Khobi Brooklyn [mailto:XXXXXXXXX@teslamotors.com]
Sent: Wednesday, September 01, 2010 12:21 PM
To: Khobi Brooklyn
Subject: Tesla statement on GM's attempt to trademark "range anxiety"

Statement in response to GM’s attempt to trademark the term, “range anxiety” from Tesla VP of Communications, Ricardo Reyes:

By all means, GM can have “range anxiety.” To Roadster owners, the term is as irrelevant as “gas stop” or “smog check.” We are, however, looking into trademarking “Tesla grin.”

Khobi Brooklyn I TESLA MOTORS
office: 650 XXX XXXX I cell: 415 XXX XXXX
www.teslamotors.com

Morgan Stanley Contradicts Tesla

2010-08-10T11:31:00.000-04:00

Morgan Stanley's first coverage report was a fascinating read last night given Tesla's rebuttal to my analysis of the ZEV credit market and the potential impact to EV startups. It also highlights Tesla's bizarre PR approach to critical journalism.

Morgan's analysis related to the ZEV credits reads like my original reporting in Wired verbatim:

"In 2009, ZEV credits sales totaled $8.2 million (7.3% of total sales and 86% of gross profit). For 2010, we forecast ZEV credit revenues of only $2.5 million as more sales are outside the US.

For the Model S, we forecast ZEV credit revenues of $5,000 per vehicle but recognize that there is uncertainty as Tesla has not finalized contracts to sell ZEV credits for the Model S. In our 2014 base case, ZEV credits account for 2.8% of revenue, 13.2% of gross profit, and 57% of operating profit. Because ZEV credit sales are nearly 100% margin, Tesla could have an EBIT margin advantage of 1.5–3.0% compared to traditional automakers."

and a little later they confirm it is Tesla who provided this guidance:

"Our forecast of $5,000 per Model S sold in the US is based on management’s guidance. If Tesla cannot sell ZEV credits, our EBIT margin forecast would fall an average of 2.4% per year."

If you read Tesla's rebuttal to my original post, where I sourced a morgan stanley analysis from the roadshow that I saw myself, they say that they never said the $5,000 figure, and imply that their profit margins are not dependent on ZEV credit numbers. This flatly contradicts what Morgan Stanley (one of their underwriters) just released in a report.

The one thing I appear to have gotten wrong in my reporting is my failure to point out that the ZEV credits apply only to about half of their projected volume, but on the other hand I used Tesla's own estimates for operating margin which are optimistic in drawing my conclusions. Morgan stanley believes their operating margins will be about half of what they project, so the bottom line potential earnings impact if ZEV credit value goes to zero is still 50% in the Morgan Stanley scenario.

All of this highlights what I consider a compulsive desire for Tesla management to rebut anything said in the press that can be interpreted as critical or unfavorable. The fact that they would do so on a day when all of the analysts who they have been working closely with came out with reports that reinforce my original point is mystifying.

My guess is that their rebuttal post will do more harm than good as they find themselves having to explain the inconsistency to the analysts they have been working closely with to provide "guidance" on financial projections. The easy solution to this would be for Tesla management to be transparent about what they believe the market for ZEV credits will look like in the 2012-2017 timeframe so the various analysts covering Tesla can reflect this in their models.

Tesla's rebuttal to my ZEV credit analysis

2010-08-09T19:26:00.000-04:00

Here is a link to Tesla's rebuttal to my ZEV credit article, where I point out that the value of ZEV credits will likely crash and that may present additional chalenges to profit margins.

Tesla has a record of being combative with journalists who offer criticism or unfavorable opinions, so I was pleasantly surprised that there were no obvious ad hominem attacks in the rebuttal. Actually I was disappointed.

Its a long rebuttal, but I can sum up their argument for you:

1) We didn't say what your source heard us say on a conference call (which was corroborated by what another source told me)

2) Your analysis of our projected gross margins (which came from theTesla roadshow) is wrong but we can't say why its wrong because we don't make forward looking statements. But you're wrong.

3) You were wrong in your analysis because we are only going to sell a fraction of our cars in ZEV states, which means the $5,000 per car figure (which we never said) is even less attainable than you thought (you douchebag.)

So I ran it by my sources and one of them said the following, which I think sums it up quite nicely: "So if I hear it right, they are willing to talk in general terms that could be misleading as long as no one questions the assumptions. And then if someone does they will defend themselves vehemently?"

[Wired] Tesla Subsidy Vanishing Amid Electric Vehicle Boom

2010-08-02T13:31:00.000-04:00

Here is a link to my latest article on Wired.com.

Its always tricky to write about anything related to the CARB ZEV mandate, since it is probably the most opaque and confusing reg in the world (ok, maybe that is hyperbole, but it's pretty accurate.)

In the past year I've spoken to dozens of analysts and investors and not a one had a good understanding of the reg. Ironically Automotive News ran an article today that gets it all wrong too (sub req'd)

GM can't catch a break

2010-07-29T14:45:00.001-04:00

Maybe I have a soft spot for GM because everybody seems to like to shit on them and they are actually great folks and great engineers who have worked hard and transparently to deliver a very unique technology to the market when they said they would.

Granted that I would have like to see them be more aggressive on pricing the Volt, but they do offer an extremely competitive lease at $350/mo - the same as the LEAF.

But the flurry of press about the announcement has been mixed and some of the commentary is downright silly. The following quote from Jessica Caldwell, industry analyst for Edmunds.com, deserves to be called out because of the inherent contradictory nature of blasting GM for "teasing the Volt" for so long before launching and then in the same breath blasting the price by comparing it to a vehicle that doesn't even exist yet, much less have a firmly established price.

"If GM had launched the Volt when they started teasing us years ago, it could have successfully commanded a hefty price tag," Caldwell said, noting that there now are a wider range of vehicles in the Volt's price range with improved powertrain technology and packaging. "Tesla's Model S will start at $8,000 more and is better targeted at people who can afford to pay $40,000-plus on a vehicle."

Apparently Jessica thinks that the Model S exists today, and is priced at $49,000 before the Federal Tax Credit, and she doesn't mind being teased for years unless its GM. Pricing has a nasty habit of creeping up when you actually realize how much the car costs to make.

The Volt is priced competitively with the LEAF when it comes to leasing, which is what everyone should do anyway. The Model S, when it is finally produced in 2012 at the earliest, will run you about $75,000.

The full article is here.

Posted via email from Darryl Siry's posterous

Chevy Volt matches Nissan LEAF pricing

2010-07-27T14:39:00.001-04:00

Chevy announced pricing for the Volt today, and while all the articles are focusing on the $41,000 MSRP vs the LEAF at about $32,000, the real headline is that the lease they are offering is exactly the same monthly cost of $349. The down payment is $500 higher, but you don't need to install a level 2 charger so lets call it a wash.

What makes this so interesting is that we will see how the pure BEV architecture fares against the EREV (extended range electric vehicle), since the cost to own is essentially the same if you lease.

Aside from the major difference of the drivetrain approach, the other major differentiators are brand and styling (and possibly warranty). Neither car is a clear winner on styling and Brand is a very personal thing.

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$TSLA short interest large out of the gate

2010-07-27T10:54:00.001-04:00

In a previous post I described the response I was hearing to the Tesla roadshow as highly polarized - people seemed to either be very bullish on Tesla or very bearish. No one seems to be sitting on the fence. To get the IPO completed successfully, the bears are irrelevant: you only need a certain number of people who are excited to get the deal done.

What happens in the market after shares are floated is a different story. People bearish on Tesla can bet against the stock in a number of ways, betting that the stock price will go down and earning a profit on the downward move.

There are several indicators that one can look for to get a sense for the "short interest" on $TSLA, and the three or four data points I have seen in the last days supports my theory that you have a large number of bears on one side and a lot of bulls on the other.

First, the NASDAQ reports that there are 5,642,448 shares held short. The total shares floated in the IPO were 15,295,000 assuming underwriters exercised their entire over-allotment option. That means 38.6% of the shares out there are held short.

The demand for shares to borrow to take a short position is very high, as indicated by the interest rate that is being quoted to those who want to borrow shares. This data can't be found easily on any website, but two quotes I have heard recently are around 15% and around 40%. These are huge numbers, and indicate that there are a lot of people eager to short the stock. For someone to borrow shares at that high an interest rate means they need to have the stock go down more than that number (pro-rated for the time period) before they earn a profit.

The number of put contracts sold outnumbers the number of call options by over 3 to 1. This means there are a lot more people in the options market betting that the stock will go down in the future than are betting it will go up.

In spite of all the bearish indicators, TSLA stock remains a good 22% above its high IPO price - trading at $20.89 as of this writing. That's all the evidence you need that there are a lot of people equally as bullish on the stock. It also means that TSLA will continue to be a volatile stock.

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Barclay's upgrades $AONE - bullish on Fisker

2010-07-26T12:07:00.001-04:00

AONE is up 15% today on an upgrade from Barclay's, which also bumped the price target from $12 to $14.

Read part of the Barclay Analyst's rationale below:

"Several positive pot'l catalysts on horizon: (i) Fisker and heavy-duty customer ramps appear to be on schedule - checks suggest Fisker could start commercial production of 100-200 vehicles in Dec, looking to ramp to 1K units/mth run-rate by end Feb'11 (well ahead of investor expectations)."

Apparently the Barclays analyst read Autobloggreen.com. Either that or he "checked" with the company itself, which of course will say that everything is on track, until it isn't.
So much of AONE's prospective value is tied up in the volume that Fisker will deliver over the next years, as they represent the largest PHEV program that AONE has locked down. What is interesting to see is that very few of the analysts covering AONE make much effort to discount the execution risk of the Karma program and the volume expectations.
I think it would be wise for anyone advising investors in AONE to recommend a fair value based on the Fisker's current stated launch date and volumes. Then provide a downside scenario. There is no upside scenario because the manufacturer's statements are the upside scenario.

So my question to the Barclay's analyst is what do you think the fair value of AONE shares are if Fisker enters production in Spring of 2011 and is able to support volumes of the Fisker Karma in the 3 to 4000 unit range over the next years?

I'm not necessarily picking on Fisker here - all startup manufacturers of EVs/PHEVs will always present the most bullish estimate of volumes before they actually bring product to market for the obvious reason that doing so presents the best picture of their business. It should be the role of analysts to do the work to come up with a reasonable discount for those company statements, or a rationale for why they support it.

In my opinion, the key factors which cause me to discount Fisker's projections are:

1) They have not yet demonstrated a real production intent prototype with production intent parts. This is a very big concern that can't be allayed with the waving of hands and PR statements.
2) They only locked down a battery supplier in February, when AONE bought the contract out from under HEV. I believe they have still not finalized a volume production partner for motors, which are an important piece of the puzzle.
3) The Karma's current projected price is around $90,000. The market for $90,000 cars is quite small. The market for PHEV $90,000 cars is a smaller portion of that.
On the plus side,
1) I continue to believe that the market for PHEVs will be bigger than the market for EVs in the short term, even though the media attention seems to favor pure BEVs.2) They already have 40+ dealers who are eagerly awaiting product to sell to their customers.3) The car is very pretty, which matters a lot.

Posted via email from Darryl Siry's posterous

Meet Toyota's Point Man for the Tesla RAV4 conversion project

2010-07-17T18:15:00.001-04:00

One of the more fascinating characters I've met in the EV world is Bill Reinert. He is outspoken about his opinions and often plays the skeptic to others' unbounded optimism about the market potential for EVs.

In the past, he has been openly critical of Tesla Motors' battery approach (the use of thousands of interconnected commodity cobalt oxide cells). He is also now the man in charge of the Toyota end of the Toyota/Tesla RAV4 EV conversion project (from what I hear).

That's what happens when your top boss takes a shine to Tesla. Will Bill Reinert be a convert to the Tesla technological approach, or will he be a reluctant company man? The back story on this is fascinating, and I can't wait until the stories are told in the course of time.

If Akio Toyoda really wants to drive Bill nuts, he'll make him collaborate with Shai Agassi and Better Place next.

Photo is "courtesy" of Automobile Magazine - I put "courtesy" in quotes because I just lifted it from their website. Hopefully they don't mind since I link to preston Lerner's fascinating profile of Bill here. You should read it!

Posted via email from Darryl Siry's posterous

Chevy Volt battery warranty sets a high standard

2010-07-15T10:42:00.001-04:00

The issue of battery warranties in the developing EV/PHEV field is very interesting for several reasons.

First, one of the major considerations for an EV purchaser is total cost of ownership, and with the battery being the most expensive component, the battery warranty will be a very important factor. Chevy's warranty is impressive considering the newness of the technology, and will go a long way to assuage consumer concerns.
It should be noted that Coda Automotive previously announced a similar 8 year, 100,000 mile warranty for their battery electric sedan. This is currently the benchmark for BEVs, as Nissan has not announced their warranty yet. Tesla's battery warranty for the roadster is 3 year, 36,000 miles, but it is not known what they plan for the Model S warranty.

On the manufacturer side, the warranty represents a great leap of faith with significant potential liabilities. None of the companies recently announcing battery warranties has fielded any battery powered cars for the length of time they are warranting, so it amounts to a projection based primarily on lab testing of cycle life. This testing matters a lot, but it doesn't fully account for the actual environment of a car over time and doesn't fully capture the calendar life issues.

Yet another sticky issue is what exactly you are warranting. All batteries degrade over time, losing some of their ability to hold a charge. This rate of degradation is highly variable, depending on battery chemistry, temperatures, temperature fluctuation, discharge rates and charge rates, and many other factors. In establishing a warranty, are the manufacturer's warranting only mechanical defects or defective workmanship or are they warranting a certain level of degradation over time that, if exceeded, can be remedied?

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Revenge of the ICE car

2010-07-12T15:04:00.001-04:00

One of the things that is interesting to see, and should not be overlooked with the frenzy of interest in electric and plug-in vehicles, is the innovation occurring with the internal combustion engine. Keep in mind that the more efficient ICE engines become, the higher the hurdle for EV and PHEV adoption.

There are ICE motors in cars today that are already extremely efficient, such as the Atkinson Cycle motors used by the hybrid Prius, enabling it to get 51mpg. Several of the large car companies are working on other technology like HCCI (Homogenous Charge Compression Ignition) that have promise.

Today the news of a new round of funding by EcoMotors caught my attention because of the unique approach to internal combustion. If you are a gearhead you can't help but be interested in the diagram above, which shows the basic layout of their "Opposed Piston Opposed Cylinder" design. Kindof like the old BMW boxer engines with a major twist.

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Tesla and Toyota's first steps

2010-07-12T10:28:00.001-04:00

Bloomberg follows up there report last week that Tesla (TSLA) will be delivering 2 converted Toyota chassis to Toyota with some interesting specifics. In the report today, Bloomberg reporter Alan Ohnsman identifies the two models as SUVs (or CUVs) - the Toyota RAV4 and its more upscale sister the Lexus RX.

Toyota clarified at an event in Japan last week that they are planning to release their own EV, a city car, in 2012 using a battery pack jointly developed with Panasonic. Any joint car with Tesla was said to be no earlier than 2015. This timeline is par for the course for Toyota, but painfully glacial for a company like Tesla, who would want any such potential collaboration to happen sooner.

Still, the actual delivery of 2 Toyota models retrofitted with Tesla battery packs represents quick forward steps for the announced intention to collaborate - but what does it mean specifically?

Some blogs may jump to the conclusion that Toyota and Tesla plan to jointly develop a new RAV4 EV or RX EV. While that may be in the realm of possibility, I doubt that is what is going on here. More likely that the very first step for Toyota in any partnership is to get very familiar with Tesla's technology, and specifically to extensively test the battery pack, which uses an approach that is very different from Toyota's approach and that Toyota senior executives have openly disparaged at industry conferences I have attended in the past. The quickest way to test the battery pack is to select an existing Toyota chassis that can be easily retrofitted with a heavy pack, power electronics, and motor. The larger formats of the RAV4 and RX give Tesla engineers more flexibility in packaging and are more able to handle the significant weight of the battery without significant modification. What Tesla is delivering to Toyota are two test beds for their battery technology for Toyota to use in extensively evaluating how the batteries perform.

Prior to Toyota Chief Akio Toyoda taking a keen interest in Elon Musk and Tesla, it was openly known that Toyota engineers did not favor the technological approach that Tesla had taken. In fact, Toyota engineers were cautious about Lithium Ion in general, acknowledging that they were superior in terms of energy density but preferring to take a slow and cautious approach. But all that can be overridden when the Boss decides he wants to explore the approach more.

The question now is how extensively and over what period of time Toyota's engineers will test these drivetrain mules. Elon Musk remarks in an email to Bloomberg that "We anticipate range and acceleration exceeding that of other announced electric vehicles of this class," but that is neither surprising nor sufficient. Tesla has already proven that it can assemble battery packs (along with power electrics and motors) capable of high peak power and packing a lot of kilowatt/hours. They do this in part by using cobalt cells, which need to be babied and pampered lest they start acting up, and which have questionable longevity (both in terms of calendar life and cycle life)

The big question for Toyota, a massive car company with conservative roots that has just been raked over the quality coals by a series of highly visible recalls and controversies, will be quality. They will want to feel exceedingly comfortable that the Tesla approach will last a long time in automotive applications and will be bulletproof when it comes to quality and safety. The hurdle for what is considered acceptable for a Toyota is considerably larger (orders of magnitude larger) than that of a startup car company that can afford to take more risk.

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ZNN - How's that updated business strategy working for you?

2010-07-09T13:55:00.001-04:00

This chart shows ZENN's (ZNN.V) stock price since September 24th when they announced an "updated business strategy" to focus entirely on the mystical EESTOR ultracapacitor and abandon the banal business of making/importing cars.

Moving away from capital intensive, niche market, commodity NEVs to focus on powertrain tech might actually sound like a good idea but the problem here is there is apparently no tech. After many announcements last year that EESTOR was prepared to deliver the production EESU by the end of the year, we are now in the second half of 2010 with nothing announced.

The stock has been moving steadily down on extremely thin trading (Average volume is about 50,000 shares daily). I'm not sure how these things actually finally end, as I have witnessed ZAAP persist for many many years below a dollar.

The only thing that can save them now, I'm afraid, is a DOE loan for EESTOR. You never know.

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analysis of AONE's chart since IPO

2010-07-02T12:50:00.001-04:00

Some interesting lessons might be learned from AONE stock chart with respect to TSLA. AONE originally estimated their IPO price at $8.50, but faced with strong institutional demand they raised the IPO price to $13.50. The stock opened with a huge pop and ran up, but then found its way back to the IPO price within 6 weeks. Interestingly, the stock had a second run all the way back to $22 before resuming the downward trend.
The important date to watch for AONE and TSLA is the 180 day lockup expiration. This is the time that insiders can sell their shares, which results in a lot more shares available for sale on the market and more selling pressure. In the case of AONE, the lockup expiry might be seen to drive the price down to a level that current investors consider very low but ironically is exactly the price that the company and it's underwriters originally estimated for the IPO.

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Tesla (TSLA) IPO observations

2010-07-01T16:59:00.001-04:00

By all objective measures, Tesla's initial public offering was an extraordinary success. After setting a healthy price range of $14-16, they priced the offering at $17. The also increased the size of the offering by several million shares. This means that there were ample institutional investors eager to buy stock in Tesla at a valuation north of $1.5B.

In terms of the transaction itself, that higher pricing and volume is a great thing for the company in that it puts a larger amount of cash into their coffers for the next few years, which they will need. That transaction is completed and is not subject to the volatility in the value of the shares moving forward.

That covers the action through Monday night. What happened on Tuesday, which could be described as fireworks, was driven by different factors. Of all the IPOs that have come through the gate, I don't believe any has the attractiveness that Tesla has to the individual retail buyer. It is a stock that people want to own, even if it is just a 100 shares. They want a piece of the cause, and are not solely motivated by the potential short term gain or loss. When you have price-insensitive buyers coming in and snapping up shares at the ask at 100 shares a pop, and you have most of the float being help by large institutions who don't plan to sell in the short term, you have the potential for rapid appreciation in the stock price.
This went on through the middle of Wednesday, when TSLA touched $30, valuing the company above $3B. A sell side analyst emailed me pointing out that Honda America has a market cap of $4B, and sold 100,000 cars in the month of June alone (more than Tesla aspires to sell in the next 5 years combined)

Someone on the buy side who asked for my perspectives during the roadshow said to me that "the way I see it, there is a 20-30% chance that Tesla is the next Google", which illustrates why people, if they agree with that premise, might see $17 as cheap. Personally, I think Tesla may aspire to the culture and engineering excellence of Google, but at the end of the day the manufacture cars, so they are unlikely to see the same gross margins and operating margins as Google.

So if all this excitement and no sellers drove the run up in the first 36 hours, what is driving the stock back to lower (albeit still fantastic) levels? No way to know exactly, but here is one theory: short sellers must wait until the third day to bet against TSLA. Up until that point, the bulls were running with no bears to balance them out. The interesting thing about TSLA is that for every person who is extremely bullish on the stock, you have another who is bearish. Very few people I have talked to in the business are lukewarm. During the roadshow, I imagine that for every buyer who was wide eyed at the growth opportunity, you had someone wide-eyed at the opportunity to short the stock. With the shorts coming in today, you got selling pressure to counteract the buying.

In pricing and placing the IPO, having a polarized reception is fine, since all you need is to fill the deal book with people who are on the bullish side. Once there is float in the market, however, those who are bearish get to participate by shorting the stock. The same dynamic happened with A123 (AONE), with short interest piling up in the months after the IPO. It will be some time before we know the short interest in TSLA, but I predict it will be similarly robust.

It took A123 about 6 months to get back to the issue price of $13.50, and it has traded below that level ever since (although it has enjoyed a nice pop in the last weeks). Time will tell whether TSLA will perform better than AONE or capitulate to the bears earlier. With the stock's performance in the last days, I wouldn't dare try to predict which way it goes.

I welcome your thoughts/predictions in the comments...

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Cramer on Tesla: buy the IPO, sell immediately

2010-06-22T14:26:00.001-04:00

I think this is worthwhile sharing because it is the most in-depth analysis of the Tesla IPO on TV or in print so far and it has such a funny angle to it. He is hot on the IPo and cold on the stock. he also invokes the A123 (AONE) experience.

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Elon's pitch: "our valuation will be market independent"

2010-06-21T15:13:00.001-04:00

The most fascinating thing about the roadshow was Elon Musk's final words and the chart below. This is actually the first roadshow I've seen (its available online at http://www.retailroadshow.com/roadshows.asp)

Elon's final slide and words:

"Oh, one other thing, I think its maybe helpful to say what has been my track record in value creation - these are four of the companies Ive been associated with - its worth noting that every financing round in every company has been an up round, doesn't matter if the market has gone up or the market has gone down, the squiggly line is the market, and the valuations are as you can see somewhat market independent, and I expect that to be the same for Tesla, or to continue to be the same with Tesla"

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first glimpse at future Tesla designs?

2010-06-21T14:31:00.001-04:00

This slide from the Tesla Roadshow shows some anticipated future designs, including a pretty sleek looking cabriolet

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Great Advice from Foursquare CEO

2010-06-21T12:58:00.001-04:00

Dennis Crowley, Foursquare CEO on fundraising:

"You don’t have to rush through it. If you are building interesting things that people are excited about there is a way to make things work on your terms. It is important to select the partners that will support you and take the time to find the right partners."

Emphasis is mine - more (including video) on TechCrunch

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The latest big IPO: CBOE

2010-06-16T10:14:00.001-04:00

The big IPO that hit the street yesterday as Tesla announced their price range was the Chicago Board of Exchange (CBOE).

Because the CBOE priced at the top of their range and raised a pile of cash, many pundits proclaimed that this is good for the "IPO market" and that this would encourage more companies to go public.

I have to wonder if any of these folks actually read financial statements of companies that go public. CBOE prints cash, with pre-tax operating earnings of $38.7M on revenue of $101M. That is insanely profitable. They also don't make anything, which always makes for good capital efficiency.

I would contend that CBOE would have had a successful debut in any market, since they have extraordinary earnings. Its really that simple.
Companies are still in the development stage, require significant capital, and will take many years to generate significant earnings, like A123 (AONE), Codexis (CDXS) and Tesla (TSLA) are a whole different ballgame, and their initial valuations and ongoing trading price is highly tied to market sentiment and investors giddiness or lack thereof for a sector.

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Report: Tesla IPO price estimate $14-16

2010-06-15T08:00:00.001-04:00

According to peHub, Tesla has announced $14-16 as its price estimate for their upcoming IPO. The report states that Tesla is offering 10 million shares for a total of $140-$160 in estimated proceeds (excluding the $50 million private placement to Toyota that is planned immediately after the IPO.) An additional 1.1 million shares are being sold by insiders in the offering.

The most recent transaction on Sharepost.com, a secondary market for private company shares, was priced at a split adjusted $27. Ouch! But then again there are two sides to every trade...

I've been told that the road show is planned imminently. At the conclusion of the road show, TSLA's share price will be set based on demand from institutions. You can think of the initial price estimate as the opening "ask" by the company. In 2010's shaky market, many companies have priced at or below the range of estimates, as institutions have been very price sensitive.

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Nissan LEAF to have dog warning sound

2010-06-11T15:09:00.001-04:00

Apparently Nissan is anticipating selling the LEAF in areas with a high concentration of dogs, so they have implemented a piercing high pitched sounds to ward off dogs as you drive your car.

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Morning News: AONE, TSLA

2010-06-11T12:32:00.001-04:00

From greenstockscentral.com:

On AONE (A123)

"Goldman Sachs slashed its price target on A123 Systems (AONE) this morning from $15 to $9, but kept the Neutral rating following a meeting with management. The firm raised 2010-2012 revenue estimates, but forecasts larger EBITA losses." (link)

On TSLA (Tesla Motors)

"Kyodo News (via Street Insider) is reporting that Toyota and Tesla will co-develop a prototype electric car by year end and this is according to Toyota sources." (link)

______

My quick take: I always love it when analysts drop their price targets long after the stock has already gone down and shows no sign of rebound. I understand it but in theory the analysts are supposed to be leading indicators, no? Its nice of them to keep the new target a bit above the recent price.

Regarding the Kyodo news report - its interesting because I will look to what Toyota says about this potential deal as way more credible than what Tesla says because Tesla has a history of saying things that aren't really accurate. They also have way more to gain by overstating what the partnership entails. Toyota will of course be more conservative and have much less to gain from hyperbole.

I think Tate Dwinnell, who wrote the article in question, is guessing wrong that the prototype in the Kyodo news report is the Model S. I just don't think Tesla (and in particular Elon Musk) would hand that program over to a joint development, even with the Toyota. I would bet that it will be a new concept car for a car show to show off the idea of cooperation between old and new.

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Our government is infuriating

2010-06-08T17:12:00.001-04:00

We keep interest rates near 0% to keep the money flowing to the banks and all they do is turn around and buy government T-bills which pay them the spread between their cost of funds (0-.25% courtesy the taxpayer) and the yield on the t-bills (paid, again, courtesy the taxpayer)

With such a nice, easy racket paying you steady billions, why on earth would you be so stupid as to lend to small businesses or consumers?

I have never heard a reasonable explanation from anyone why this situation could be allowed to continue in spite of clear evidence it does nothing but transfer taxpayer money to banks. Obama should be more infuriated by this than by the BP oil spill, or perhaps more because it is his explicit policy in action.

Grrr.

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Daimler's underwhelming Smart EV

2010-06-08T16:12:00.001-04:00

In the past year everyone has come to the realization that there is nothing to recommend the Smart car over the better equipped, better driving, higher capacity, similar efficiency and cheaper offerings from Toyota, Honda and Nissan.

So what do you do to revive the brand? How about announce a Smart EV that is also totally underwhelming?

Bingo!

By limiting the Smart EV to 62.5 mph, Daimler is all but ensuring that every proud owner will despise going on the highway for fear of being run over. Maybe that was the grand plan of their product planners, who want to limit top speed to preserve precious charge in their stated 82 mile range battery (16.5 kWh). I assume they mean 82 "EV miles" which translates to about 55 miles to you and me (read the reviews of the Mitsubishi MiEV for an idea of what it will achieve in reality.

I can guarantee to you that in some conference room somewhere in Stuttgart, a product manager or engineer said the German version of "The buyer of the Smart EV is concerned with efficiency, so they will not want to accelerate rapidly or drive at a higher top speed". This is wrong.

And what about the price? You can lease one for $599 a month for 4 years. Compare that to the 5 seat, "100 mile", 90 mph top speed Nissan LEAF that is available for $349 a month.

Who do they expect to sell this car to?

Smart President Jill Lajdziak (formerly of Saturn) is predictably sanguine about the car's prospects (from the WSJ):

"Certainly, for growth of the brand, this is a milestone," Smart President Jill Lajdziak said in an interview. "The mere perception in the marketplace of Smart is of an environmentally friendly vehicle."

Her honest opinion of the Smart EV may have come out in her freudian slip use of the word "mere", which means "that is solely or no more better than what is specified"

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Battery prices going down, A123 short interest is going up

2010-06-07T15:30:00.001-04:00

I've had a fair number of conversations with investment bankers, buy side analysts and other folks on the research side about cleantech stocks. Most of the time people reach out to me formally or informally to talk about my thoughts on specific stocks like AONE (A123) , HEV (ener1), UQM, QTWW (Quantum), ALTI (AltairNano). Inevitably they want to pick my brains about TSLA (Tesla Motors) for the upcoming IPO.
As is the nature of the beast, none want to be mentioned by name on this blog, but nor do they object to me writing about the things we talk about without attribution.

Last week I chatted with an analyst at length about A123. He pointed a few things out to me that are interesting, and in some ways contrary to what I was thinking.

1) The fact that AONE has $400M + in cash does not mean, as I have said before, that the stock has a built in floor of $4/share. This is because they are committed to spend over $250M of that cash as matching funds for the government grants they have secured to expand capacity. So as a result, the stock has downside potential below $4/share

2) His opinion was that the latest downward pressure on the stock was triggered mostly from the publicity around lower battery prices for the Nissan LEAF. If people are talking about battery prices in the EV world at $400/kWh and A123 cost basis is higher, then things don't look so good for AONE.
3) My point to him is that AONE batteries are over-engineered for use in BEV applications (not necessarily PHEV and/or series hybrid like the Fisker or the Volt). No one building an EV needs 60C discharge capability, so why pay more for it and give up energy density? He has come to the conclusion that the EV business for AONE is probably not going to materialize significantly but that they are well positioned in the smart grid sector where their batteries' advanced capabilities actually deliver value.

4) He reminded me of the short interest in AONE. I tracked that for a while earlier this year and thought it had essentially flatlined - but a look at the chart above shows that it is moving up significantly since March. This means that a lot of folks are betting the stock will continue to go down.

5) Bullish analyst reports on AONE take the volume projections of A123's customers and assume that they will achieve all their bullish estimates. That is extremely naive or recklessly optimistic. I conclude that these analysts who are just being fed numbers by the companies are under pressure to make the companies happy so their banks can win transaction business in the future. The single largest sensitivity on all these companies projections is marketplace volume.
6) He said that a lot of the buy side guys anticipating TSLA see AONE as an important lesson to keep in mind.

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Nissan fibbing on range again

2010-06-02T14:11:00.001-04:00

In an article in the Wall Street Journal (sub req'd) , Mike Ramsey takes up the question of overpromising on range, which I have written about before. Ramsey points to the real world experience on BMW's Mini-E test fleet, where customers were seeing only around 100 miles of range and not the originally announced 155 miles (based on the EPA cycle)

To BMW's credit, this was a test fleet designed to figure out what problems they would encounter, and they have been transparent about the disappointment in the range figures and other difficulties.

Has Nissan taken the opportunity to walk back their previous bullishness about 100 miles range on the Nissan LEAF? Nope. Not even close. In fact, Nissan Product Director Mark Perry has taken to a rather unique diversion tactic:

Mark Perry, who leads Nissan's product planning in North America, stands by the 100-mile estimate while acknowledging the actual range will vary depending on how people drive and other factors, such as the weather. Heavy use of the car's heater or air conditioner will also reduce the range.
"You are going to see people who get more than 100 miles and people who get less than 100 miles," Mr. Perry said. "The most impact on range really is how hot and cold you have set your interior cabin."

This is close to the usual tactic of "I'm not lying, but I am also not telling the truth" - an old standby in corporate media relations, but in this case Mark makes an assertion that the single biggest factor on range variation will be cabin temperature, which is totally implausible.

The biggest factor in the range you will see on the LEAF will be whether you drive at high speed or at low speed. Drive 65mph on the highway and you will see about 70% the range of what you would get driving around town. Drive even faster (you know you do!) and the difference will be even more dramatic. For a cabin heater to account for a bigger variation than that it would also be capable of roasting a chicken on a rotisserie.

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WSJ on Tesla: "a political kludge of the murkiest order"

2010-06-02T13:45:00.001-04:00

In today's Wall Street Journal, Holman W. Jenkins, Jr. unloads extreme criticism on Tesla Motors and the Obama administration's subsidies for electric vehicle companies, calling it "a political kludge of the murkiest order."

Here is a link, but it is a paid subscription so I don't know if it will work for you.

Given their well known opinions of the government's proper role in private enterprise, it isn't a surprise that the WSJ in general and Mr. Jenkins in particular would be critical of the Obama administration's generous support for hand-picked companies like Tesla, Fisker, Solyndra, etc.

A representative quote from the article:

In February, Mr. Musk told a judge he's "out of cash" and living off loans from "friends." Among the friends he didn't enumerate is the federal government, which under a law Mr. Obama keeps bragging about has become Tesla's biggest supplier of working capital, in the form of $465 million in federal loan guarantees. But there's a wrinkle: This money can't be used directly to put Tesla's new "Model S" into production, but will be available only after Tesla raises the necessary funds from private investors. Bottom line: Tesla needs an IPO, even in today's inhospitable market and despite its unpromising business plan. Mr. Musk himself especially needs an IPO to refloat his lifestyle by converting some of his Tesla stake to cash.

Oy Vey! I wonder what the PR response to this piece will be from Tesla, if any. If past is prologue, perhaps they will deploy the "douchebag" offense.

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Fisker's lost round of financing - should they have disclosed?

2010-06-01T13:54:00.001-04:00

In April of last year Fisker Automotive announced that they had raised $85 million in financing from EcoDrive partners. I wrote about it on my blog here. Since then, the press release announcing that round of financing has disappeared from the PR newswire website (the link I used now resolves to a general automotive category page) and there is no mention of the financing on the Fisker Automotive website.

Late last year a colleague in the industry on the media side told me that he had heard that the financing round had fallen through, but had chosen not to write about it. At the end of the day, Fisker ended up raising the money from other sources so at this point it isn't much in the way of news. However, I was reminded of it when I read this article by John O'Dell of Green Car Advisor/Edmunds. John is a pretty thorough journalist so he must have asked to confirm the company's investors against his records. At the bottom of the article he writes: "(Note, Fisker Automotive says that Eco Drive Partners, previously listed as a backer, does not have an investment in the company.) "

It raises a curious question in my mind around the process of private companies communicating with the media (which is the essence of what we are building in NewsBasis, although not limited to private companies). They have no obligation to disclose things, so generally communication from private companies is selected and crafted to be positive or to counter a negative piece of information. There is nothing unusual about that, but what is the ethical duty of a company that issues a press release about a significant event, causing journalists to write positive news stories, to retract that or correct it when the deal falls through?

Certainly there are dozens if not more articles out there, including my blog article, that reference the positive story of the financing round that never was. Does Fisker have a duty to clarify or correct this information or is it acceptable to just take down the releases and pretend it never happened? How many journalists will see some of those articles when researching a piece on Fisker and incorrectly reference it?

Again, it is not a matter of where they stand financially today, since they have since announced several additional rounds of funding and the closing of the DOE loan. I raise this as a matter of interest in the practice of corporate media relations. I'll pose the question to the folks at Fisker and see if they have any comment.

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Tesla Q12010 sales flat, but down over 50% in US

2010-05-27T16:08:00.001-04:00

The latest amended S-1 brings with it some transparency in Tesla's sales figures for Q1 2010.

Revenues for Q1 2010 are basically flat from Q1 2009 at $20.8 million. But later in the document they break out sales as such:

"For the three months ended March 31, 2010, international sales represented 56% of our total automotive sales revenue, which is comprised of 48% of our total vehicle, options and related sales and 100% of our total powertrain component and related sales"

While the language is a bit confusing, the main conclusion to draw from this is that only 44% of the $20 million, or $8.8M, came from sales of the Roadster in the United States, that is down by 56% from previous quarter.

With an estimate a fully loaded average price of $140K for a roadster, US sales are probably in the range of 63 cars sold for the quarter, or 21 per month.

If you combine US and international sales, but exclude the powertrain sales, I estimate unit sales of roughly 131 cars worldwide for 1Q2010, for an annualized rate of 524 cars, which is slightly higher than my earlier estimates which were based only on what I was hearing. 1Q 2010 may be higher than future quarters because of entries into new markets like Canada and Japan, where they had a small backlog, but then again Spring and Summer could turn out to be better due to seasonality.

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The Specifics of the Tesla and Toyota Deal

2010-05-27T15:10:00.001-04:00

So far, tesla has agreed to purchase NUMMI for $42M. That's it.

Aside from that, there are no definitive agreements between Tesla and Toyota, or as stated in the amended S-1:

"In May 2010, Tesla and Toyota Motor Corporation, or Toyota, announced their intention to cooperate on the development of electric vehicles, and for Tesla to receive Toyota’s support with sourcing parts and production and engineering expertise for the Model S. However, we have not entered into any agreements with Toyota for any such arrangements, including any purchase orders, and we may never do so."

I'm not saying that I don't think there will be an agreement of some sort between the two companies at some time in the future, but I think that last weeks announcements aside from the purchase of NUMMI were just some very high-octane (or amperage) PR. And that's a compliment, not a criticism!

Refer to my previous post for my thoughts on what any likely "deal" would look like.

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Toyota will invest at IPO price, Fisker announces (small) delay

2010-05-27T10:39:00.001-04:00

According to Marketwatch, Tesla disclosed in an amended filing (that I can find) that the $50 million dollar investment from Toyota will be at the IPO price. In my previous post I speculated as to the meaning of a Reuter's report quoting a Toyota exec saying that the $50 million would result in a 2.5% ownership (imputed market cap of $2B). It looks like it was the second possibility I speculated on - $2B is what Tesla is telling Toyota that they expect the value of the stock to be at IPO pricing, not a firm price that Toyota has committed to pay. The actual price of the IPO will largely be a factor of investor sentiment and market conditions, which have been very shaky of late.

The deal announced with Toyota made great headlines and is obviously a plus, but institutional investors will want to know what the specifics of the deal are when considering the price. Aside from the purchase of NUMMI, which is committed to, the only thing I heard from the press conference and company spokespeople is that there will be "cooperation" between the companies. Since the two companies only started talking 6 weeks ago, I would guess that they have entered into a "Memorandum of Understanding" to explore avenues of cooperation, as 6 weeks is too short a time to nail down specifics of a major car program or technology sharing agreement. That didn't stop many news outlets from declaring as fact that either Tesla will build cars for Toyota (doubtful), Toyota will be using Tesla battery packs in a Toyota car (highly doubtful). My guess is that the agreement will look more like a collaboration on technology and supply chain, both of which will be beneficial to Tesla. If there is a car program born of this cooperation, the only thing that makes sense to me is that Toyota builds a car for Tesla as a contractor/manufacturing partner. This might be similar to the Toyota Corolla/Pontiac Vibe program that was running at NUMMI, but I would expect that Toyota would use its own battery pack design for the Toyota-badged car while installing a Tesla pack in the Tesla badged car. I hope to learn more about the details of any agreement when Tesla amends the S-1 to reflect the latest.

In other news, Fisker Automotive board member and Kleiner Perkins GP Ray Lane told Reuters that Fisker Automotive will build 70-100 test cars starting this year and will enter "mass" production in February 2011. Depending on how you parse earlier statements from the company, this represents a new, albeit short, delay in their timeline. In the big scheme of things, it is not a big deal sine the Karma is really targeted to potential buyers of the Model S, and will be in the market several years in advance of the Model S if they indeed begin mass production next February. None of the EVs or PHEVs coming to market in the next several years are competing in the same segment as the Karma, so Fisker Automotive's biggest challenge is Fisker Automotive (i.e. execution) and the marketplace.

Regarding execution, the lack of transparency around program development and progress does not inspire confidence with the media. It may be the standard operating procedure for a large carmaker to keep things tightly under wraps but Fisker needs to realize they are not GM putting out yet another gas powered sedan. In my opinion they would have benefited and would benefit now from being more transparent about the program.

Regarding the marketplace, every single startup EV car maker has set very aggressive goals for unit sales. That is the nature of promoting your business plan and setting big goals. One of the most important unknowns that will become known in the next few years is what the actual market demand for PHEVs and EVs are at the current prevailing prices. Unfortunately, the realities of the marketplace can humble even the most visionary and insistent CEO who states as a fact that they will sell 15, 20 or 100,000 units. The thing that I find interesting is when investment bank analysts issue reports with estimates that use every company's exact projection, as if there is no market risk.

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Publish2: pivoting, thinking big, and identifying the enemy

2010-05-25T13:43:00.001-04:00

Publish2 announced a major evolution in their business model yesterday at the Techcrunch Disrupt conference. When Publish2 originally launched a few years back, the essence of the business model was that they would be a "Digg" that contained content curated by journalists, leading to higher quality curated news. Like most startups, Publish2 went through several evolutions in the last few years. Raising $2.75 million in 2008 gave them a significant amount of runway to try to find their "product market fit."

This latest Pivot is a significant one: Publish2 wants to be "The New Associated Press of the 21st Century" as CEO Scott Karp writes in his company blog. he describes the business model as:

"With Publish2 News Exchange, newspapers can replace the AP’s obsolete cooperative with direct content sharing and replace the AP’s commodity content with both free, high-quality content from the Web and content from any paid source.

With Publish2 News Exchange, we’ve created what the AP should have become, but can’t because of a classic Innovator’s Dilemma. The New AP is an open, efficient, scalable news distribution platform. We’re enabling newspapers to benefit for the first time from the disruptive power of the Web, and from the efficiency of content production on the Web."

I like this move for a couple of reasons. Publish2 is thinking really big. Of course thinking big comes with skeptics who will ridicule the ambitions of the startup, but that is the nature of startups that ultimately disrupt the big incumbents. They are never viewed as a threat when they are starting out.

From the perspective of the entrepreneur - you put so much into the endeavor emotionally and often financially, you may as well fight the good fight and go after something big. It's hard to justify the sacrifices of entrepreneurship if you are thinking incrementally.

The second reason I like this move is because they are courageously pivoting into a new business model but based soundly (as far as I can tell) on the learnings and proximity they have had with publishers and journalists in the last few years. It doesn't hurt that their CEO is a domain expert and that they have a strong advisory board. I believe in lean startup thinking but I don't believe that pivoting blindly will usually lead to success. Domain expertise is still important to really understand the nuances of what hole you are trying to fill. Customer Development requires that you understand the motivations and pain points behind the words that the customers use. If you simply act on the explicit feedback of customers without understanding the underlying issues you can iterate yourself into oblivion and never get anywhere.

The third reason I like this move is that Publish2 is clearly identifying the enemy, and the enemy is big. This is a great way to motivate your team and clarify your objective.

Posted via email from Darryl Siry's posterous

Tesla's internal IPO target: $2B (with Toyota's help)

2010-05-22T10:56:00.001-04:00

Tesla's internal price target for the IPO is likely around $2B, and it may be Toyota who provides direct price support in the market!

Tesla's recent announcement with Toyota on the purchase of the NUMMI plant and talk of potential collaborations in the future will no doubt provide some support for their planned offering, but a report from Reuters citing an anonymous Toyota source may indicate that the deal was engineered to provide direct pricing support at the time of the IPO as well.

I reported earlier on what I was hearing about Tesla's potential value on IPO before the Toyota deal was on the table, when I wrote:

"From the chatter I hear about the offering, look for tesla to go out between $1 billion and $1.5 billion. $1B is approximately a split adjusted $3.30/share, which is just a 10-15% premium over their last round of financing. Certain insiders at Tesla are no doubt looking for a higher valuation, but the risk they run in pushing too high on valuation is that the stock will move down shortly after going public which would be a bad situation."

The source I spoke to also told me that Elon Musk was pushing back against the bankers and arguing for a $2B valuation at IPO. All this occurred before Toyota approached Tesla for the NUMMI deal and potential collaboration.

This internal target is now corroborated by the Reuters report that says that a Toyota insider estimates that their $50 million purchase of common shares in a private placement after the IPO will "amount to a stake of about 2.5%"

Its hard to tell if this means that they have agreed to a price of $2B, or whether they are estimating that the common shares that they will purchase after IPO will be valued on the market at $2B. It's an interesting, if speculative, thing to consider. So speculate I will...

With the IPO coming in the months ahead, it is very likely that Elon, the board and their bankers have been wrangling with matters of valuation for many months. The main consideration pricing an IPO is that you price it so that it has continued support in the market after the shares are floated. If you price it too high, the stock will immediately sink down and investors who bought high will immediately be underwater. So if Tesla were to price the IPO at an aggressive $2B, they'd run the risk of the stock dropping like a rock in the ensuing months (see my story on A123). This would assume they could find enough folks to fill out the offering at that price.

This may be where the deal with Toyota comes in. If Toyota agreed to buy $50M in shares in a private placement after the IPO, it might have been engineered that way to provide price support at the $2B level in the market. If this is the case, it is a bit fishy.

Alternatively, if the deal is structured so that Toyota has simply agreed to purchase up to $50 million shares at the market price after IPO, then their percent ownership would depend on market price, and the anonymous Toyota source may just be using a $2B estimate given to him by Tesla.

Since Tesla has described the transaction as a "private placement of common stock" after the IPO, I assume it is the former, and that the price has been set. If that is the case, I assume it will have to be disclosed in an amended S-1 at some point in the future.

It makes me wonder if Tesla has just revealed yet another innovation: negotiating a priced private placement of common stock scheduled to occur after a public offering of common stock before registration has even been approved, much less priced in the market.

Posted via email from Darryl Siry's posterous

eCommerce gone wild

2010-05-20T14:12:00.001-04:00

A few days ago I ordered 3 windshield wiper blades for my car. Instead of going to some dealer, all I had to do was go to Autopartswarehouse.com and I could specify my car and choose from among dozens of brands. By spending over $70 they offered fedex ground shipping for free. This, I thought, was the awesome promise of ecommerce.

Today I have received two separate fedex boxes, each one quite large, and each one filled with a single wiper blade. I called autopartswarehouse to ask what was up and they said the third one has not yet shipped.

Aside from the weird customer experience, I gotta wonder how in the hell they can make money drop shipping from three separate locations and paying fedex three times for a $70 order.

Posted via email from Darryl Siry's posterous

Clever marketing by Tesla

2010-05-19T14:52:00.001-04:00

Tesla sent the following email to some or all Model S reservation holders. I think the headline is clever and catchy, and the strategy is interesting.

Obviously Tesla is looking for ways to support Roadster sales. Several sources have indicated are significantly down now that the backlog has been filled. Model S reservation holders are a great source of leads, since they are people who are already committed to the brand and have raised their hands indicating a desire to own a Tesla. So how do you take someone who has already indicated a desire to buy your next car and convert them into a buyer today? Guarantee that you will take the Roadster off their hands when their Model S arrives.

It's a clever idea, although it is likely to yield only incremental results. For starters, the cost of the Roadster lease is going to be prohibitive to most (but not all) buyers of the Model S. The ones who can afford it who have not already purchased the Roadster obviously had a reason they didn't buy the roadster in the first place, and it isn't likely to be a financial reason. More likely that they don't want to drive a small sportscar with few amenities. So offering them the financial convenience of not needing to sell the car when they take delivery of the Model S is not likely to be a strong incentive.

I'm curious if it will work well, and I am very curious what the actual level of Roadster sales were in 1Q2010. You can get the unit sales of every other car manufacturer in Automotive News but Tesla does not report sales figures. I imagine that they will soon have to amend the S-1 filing to include 1Q sales figures as well.
Another interesting question is how much investors in Tesla's IPO are even going to care much about declining Roadster sales. The future financials of the company are driven almost completely by Model S and its derivatives, so the IPO investment is actually a speculative bet on Tesla's prospects going forward, with Roadster sales a marginal distraction.

Posted via email from Darryl Siry's posterous

Test driving the Chevy Volt in SF

2010-05-18T16:29:00.001-04:00

In the Photo above we have many SF and EV blog landmarks. I snapped this photo while Josie Garthwaite of Earth2tech was filming an interview with Nick Pudar, the fellow from GM responsible for the Android app they announced today. On the right in the background is Bradley Berman from Hybridcars.com. Way in the background is AT&T Park, where the Giants play. That sole skyscraper in the back is One Rincon Hill, the tallest residential tower in SF (which no one really cares about but its there so I thought I'd point it out). You can see the Bay Bridge way off on the right. The sky is classic San Francisco weather as we approach the summer.

Oh yeah, and that is the Volt on the right. Here are my brief driving impressions and other observations. There are plenty of blogs that have seasoned reviewers and go into much greater depth than I, so I will focus briefly on the things that were notable.

The most notable thing is that the car did not understeer as badly as I would have imagined for a vehicle of this type, which is a very nice thing. This observation has very little to do with the EV-ness of the car, but rather something I have just come to expect from modern mid-size sedans. Overall vehicle dynamics seemed very nice. I would keep it in sport mode the whole time, which has better pickup and slightly higher regen levels.

Tony Posawatz, Volt vehicle line director, was in the passenger seat and we chatted about the interior bits. A lot of what is in the prototype is not exactly what will be in production so there is no point writing about it. When I was at Tesla nothing irritated me more than journalists who knew full well that the prototype interior was not final but still write about it critically as if it was. Grrr.

Tony seemed particularly proud about the vehicle dynamics and encouraged me to drive the car harder the second time around the track, which of course I did.

We chatted about the Volt vs. the Leaf and my particular "use profile." I commute 7 miles each way to work most days, and my wife drives mostly around town, taking our daughter to activities or doing chores. 40 miles would be plenty for most days. Our house in Sonoma is 100 miles away, so there is no way the LEAF would reliably make the trip unless I drove in the slow lane below the speed limit, which is not realistic. Business meetings in the South Bay would also test the limits of the range on the LEAF (80-100 miles round trip) so I would have the added requirement of finding a charging station to plug it in during a meeting.

So for my family, at least, I think the Volt is a better fit ASSUMING THE PRICE IS RIGHT. Thats the big question right now, and I am sure the folks at GM are thinking hard about that one. Their car is a different beast than the LEAF, so I don't think they need to necessarily match the price, but they can't be too far away from it or they will not hit the sweet spot in the market.

When GM first launched the Volt, some of their senior guys told me that the car had to be around $30K for it to really work in the market at volume. I agree with them, so lets hope they come in with a price around $30K after the federal tax credit, or lower. Forget about the CA tax credit unless they increase the funding because it will be rapidly exhausted.

Posted via email from Darryl Siry's posterous

DOE giveth and taketh away...

2010-05-14T11:35:00.001-04:00

You have to admire the DOE for continuing to pretend that the ATVM program (a.k.a. section 136) is actually an objective competition where the best technologies win and where the DOE is acting as careful stewards of taxpayer money. Detroit News and Earth2Tech reported on a DOE conference call that DOE senior advisor Matt Rogers held yesterday.

First there is the "financial viability " hurdle. Its hard to argue that GM and Chrysler were not on the verge of Bankruptcy when the program was first spooled up at the end of 2008, but the DOE has toed that line carefully with the incumbents while seemingly waiving the requirement, or perhaps redefining it for the startup companies that they have funded. What analysis or diligence could have concluded affirmatively that Tesla Motors and Fisker Automotive are financially viable for the life of the loan (25 years)? Both companies are startups and are still in the phase of burning significant capital and generating losses on the speculative bet that there will be significant demand for the products they promise in the future.

I'm not saying that the DOE should have declined to loan Tesla or Fisker the money on the basis of financial viability, but they should not pretend that there is a clear and objective criteria for what the DOE has and will fund.

There is ample evidence suggesting the process is highly political (see articles here, here and here). Aside from the reporting that has been done, anyone close to the process (including myself and many of my contacts in the alt fuel world) knows that it is absolutely political.

Earth2tech reports "According to Rogers, the main focus at this stage of the evaluation process for GM and Chrysler is “making sure each of the projects they have are competitive.”

So the guys from the DOE and Booz Allen Hamilton or AT Kearny are trying to judge whether the series hybrid Chevy Volt will be competitive? It certainly will be disadvantaged if you don't fund it. Why? BECAUSE YOU FUNDED THEIR COMPETITION. Now that you have screwed up the natural forces of the marketplace, the DOE must provide equivalent support for the Volt program and let them compete on a level playing field with Nissan, Ford and even Tesla and Fisker.

Posted via email from Darryl Siry's posterous

Deloitte rains on the EV parade, especially Tesla's

2010-05-13T20:32:00.001-04:00

Reuters reported on a new Deloitte study with the headlines that they predict the EV market will be much smaller and grow much more slowly than many others have been predicting. Deeper in the article I found something that piqued my interest even more:

From

Reuters:

_______________________________________

"A Deloitte survey found that 17 percent of consumers would prefer to buy an electric car from Toyota Motor Corp (7203.T), 15 percent from Honda Motor Co (7267.T) and 12 percent from Ford Motor Co (F.N).

GM's Chevrolet brand was fourth at 8 percent, and Nissan was ninth at 4 percent.

Tesla Motors, which already has a high-performance electric car on the road and is using U.S. government funding to develop a mass-market offering, was at 2 percent."

_______________________________________

This is very interesting stuff, and no doubt infuriating to read if you are Nissan or Tesla. In particular Tesla, who has filed to go public and must convince investors that they are a leader in the growing EV market, not a distant laggard in the minds of the mainstream market.

The reason I say it would be infuriating is because the survey appears to be structured in a way that causes the responses to reflect top of mind recall of brand awareness, not actual purchase intent or preference among likely buyers. So in other words, the reason Toyota leads and Tesla lags is simply because in the mass market more people know Toyota than Tesla. In the future, if and when Tesla has a Sedan in the marketplace (2013?14?) a prospective buyer of an EV sedan will most certainly have Tesla in their consideration set.

As for Nissan's 4%, I have no idea why they would rate so low...

Posted via email from Darryl Siry's posterous

A123 disappoints, announces piddling new Eaton deal with fanfare

2010-05-12T11:18:00.001-04:00

A123 announced earnings yesterday that were below analyst expectations. The stock, which has been trending steadily downward this year, is hovering around $9.50 at the time of this writing, down 7% on the day. The stock has previously seen highs of $28 after pricing its IPO at $13.50 and seeing a 50% pop in the first day.

At todays price, the market capitalization of A123 dips to $983 million. So is it a bargain or is it still going south from here? As a "story stock", A123 generated (and still generates) a great deal of enthusiasm among investors sanguine about the cleantech sector. But does an objective look at A123 warrant enthusiasm?

The company grew only 5.6% year over year, which is well below what you would expect from a leader in an explosive growth sector. That is the growth rate one would expect of a mature player in a mature industry. If you dig into the revenue mix, it turns out the growth was from service revenue, with actual revenue from product shrinking to $19.8 million from $20.1 million (down 1.5%)

This means that more people have been paying them for their time to do projects and fewer people are actually buying their batteries, or that pricing on the batteries is going down. In either case that is not a good thing.

Gross margin on their product revenue (which they call "Gross Profit") is -$2M, which means they are not producing product profitably. Overall losses were -$29 million.

A123 is in no risk of running out of cash soon, since the IPO was so frothy it piled hundreds of millions of dollars into their coffers. Current cash on hand is $441 million. Thank you giddy IPO investors!

In spite of the depressing figures, A123's CEO says ""We are very pleased with the growing momentum of the advanced battery systems market and A123's business in particular. We are solidifying our leadership position in the transportation market"

The problem is that their does not appear to be much momentum at all if you look at the numbers. in the next paragraph he points to increased company pipeline activity - "Since closing our IPO, the number of transportation customers with whom we are engaged in development and design activities has doubled, with over 50% of this increase attributable to passenger vehicle programs."

The deal they trotted out for this earnings announcement was a small development project with Eaton to develop a prototype PHEV medium duty truck. The project is, of course, funded by the government. Revenues from the deal are not projected, but they will surely be very small as it is a demonstration project.

The problem is that I think that this kind of deal is more likely to be the opportunities that A123 sees in the future. Far from "solidifying their leadership position in the transportation market", they seem to be solidifying their position as the go-to company for second tier supply and demonstration deals. The major EV programs that will drive the real volume in batteries in the next 4 years are not using A123s batteries. They are using Panasonic/Sanyo, LG Chem, NEC, GS Yuasa, etc.

A123s biggest prospective deal is with Fisker Automotive, for which they paid $23 million. The numbers look big if you take Fisker's projected volumes at face value. 15,000 cars at 20 kWh, assuming an aggressive $600/kWh, would represent $180 million in annual revenue. There are 2 or 3 key problems with this. The first and most important is that Fisker has not produced a car yet, and if they do bring a car to market it is highly unlikely that they will do volume anywhere close to 15,000 per year. The second is whether A123 can make money on the batteries they deliver to Fisker at the price Fisker needs to make money on their car. Currently they do not. Last, A123 is spending a lot of money building out capacity for these and other potential big deals.

One thing that can comfort current holders of A123 stock is that the stock isn't likely to go below $4/share, since that is the value of cash on hand.

Posted via email from Darryl Siry's posterous

Tesla close to announcing factory location...

2010-05-08T17:54:00.001-04:00

Reading this post by Councilwoman Gerrie Schipske of Long Beach about the latest piece of news about Tesla's pending announcement, I can't help but spoil everyone's surprise by letting the cat out of the bag:

Tesla has chosen Albuquerque, NM!

This has all been an elaborate ruse to wrangle the last bit of concessions from New Mexico Governor Bill Richardson and NM Senator Jeff Bingaman. Although it has been 3 years since Tesla first announced NM as the chosen location for the "Whitestar" Sedan, Tesla was just driving a hard bargain. Of course the original "Fall 2009" date for production of the Whitestar will need to be pushed back to at least Spring 2010.

In exchange for the re-commitment, New Mexico has announced a $5,000 state tax credit for purchases of Tesla stock and has promised to pass an excise tax on the Nissan LEAF and Chevy Volt.

Posted via email from Darryl Siry's posterous

Polemical

2010-05-05T02:29:00.001-04:00

A smart friend who is a senior exec in the EV business sent me a nice note after reading some of my recent postings. He said:

______________________________

It's amazing that for some reason cleantech and in particular EVs is very polemic, either you have the wide-eyed advocates, or the "debunkers".

__________________________________

I've heard this from others as well. I try to be rational and objective in my writing but it's hard to split the middle.

Posted via email from Darryl Siry's posterous

ZENN - like rats off the ship

2010-05-05T02:09:00.001-04:00

I sometimes think I have become overly cynical about the EV startup scene, then news like this makes everything new again. The CFO of ZENN, which has bet everything on the fantasmagorical EESTOR ultracapacitor, has resigned. The link is below. I have no idea how the stock will react tomorrow, since I think any rational investor would already value it at zero. That must mean that the stock value consists entirely of hopeful Investors who believe in fools gold.

I have no direct knowledge of why the CFO resigned, but I invite him to contact me directly to talk about it on the record and do the right thing by all your hapless retail Investors. http://bit.ly/aYgLmQ

Posted via email from Darryl Siry's posterous

Aptera: the Ultimate Startup!

2010-05-03T21:38:00.001-04:00

From the Aptera newsletter today:

"The Aptera was developed completely from a clean slate. It's the ultimate start-up," said Wilbur. "Lots of engineering and dedicated people have created this beautiful vehicle. The objective is to assure that the safety, quality and overall efficiency of our first production vehicle are correct. No compromises. We have to get this right the first time, and we've contracted with the best and brightest in the industry."

As a subscriber to "lean startup" thinking, I find Paul Wilbur's statement so very interesting in that it is exactly wrong. Granted that software startups are different from electric car startups, but thinking you have to get the product perfect the first time is absolutely the wrong way for a startup to be thinking about product development. That kind of thinking will have you forever spending valuable time and money "getting it right" in the absence of actual customer feedback (from usage, not surveys) and then iterating to a better product down the line.

If Aptera had launched a limited volume run of vehicles in 2008 to rabid early adopters who would never complain about roll down windows they would be well on their way to a better product, would have more market traction, and would have loads more credibility.

(That being said, I am a big fat hypocrite since at NewsBasis we could have launched something already but I am insisting that we add more functionality to the core product before we launch this summer.)

Posted via email from Darryl Siry's posterous

Tesla estimates June IPO date

2010-05-03T18:04:00.001-04:00

According to a source with access to information regarding the offering, Tesla motors is saying that they estimate the IPO to be priced in early June 2010. Its not clear if that means that the SEC has approved the S-1 registration, which was recently amended for the second time to include information about a planned reverse stock split and new information on a development deal with Daimler for an Electric A-Class.
Also unclear is whether Tesla will be required to file an amended S-1 that will include financial data from 1Q 2010. This would be important data as it would be the first quarter to show what the actual "run rate" business of the Roadster looks like after Tesla finished delivering cars against a backlog that had been accumulated since 2006. Rumors and secondary sources put that number at 300-400 units per year but there has been no direct confirmation of that figure.

If anybody knows anything else, feel free to post in the comments!

Posted via email from Darryl Siry's posterous

Cleantech is the new Corporate

2010-05-03T14:53:00.001-04:00

It started a few years ago but I've noticed the trend getting more pronounced: Cleantech is the new Corporate. While at the Green:Net conference last week I noticed that there were an awful lot of suits and ties. The more relaxed guys were wearing the "silicon valley business casual" outfit of pressed slacks and a button down collared shirt. Extra credit if the slacks are khaki and the shirt is blue.

I suppose it was inevitable as the entire cleantech sector is buoyed by the public sector, at the local, state and federal levels. If you want to win political favor, you better be wearing a fine suit and power tie. I've also noticed more and more of the people pursuing jobs in cleantech are former consultants of the McKinsey/Bain/BCG ilk.

Posted via email from Darryl Siry's posterous

More on Tesla's planned IPO and reverse stock split

2010-05-02T15:31:00.001-04:00

Deep in the latest amended S-1 registration statement, dated April 29th, Tesla discloses that the board has approved a 1 for 3 reverse stock split. This was anticipated because the number of shares outstanding at the time of the offering would have been about 300 million. Typically companies look to have a capital structure that would get them in at least the $10-12 range when they go out. To do so with the existing capital structure of 300 million shares would have required finding a sufficient number of buyers at a $3 Billion valuation, which wasn't going to happen. With 100 million shares outstanding after the reverse split, $10-12/share would equate to a $1.2B valuation.

From the chatter I hear about the offering, look for tesla to go out between $1 billion and $1.5 billion. $1B is approximately a split adjusted $3.30/share, which is just a 10-15% premium over their last round of financing. Certain insiders at Tesla are no doubt looking for a higher valuation, but the risk they run in pushing too high on valuation is that the stock will move down shortly after going public which would be a bad situation.

All in all, while Tesla is a blockbuster brand and a much anticipated name on the street, it is unlikely to be a "blockbuster" IPO or cleantech's "Netscape moment". This one looks more like a public financing event that will provide the company with easy access to the additional funding they will need for the next few years to complete the Model S and gives existing investors an opportunity to get liquid after a pretty wild ride in the past few years.

That being said, Tesla has defied expectations before and you can never underestimate the value of a hot brand and a cool car to spark demand for the stock from retail investors. If Tesla keeps the float small, retail demand could provide some price support.

Posted via email from Darryl Siry's posterous

Long Beach hearts Tesla

2010-04-30T17:19:00.001-04:00

This article from the LB Post could be dismissed as bitterness since it is clear that Tesla has made the decision to go with the Downey location, but it raises a lot of very good questions. Based on the documents submitted to the DOE for the environmental impact assessment, from the time Tesla starts construction, it will take 18 months for the factory building to be ready for them assuming 2 10 hour shifts every day. This also assumes that there are no delays. I'm told by people who know more about this stuff than I that if the facility won't be ready until 18 months from when they start, actual production of the vehicle for customers is likely to be at east another year after that. That puts Model S production at 4Q2012 if nothing goes wrong. Of course Tesla will stick to the official line that the car will be delivered 4Q2011.

Ironically, the best reporting about Tesla and its business prospects have come from to local papers, the LB Post and the Downey Patriot. None of the large media outlets or green blogs are reporting anything nearly as useful or interesting as these two local papers are. Kudos to them.

http://www.lbpost.com/ryan/9494

Posted via email from Darryl Siry's posterous

Fisker closes DOE loan, better start spending fast!

2010-04-23T22:58:00.000-04:00

The DOE announced today that they had finalized the terms on their $529 million loan to Fisker, the luxury EV startup. $169 Million of this money was to go toward finalizing the design and engineering of the Fisker Karma, which was originally slated to be delivered last fall but was since delayed until fall 2010. I can understand that if the DOE dangles the candy of low interest loans to startups that they will dutifully wait many months until the money is disbursed so they can go on their merry way with essentially free money, but if the $169M is only going to start flowing now (April 2010) the likelihood of Fisker delivering the Karma in regular production in fall 2010 is zero.

The good news is they will probably have the means to produce the car now, but Fisker customers better have the patience of Job. Another thing they have going for them is they will definitely have the Karma out before Tesla produces a Model S sedan. But the bigger story is that Nissan, GM and others are going to effectively lock out the "middle market" with lower cost options, leaving Tesla and Fisker to scrap over the luxury market xEV niche, which is much smaller than their combined aspirations of 40,000 plus units.

http://www.wired.com/autopia/2010/04/feds-finalize-fiskers-financing/

(This was originally posted on my posterous account at http://darrylsiry.posterous.com. I tend to post shorter, more opinion oriented stuff there as well as content related to my software startup, NewsBasis.)

I'm going to Earth2Tech's Green:Net and so should you

2010-04-21T15:35:00.000-04:00

While my focus these days is concentrated on my software startup, NewsBasis (formerly Plato's Forms), I like to stay connected in the cleantech world. It's intriguing, exciting, and I'm told the world is going to explode if we don't do something about it (or something scary like that.)

It seems like there is a green conference every week somewhere out there, and from the coverage I read about them, its disappointing to see that the conversation is often not being advanced very rapidly, and the content is all too often a rehash of the same old tired ground.

From the looks of it, an exception is the Green:Net conference put on by Earth2tech (a GigaOm blog) on April 29. Their approach to the subject matter is unique, looking at it from the perspective of the intersection between IT and Cleantech. As a result, their planned speakers and panels promise to be very interesting indeed (agenda can be found here)

Some of the things I am particularly looking forward to is Om Malik's interview with the outspoken and contrarian cleantech investor Vinod Khosla. His views may be contrarian but they often ring true to me. For example, there is an extraordinary amount of public discussion and government support for EVs, but a much larger short term opportunity to displace foreign oil and reduce carbon emissions lies with developing higher efficiency internal combustion technologies.

Also, Paul Kedrosky, who writes one of my favorite blogs "Infectious Greed", will be speaking about the environment for investments in Green IT. I hope he contrasts low capital intensity cleantech opportunities with the massively capital intense companies that are typical for cleantech.

Last, I hope I can finally come away with a compelling case for why consumers should be excited about the smart grid. It's obvious why investors are excited ($$$) but I haven't yet been convinced that the average consumer is going to care much. At the end of the day it probably doesn't matter since it's not likely to be an "opt-in" situation.

I'm looking forward to attending and if you are involved with cleantech I suggest you attend too. See you there!

Something to be proud of

2010-01-28T15:42:00.001-05:00

I received this message from an old friend at Fireman's Fund. Hearing stories like this make me immensely proud of what we achieved there.

_______________________________________________

Darryl,

It's been a little while since we've touched base. I rejoined FFIC last summer. Love it! Just had a town hall where Heritage was discussed. One of our grants directly saved a life and the family and EMT personnel attended. Very powerful and made me think of that night you called me with the idea for Heritage. The program passed $20M in grants in late 2008 and still going strong. Can't tell you how proud I am to say I had a very small role in bringing your idea to life. A lot of people try to take credit for Heritage but I know where it all started. Congratulations!

In Race to Market, Nissan's Electric Car Takes Shortcuts

2010-01-22T16:25:00.000-05:00

Nissan, led by enthusiastic CEO Carlos Ghosn, has emerged as a surprise leader in the push toward electrification of the automobile. What is so remarkable about this is Nissan was not even part of the EV conversation two years ago. Now the company is poised to be the first major manufacturer to mass-produce electric vehicles.

The Nissan Leaf is slated to appear in a handful of test markets by the end of the year, putting the company neck-and-neck with General Motors and the Chevrolet Volt expected at about the same time. Nissan’s sudden change in focus was the result of Ghosn’s personal vision and his willingness to force it through his company from the top down. The impatient CEO recently told Bloomberg, “The engineers will always tell you, ‘Wait a little more,’ and if you keep playing this game, you never launch any product.”

Sheer force of will from a charismatic leader can accomplish great things when matched with a company that has a good reputation for execution. Cars, however, are complicated pieces of engineering, and an electric vehicle presents numerous fresh challenges to Nissan engineers. Intense pressure from the top may have created a sense of urgency, but it also appears to have driven the company to take some shortcuts.....

Read More at Wired.com...

Loving Electric Cars in Spite of the Climate Debate

2009-12-17T11:23:00.000-05:00

When I first learned about Tesla Motors in 2006, I wasn’t looking for an opportunity in cleantech. Having spent too much time working in the financial services industry, I decided it was time to pursue a career in something that I was passionate about: cars. Moving to Detroit was not an option, so I set out to see what automotive opportunities existed in the San Francisco Bay Area.

After seeing a story about Tesla in The New York Times, I was intrigued. I had lived in the Bay Area for nine years and had never been part of the tech start-up scene. The car itself seemed pretty hot and the advanced drivetrain technology was very interesting. At first, the notion of doing something to combat global warming was not really part of my consideration, although over time it became an important dimension.

The thing that intrigued me most about EV technology was its simplicity, the extraordinary torque of the motor that makes for an incredible driving experience and the fact there are no tailpipe emissions. Having the opportunity to drive a Tesla Roadster often, it always felt strange to get back behind the wheel of my Mitsubishi Evo, which felt like a bucking, wheezing bronco relative to the smooth power of the electric drivetrain.

These memories came back to me as I pondered the implications of “climategate,” the recent controversy regarding leaked emails from the climate researchers at East Anglia University in England. While the “right” predictably jumped on them as damning evidence that climate change is a fraud, the “left” was equally predictable in trying to smooth over the situation as if nothing could shake the absolute consensus that has been asserted that climate change is being driven by man-made factors.

At the risk of being dropped off some Christmas card lists, I might point out that the scientific evidence supporting climate change as a man-made phenomena is far from certain.

The efforts to correlate emissions of CO2 over recent history with global temperature trends and cycles at a geological scale have resulted in a model that asserts that there is a relationship between the two, but still has enough unexplained error that a lack of temperature increases over the recent twelve-year period is still consistent with the model. The hard science is much more nuanced than the soundbites that permeate the airwaves and the simplistic declarations of impending catastrophe. The problem lies with the strong political momentum around climate change that requires the science to be absolute. That political necessity is steamrolling even the most supportive researchers’ efforts to improve on our limited understanding of what is actually going on.

Read more at Wired.com...

In Role as Kingmaker, the Energy Department Stifles Innovation [wired.com]

2009-12-01T10:35:00.000-05:00

Of all of the Department of Energy programs intended to advance the green agenda while stimulating the economy, the Advanced Technology Vehicle Manufacturing incentive to spur the development of cleaner, greener automobiles is perhaps the most ambitious. But it has a downside.

The energy department has approved direct loans to Nissan, Ford, Tesla Motors and Fisker Automotive totaling about $8 billion out of a budget of $25 billion. The magnitude of this program dwarfs other DOE campaigns like the $2.4 billion given to battery and electric vehicle component manufacturers and the $4 billion disbursed for “smart grid” projects.

To the recipients the support is a vital and welcome boost. But this massive government intervention in private capital markets may have the unintended consequence of stifling innovation by reducing the flow of private capital into ventures that are not anointed by the DOE.

Read more at Wired.com...

The problem with SharesPost.com

2009-11-24T14:11:00.000-05:00

As I contemplated global warming while drinking my bottle of Fiji water flown by commercial airliner from the island of Fiji to my local BevMo, I saw an update from Sharespost.com in my inbox.

Sharespost is an online exchange for private equity that bills itself as "a low‐cost, efficient way to buy or sell private company shares." They made quite a splash when they debuted earlier this year, announcing that shares in Tesla had already changed hands at $10/share.

I think the usual rule of "caveat emptor" applies here, but the update today underlined what I see as a problem with Sharepost.com.

The June 16th report from NextUp Research (a snippet is pasted to the right--->), which was available when SharesPost launched and was provided to the media, valued Tesla at up to $822M, or $9 a share. This was based on 91,400,000 shares outstanding. The first Tesla shares supposedly traded at $10/share, giving Tesla an implied valuation of almost $1B! Many a headline was written to this effect.

Now look at the latest report, dated October 21, 2009. Apparently NextUp Research is even more bullish on Tesla, giving a valuation range of $1.05 to $1.24B. But the equivalent share price is only about $4 and change. What gives? In the new report, NextUp revised its estimate of shares outstanding to 222,900,000.

Bummer for those who bought shares at $9 on the basis of the original report! Adjusted for the new number of shares outstanding, they paid $9 for a share that apparently is now equivalent to $3.69 if you believe the new numbers. Ouch!

On their website, Sharepost says "At SharesPost, we set out to solve these problems while complying with the letter and spirit of the securities laws and protecting the interests of companies, investors and entrepreneurs. It’s a big problem and it requires us to balance some competing interests, but we think we’ve done it"

I'm not so sure about that...

My new startup, Plato's Forms, announces a funding round

2009-11-23T11:50:00.000-05:00

Over the past year I have been developing a startup that was in large part inspired by my experiences at Tesla Motors. Specifically, I thought that there had to be a better way to deal with the challenges of managing your message in the online media environment, which was a day to day challenge at Tesla.

I think the problems we are trying to address with Plato's Forms apply broadly to all communications professionals in all industries, but they are particularly challenging in the cleantech industry because it is so rapidly evolving and often deals with highly technical issues.

The announcement of our funding in TechCrunch is here.

The Plato's Forms blog is here.

Aptera Founders Ousted in Boardroom Showdown

2009-11-15T23:27:00.000-05:00

Aptera Motors has ousted founders Steve Fambro and Chris Anthony, sources told Wired, painting a picture of a boardroom confrontation between the original founders and the auto industry veterans the company brought in last fall.

Rumors that Aptera Motors was letting them go and laying off an unknown number of people began swirling last week on the unofficial online Aptera Forum. The company says it simply elected to slow things down and minimize its burn rate while waiting for the Department of Energy to approve its loan application. It isn’t saying much about what happened to Fambro and Anthony, but claims the company’s relationship with them remains positive.

But the management shuffle and layoffs represent the Southern California startup’s latest challenge as it tries to bring the Aptera 2e, its extraordinarily efficient and unusual three-wheeled electric car, to market.

Read more at Wired.com

Fisker makes a safe bet on distribution (wired.com)

2009-11-05T10:37:00.000-05:00

Fisker Automotive promises a car with innovative powertrain technology, but it is sticking to the traditional playbook for distribution and sales by signing up established dealers in the United States and abroad. Tesla Motors on the other hand is building company-owned stores in a bid to revolutionize how cars are sold in addition to how they are powered. Each approach has advantages and pitfalls and may ultimately play a larger role than technology in determining which company dominates the premium EV market.

Read more at Wired.com...

Federal Loans to EV Startups: Foolish Bet or Wise Investment? (wired.com)

2009-10-27T13:11:00.000-04:00

The Department of Energy has blessed Tesla Motors and Fisker Automotive with low-interest loans totaling nearly $1 billion, which is several times the size of the two companies’ balance sheets. That’s generating tremendous excitement among supporters of electrification and skepticism among industry observers.

Some would have you think the feds are recklessly writing checks in the hope something good comes of it down the road, but a close look at the “conditional commitment letters” between the DOE and the two startups reveals a much more conservative and guarded approach. Justified or not, it is the sheer magnitude of the loans with respect to the size of the recipients, the speculative nature of the investment and the possible role of political influence that has caused a stir among critics.

Read more at Wired.com...

Secretive Startup EEStor Worth More Than $1.5 Billion (wired.com)

2009-10-20T10:39:00.000-04:00

EEStor, the ultracapacitor company that has produced more obscure technology milestone announcements than evidence of a working energy storage unit, may have an implied market value of more than $1.5 billion.

Read more at Wired.com...

Federal EV Tax Credit Must Be Changed (wired.com)

2009-10-19T14:27:00.000-04:00

The following article was originally written for Wired.com and can be found here. Tomorrow my second weekly post for Wired.com is on one of my favorite subjects, so keep an eye out for it.

The electric vehicle community cheered when President Obama declared his goal of seeing one million plug-in vehicles for sale by 2015. It was reminiscent of President Bush’s support of hydrogen in 2003 and of ethanol in 2007, but with a different interest group celebrating. It’s a road we’ve traveled before, but this time we need to get it right.

The Obama Administration has certainly put its money where its mouth is with respect to the pledge Obama made in August, 2008. Consumers are eligible for up to $7,500 in federal tax credits for plug-in hybrid and battery electric vehicles, a subsidy designed to offset the high cost of batteries. This is certainly very helpful toward achieving the goal of electrification, but it falls short in some significant ways. Congress can and should modify the credit to better support the broad adoption of electric vehicles in the United States.

The $7,500 tax credit (for vehicles with battery capacity of 16 kilowatt-hours or more) should be an instant rebate at the time of purchase, not a personal income tax credit applied at tax time the following April. As structured, the tax credit does not reduce the sticker price for consumers. They’ve still got to come up with the full amount in cash or financing to purchase the car. An instant rebate would be a much more powerful driver for sales, especially for the mainstream customer who will rely on financing to buy the vehicle.

To make this incentive even more effective, the tax credit also should be structured so a commercial entity can claim it if they purchase the battery pack for the purpose of leasing it back to a consumer. Currently, the tax credit only applies to personal income tax. Such a change will provide a pathway for financing companies to more cost effectively lease batteries to customers, as we have seen in the solar industry.

Neither of these changes would increase the cost of the incentive to taxpayers, but they would greatly improve the effectiveness of the program to drive sales of electric cars to mainstream customers. Acting now, in advance of the market launch of “affordable” electric cars from Nissan, General Motors and Coda Automotive next fall will surely accelerate adoption of electric vehicles.

My new part-time gig at Wired.com Autopia

2009-10-12T15:53:00.000-04:00

It's been a while since I've written a post here, in large part because a few months ago Chuck Squatriglia, the Editor of Wired.com's Autopia blog, and I started talking about being a regular contributor to Wired.com. As a contributor, I will focus on the same types of EV industry related perspectives that I have posted here, and perhaps expand into some more "reporting" oriented stories that interest me.

There is a lot that I like about this arrangement. Autopia is a great site and Chuck Squatriglia (and Joe Brown, at Wired magazine) are good folks. Wired.com's platform will give me direct access to a much bigger audience for my ideas, many of which relate to the important cause of the electrification of the automobile. In my first post tomorrow I write about how I think the government should change the existing EV incentives to speed consumer adoption. Hopefully my style and perspectives will add a valuable dimension to Autopia's audience (and maybe Chuck's editing will finally rid me of my bad writing habits including overuse of the passive voice.)

Another compelling reason to do this is that my startup company, Plato's Forms, will provide a service directed in large part at Journalists. What better way to understand my customers than to put myself in their shoes? I think reporting for Wired.com will make my company and it's products more successful when we launch next Spring. At one post a week, it is also very doable from a time commitment perspective.

Because of the nature of Autopia, I will likely continue to blog here occasionally to go into more depth on the posts I run there, or to blog about topics that are too insidery or technical to make sense for Autopia. I will also cross-post my Wired blogs a few days after they run on Autopia, so the over 500 subscribers to this blog continue to get everything that I post.

I want to thank Michael Kanellos, Editor-in Chief at Greentech Media, for running a bunch of my posts in the past, which helped boost my exposure and distribution to a much broader audience. Michael is one of the most knowledgeable writers on cleantech out there and a great guy. It's funny to remember how little we liked each other in the early days at Tesla. I wish I had saved some of the emails.

I also want to thank Jay Yarow and Henry Blodget of the Greensheet at Business Insider for picking up a bunch of my posts - even though Henry generally edited the headlines to be "catchier" which usually meant more insulting or controversial (he is good at that.)

I hope you continue to enjoy this blog in the future and also join us at Autopia. If you want to send me any ideas for Wired please do so at darryl_siry (at) wired dot com.

GM Volt gets unrealistic 230 MPG rating

2009-08-11T10:23:00.000-04:00

Will wonders never cease in cleantech communication?

GM announced today that the EPA has given the GM Volt a MPG rating on the city cycle of 230 miles. Sounds great, right?

The problem is that anytime you try to get to "miles per gallon" using vehicles that don't necessary use "gallons" you end up in a very strange debate with very strange outcomes.

Rational people can argue that to determine the MPG equivalent of an electric vehicle you simply take the energy equivalent of a gallon of gas (33.7 kWh) and determine how far the electric vehicle would go on that energy. A fairer way to measure this is to count energy coming out of the source, since there are losses in the charging process (forget for a minute losses during transmission and the whole issue of how electricity is generated)

It is by this calculation that you get Tesla's claim that the Roadster is about 135 MPGe. The battery is 53 kWh. Assuming 15% loss on charging the total energy used on a full charge is 62.3 KWh. That is equivalent to the energy in 1.85 gallons of gas. Take the EPA combined range of 244 miles on a full charge and you get about 132 MPGe. You get different numbers if you use a different drive cycle or if you don't account for charging losses.

So is the Chevy Volt almost twice as efficient as the Tesla Roadster? Hardly. If you apply the logic that the EPA seems to have applied in assigning the rating then the MPG of the Tesla Roadster, or any EV for that matter, would be infinite.

It seems that in assigning the rating, the EPA agreed with GM's argument that the rating should reflect the average daily driving routines of a US driver. Most days, the average person doesn't even drive 40 miles, so they would not exhaust the battery range of the Volt, therefore using no actual gasoline. They still use energy from the grid, however, but that doesn't seem to have been accounted for. Given some kind of assumption of daily driving patterns, with the occasional long distance drive, the EPA came to 230 miles per gallon of actual gasoline.

So it isn't an "untruth", as long as the main thing you are concerned about is the burning of gasoline as a resource, as opposed to the actual energy efficiency of the system. The problem is that this number will be broadly discussed as a comparison to other cars, particularly the Prius. People will improperly conclude that the Volt is about 5 times more efficient that the Prius, which simply isn't true.

In my opinion a fairer (but still flawed) approach would be the following:

Assume the energy in gallon of gasoline will charge the Volt's 16 kWh battery and still have 53% of the liquid gasoline remaining (16/33.7 = .47). If you take the remaining fuel and run the on board generator after the battery has been depleted (assume you get 40 miles electric as GM has said). You need to assume a certain effeciency of the genset directly running the car. From what I have heard a generous assumption would be 50 MPG while running on the genset. The remaining fuel would get you 26.3 miles down the road. The total miles on that one gallon of gas is 66.3 miles by that approach. (UPDATE: Since the Volt only uses 8kWh of the full 16, a better number for energy used in a full charge is 10 kWh, leading to a result of 75.2 Miles using the calculation above)

The problem with this approach is it just doesn't sound that impressive, and one can argue that it isn't accurate either because people don't drive an average of 66 miles per day. This is one reason GM argued the other way.

But why would GM argue to the other extreme of the spectrum, inviting skepticism, instead of looking for a reasonable middle ground? The answer to that is very simple: increasingly stringent CAFE requirements.

P.S> Since I am at the Plug-In 2009 conference today, I will share my analysis with the GM folks and ask what they think.

UPDATE: A GM spokesperson emphasized to me that this figure is an official number using a procedure mandated by EPA for assessing plug-in hybrid vehicles. They also offered to take me through the specific methodology, which I am happy to do. I pointed out to the spokesperson that I am questioning the methodology itself and think that it will be misleading to consumers when compared to other MPG figures.

Nissan's first big mistake out of the blocks (Nissan LEAF)

2009-08-02T10:49:00.000-04:00

Like many, I waited with great anticipation for Nissan to unveil their electric car. Nissan has been the most outspoken of the majors in favor of electric vehicles and seem committed to the mass commercialization of EVs as a major thrust of their strategy. In addition to the car itself, Nissan has invested a lot of effort reaching out to utilities to prepare the ground for the infrastructure that will aid the adoption of electric vehicles.

So with all this careful preparation and with the very large bet they are placing on EVs, why did they make such a major and avoidable mistake in how they are communicating the true range of their vehicle, the LEAF? This is a mistake that is sure to haunt them when they actually bring the vehicle to market, and could have a negative impact on EV adoption in general.

The issue is one I have written about previously - the EPA range figures that are typically communicated by most EV manufacturers overstate the true range of the vehicle in daily use. That means that consumers who buy the car are bound to be disappointed when the range they experience is significantly less than what they have been told by the manufacturer.

In my analysis, I point out that the EPA combined (a mix of city and highway numbers) number that an EV will post when tested with a new battery is more like an upper limit of the range you will experience. Unfortunately, Nissan has upped the ante of exaggerating the realistic range of their vehicle by using the LA4 cycle as the single number they quote, which is the same as what we refer to as "EPA City", or "UDDS" driving cycle. As you can see below, this test cycle assumes an average driving speed of 19.59 mph and in the 22 minute driving cycle, it assumes you only break 40 mph once, for about 100 seconds, and never exceed about 58 mph.

The bottom line here is that Nissan needs to recognize this mistake and immediately start communicating a more realistic range expectation for their car. If they do not, they are taking an enormous gamble with a multi-billion dollar investment. There is no doubt in my mind that if they stick to their "100 mile" number, consumers will be very disappointed in their purchase and the disparity between claimed an actual range will become immediately and widely heard on the internet. This issue is particularly important for Nissan because they are trying to bring the EV to the mainstream, and mainstream customers are less likely to just grin and bear it as early adopters might.

Specifically, Nissan should disclose what the range of the LEAF is under the US06 driving cycle, which more closely resembles highway driving that is very common in the U.S.

In the meantime, journalists reporting on the LEAF should take care to note that the claimed 100 mile range is on the city cycle, which is optimistic. Of the dozen or so articles I read today, only 3 were clear about that. In the future, as the marketing engine gears up, most of what you will see published will just echo what Nissan is saying.

DISCLOSURE: CODA Automotive, an EV Manufacturer which plans to bring an all-electric sedan to market in 2010, is a client of mine. This blog is representative of my independent opinion on this issue, and not necessarily the perspective of CODA. CODA typically communicates the anticipated range of its vehicle by using two numbers, the US06 cycle on the low end (90 miles), and the UDDS cycle on the high end (120 miles). When the situation calls for a simpler sound bite, CODA has typically said "about 100 miles." For the purpose of comparison, CODA's battery capacity is currently 33.8 kWh, compared to Nissan's stated capacity of 24 kWh.

Response from Tom Gage, AC Propulsion

2009-06-27T00:32:00.000-04:00

Tom sent me an email re: my article in wired which I am posting with his permission.

_____________________________________________

Darryl:

Good article. I have to say though that I cringe just a bit when I see my name in front of Alan Cocconi's. In the context of your article, someone might think that order implies I have primary authorship for the tzero, and that would be vastly inaccurate. It's not that Alan is prickly or that I am falsely modest, but the tzero truly embodies Alan's singular vision which foreshadowed Tesla's beginnings by almost ten years. Alan conceived the tzero in 1994 and he was the driving force behind its design and development. That is an interesting story in itself, I was involved, but the tzero is Alan's creation.

Tom Gage

An article for Wired Autopia

2009-06-26T10:35:00.000-04:00

I wrote an article for Wired's auto website.

The Problem with EV Range Figures

2009-05-14T16:54:00.000-04:00

I see a troubling pattern emerging in how the most critical aspect of EVs – range – is discussed by companies and the media alike. These are problems that could have a significant negative effect on the way the public responds to electric vehicles if manufacturers don’t change the way they communicate expectations about range.

The basic problem is that when an EV is described, it usually has a single “range” number associated with it. For example, the Tesla Roadster has a range of 244 miles. When people talk about the range of a car that is planned in the future, they also offer a single number. For example, the media has reported that several car companies plan to come to market with EVs that have “100 mile range.”

Every time a single range figure is given, it should have about 3 asterisks next to it.

The biggest one is fairly well known, and is the EV equivalent of “your mileage may vary.” Using the Tesla Roadster as an example, the car can indeed achieve a range of 244 miles (which is the “EPA combined” number.) In fact, one Roadster was driven as far as 275 miles before it was fully depleted. But under aggressive driving the actual range from a full charge to completely dead can be dramatically lower.

That is all well and good, but the problem is that the EPA driving cycle numbers systematically overstate what the typical driver is going to see in their daily driving. It wouldn’t be so bad if the EPA number was close to the average and depending on your driving you might see less or you might see more. But it doesn’t work that way. In reality, the EPA number is essentially an upper limit number. The actual range you will get from a complete charge depends on a lot of factors, but I would say that as a general rule of thumb, if a company quotes an EPA range, you should apply a factor of 70% to that to get a realistic average range for a full charge.

Which brings us to asterisk #2, which is how “full charge” is defined. Seems like it should be straightforward but it’s not. Nothing in the land of EV marketing and communications is. In general, a battery pack should not always be charged to it’s peak nor should it be drained to completely (or even nearly) empty. This is generally bad for the longevity of the pack. However, when the EPA test is done, the battery can be charged to its absolute maximum and the car is run until the wheels literally stop moving. This is not how a typical customer will experience a “full charge.” The typical charge settings for a car will charge a battery to some point, perhaps 85 or 90%, and will consider the pack “depleted” somewhere above 0%. Lets call it 10%. It may even limit performance or go into “limp home mode” at some level above it, perhaps with 20% charge remaining. These are all important factors to consider when you assess the realistic range of an EV. Depending on how the manufacturer has designed the battery management system, and depending on how the EPA test was conducted, you may have to apply another 70-80% factor to the range that the manufacturer states.

Combine factors one and two above, and you are talking about average usable range of the car potentially being half of what is quoted as the EPA range. That is a very big gap in expectations that will come home to roost with consumers. If you think “range anxiety” is a big issue, wait until the average consumer buys the car and on day 1 the average usable range is about 50-75% of what they were told in the marketing material (depending, of course, on how aggressive the marketing claims are.)

But wait! We aren’t done yet. Asterisk # 3: The EPA range that is quoted to you is the “beginning of life” range, or “BOL”. The problem is that the maximum capacity of a battery pack gets lower over time. There are a lot of factors that affect how rapidly this reduction in capacity occurs, including number of cycles (roughly this can be expressed as miles driven/total miles per full charge), absolute temperature, variability of temperature over the life of the pack, average depth of discharge. This can also be a complicated discussion, but suffice it to say that the effects can be significant. It isn’t an exaggeration to say that you should expect that the range of your EV could be 20% less after 5 years of use. In fact, that’s being charitable.

This is especially true for certain chemistries or cell types, like high-energy cobalt oxide cells used in laptops or cellphones. The “End of Life” (EOL) range of these types of packs could be significantly lower and the reduction much more dramatic. This is one reason that almost all manufacturers are moving toward chemistries that exhibit better cycle life qualities, like NMC, Iron Phosphate, and Manganese.

So building on the example above, the realistic EOL range of the EV you will buy may be well below half of what was advertised when you bought it. The good news is it will charge to full in less than half the time!

This is a serious issue because the general public is not going to easily understand all the mental gymnastics that go into having a good understanding of what to expect from your EV. This is also an issue that gets more serious as EVs go mainstream and are no longer purchased mostly by wealthy early adopters willing to forgive these quirks and inconveniences.

There are two solutions to this problem, and I propose that both begin immediately. The mass adoption of EVs by the mainstream public depends on it.

First, manufacturers need to communicate honestly and transparently about the realities of range. This may be hard to do because of the complexity of the issue and the fact that it is tempting to just hide behind to rosy EPA figures. In the long run, however, people who actually drive these cars are going to share their real world experience and if expectations aren’t set appropriately up front there is going to be a lot of disappointment.

Second, the EPA must establish new guidelines and standards specifically for EVs that address the issues outlined above. Most importantly, the EPA should develop a standard that includes both BOL range and EOL range with a common definition of the expected life of the vehicle.

If both of these things happen, we can avoid the consumer backlash I fear we are headed for with regard to range expectations. With so much progress being made on the EV front, I would hate to see the momentum slowed by false promises and disappointed consumers.

Listen to EVcast #235

2009-05-12T15:20:00.001-04:00

Some of the other panelists dropped out so for better or for worse, I got to dive into all the topics pretty thoroughly. Some conclusions of mine expressed on the show:

1) The Dodge Circuit EV is/was pointless, so it doesn't matter if it was killed or not in the latest bankruptcy restructuring. If Cyrsler wants to do something meaningful they should build the E-REV Minivan.

2) Of all the majors, Nissan is the best positioned to produce a mass market EV in 2011, although they have a engineering challenge ahead of them to get the costs to work out so they hit a mass market price point.

3) The Volt will not drive anemically after it has exhausted its 40 mile range. They've engineered around that issue by having a 30% reserve. Tesla needs to update their talking points on this one.

And much much more!

EVcast #235: Our Longest Episode Yet

Catch me on tomorrow's EV Cast (May 12 '09)

2009-05-11T16:42:00.000-04:00

Listen in at http://www.evcast.com. The show starts at 10am PST/1pm EST. I will be part of a panel discussing recent news in the EV space.

ZENN and the art of EESTOR hype maintenance

2009-04-23T14:13:00.000-04:00

There's a part of me that feels bad when I am skeptical about a potentially great thing. It's so easy to be a skeptic, and anytime an entrepreneur or innovator proposes a new, potentially game changing thing, legions of lazy skeptics come out of the woodwork denouncing it as hype. Many of these skeptics seem motivated by nothing other than a bitter envy of someone actually working hard to change things, when usually the skeptic has not even tried to change anything, much less succeeded.

But there are times when skepticism is warranted, and EESTOR is one of those examples. For years they have made extraordinary claims about their new ultracapacitor, with very little in the ways of evidence. They have even lured Kleiner Perkins, a top-tier VC, to invest, as well as ZENN, a Canadian manufacturer of Neighborhood Electric Vehicles with aspirations to much more. But in all these years they have demonstrated no physical prototype to anyone's knowledge. In fact, a colleague of mine visited their offices in Cedar Park, Texas years ago and his request to see anything physical was angrily rebuffed.

All this is preamble to the opportunity I had on Tuesday at the FORTUNE Brainstorm Green conference to directly question Ian Clifford, CEO of Zenn about EESTOR. I took great care to pose the questions as fairly but directly as possible. While I didn't record it, the paraphrasing below is from my notes and very close to verbatim.
______________________________

Me: "The specs you just described for EESTOR - $250/kWh, 300 lbs. for 50 kWh, are so good that they fall in the category of 'too good to be true.' In fact, if they are true, they will obsolete all other battery technology in the world today. You say you have done due diligence, and that you have invested. How confident are you that EESTOR will deliver a product to the specification promised later this year?"

Mr. Clifford: "Our confidence is shown in our actions- we've invested, we've since followed up our investment - and the actions of others, like Lockheed Martin."

Me: Have you ever seen a working prototype of an EESU from EESTOR?

Mr. Clifford: "We don't comment publicly on that."

______________________________

The answer to the first question is a non-answer, but one that is understandable considering the circumstances. Mr. Clifford needs to have plausible deniability and sufficient distance so that he is not fully tarnished by EESTORs continued failure to deliver.

The second answer, however, is just bizarre and not credible in the least. As an investor in the company that claims to have done due diligence, the common expectation would be that he or someone in his company has at least seen a prototype on the bench. I know of no circumstance, regulation or reason why he would feel that he could not disclose such a simple confirmation publicly. In the absence of such a confirmation, I have to conclude that there is no such prototype. This, unfortunately, is not surprising.

A fresh new bizarrely opaque announcement from EESTOR today, trumpeted by ZENN on their website as "EESTOR announces permitivity!" gives some insight as to what is going on here.

The announcement is that EESTOR claims that the material they are producing has been found to have a very high level of "permitivity", which is one of several things that need to fall into place in a theoretical capacitor that meets the energy storage claims they have been boasting. The announcement says nothing about demonstrating any energy storage nor does it make mention of any prototype energy storage unit. Permitivity, in and of itself, does not suffice to achieve their goals.

But this accomplishment, and the hope that it represents to speculative investors everywhere, is enough to achieve ZENN's goals - their stock is up 45% today.

Follow the money to Fisker

2009-04-07T12:33:00.000-04:00

In flush times, the funding of a company is not necessarily indicative of the potential success of that company (witness the last dot-com boom.) One of interesting effects of a severe downturn in capital markets is that market forces have a tendency to mercilessly cull the herd. The money that does flow in times like these tends to be much more discriminating.

That is why I received this morning's news that Fisker has secured an additional $85 Million in financing with such interest.

I've been on record before with some skepticism about Fisker that went beyond the natural competitive sabre rattling that naturally happens when you are CMO of their competitor. My skepticism, which I think is fair and objective, mostly relates to the fact that they have not yet demonstrated a fully working prototype - which needs to be completed for crash tests to start - to journalists. This makes their previously announced schedules questionable, although they have recently slipped the expectation of customer deliveries to next spring.

So that is why the news of a significant round of funding for Fisker in this environment must force me to recalibrate my skepticism (I just IM'd a reporter telling him that I was writing a positive post about Fisker and he said it was a sign of the apocalypse.)

Incidentally, I don't buy the argument that a company's business plan is somehow viable just because a top-tier venture capital firm has invested. The nature of Venture Capital is to invest in a portfolio of companies with the expectation that most will fail.

But an $85 Million investment with new outside money is a positive sign, no doubt, that things are progressing. Bringing the car to market still depends on successful development of a working prototype and successful crash testing and production ramp up. These are not minor challenges.

What makes this news all the more interesting is that Fisker's nearest competitor (and my former employer), Tesla, has struggled to raise significant capital since the capital markets collapsed last September. An internal convertible round was eventually closed, but by the company's own admission it has been difficult. This is despite the fact that Tesla has over 300 cars delivered to paying customers, who are reporting that the cars are working beautifully for the most part.

So what is going on here? It is difficult to say. An announcement of money raised in a private company rarely mentions an important piece of data - the valuation at which the investment was made. So we don't know if the $85 Million was made at a higher valuation than the last round or in a down round (that is, until Quantum has to report the dilution of its stake in its next 10Q). Similarly, we don't know if Tesla has been unable to raise capital or if they are just unwilling to raise capital at the valuations being offered.

In any case, if you follow the money, Fisker's looking pretty good this morning.

DISCLOSURE: Although I was formerly the CMO of Tesla Motors, I have no continuing relationship with or financial interest in the company. Likewise, I have no relationship with Fisker Automotive or their investors.

“Detroit 3” pressures will impact EV startups

2009-03-14T15:43:00.000-04:00

Much has been written about the potential impact of Big 3 bankruptcies on the hundreds of suppliers that sell parts and assemblies to them. Part of the logic of the auto bailout was that if any one of the Big 3 were to fail, it would bankrupt some of the tier 1 suppliers. This, in turn, could put additional pressure on the auto companies they supply. Hence, if GM were allowed to fail, Ford could be put in danger. The interconnectedness of the automakers, suppliers, dealers meant that any one failure could set off a catastrophic chain reaction, resulting in the loss of millions of jobs.

A separate meme has also emerged, especially as it relates to the allocation of DOE grants and loans. This meme is can be summed up as “Silicon Valley vs. Detroit,” but more broadly, it is a debate as to whether taxpayer money is better used to support the struggling traditional automakers or to support the innovative startups (Tesla, Fisker, Aptera, etc.)

What is becoming clear is that these two ecosystems are more linked than many realize, and that the pressures on the traditional automakers and suppliers threaten the viability of the startups as well. Ironically, if GM fails or causes their suppliers to fail, they may inadvertently kill the electric car again.

In spite of the government support given to GM and Chrysler, the fundamentals of the automobile industry are continuing to weaken. With sales slowing and inventories building, it isn’t clear that “bridge loans” alone will solve the crisis. Suppliers, which have always operated on thin margins and intense pressure, are raising the warning that they too, may need government support or face collapse. One recent example was American Axle, which (according to Reuters) warned that problems at GM and Chrysler may force them out of business.

Many of the startups in the automotive space rely on the same supplier base for key components, such as driveshafts, transmissions, interiors, suspensions and electronics. The failure of these suppliers, or the pressures of near-failure, could easily ripple to the startups, whose small size makes them less equipped to deal with supply chain disruptions.

A case in point can be found in the public filings of Fisker Automotive’s technology partner, Quantum Technologies (QTWW). Quantum is the other side of the joint venture that formed Fisker Automotive in 2007, and is responsible for the development of the drivetrain for the Fisker Karma. Aside from the contract revenues Quantum receives from the Fisker JV for the development of the drivetrain, a significant part of their core business was supplying high pressure hydrogen storage bottles and other related services for GM’s fuel cell vehicles.

In Quantum’s press release on Thursday, March 12, Quantum’s CEO hints at weakness in that line of business:

“Total revenue in the third quarter of fiscal 2009 was $5.9 million compared to $7.1 million in the third quarter of fiscal 2008, a net decrease of 17%. The decrease in consolidated net revenue is primarily related to a decline in product shipments and engineering services provided to General Motors in fiscal 2009 compared to fiscal 2008.”

Later in the release:

“Contract revenue for the Quantum Fuel Systems segment increased $1.1 million, or 24%, from $4.6 million in the third quarter of fiscal 2008 to $5.7 million in the third quarter of fiscal 2009. The increase was primarily due to higher development program revenues related to development of the "Q Drive" propulsion system for the Company's affiliate - Fisker Automotive. This increase was partially offset by a decline in hydrogen and fuel cell system programs with General Motors.”

What is not stated in the press release, but can be seen in the first line of the income statement on their recent 10Q, is that revenue from “net product sales” has collapsed from $7.2M for the 9 months ending Jan 31, 2008 to only $814,134 for the same period ending Jan 31, 2009.

While I don’t know for sure, I suspect that this collapse in product sales revenues relates to their hydrogen fuel cell business with GM. While contract revenues from affiliates (the Fisker JV), jumped from $1M to $9.3M, more than offsetting the decline in product sales, this revenue is not really customer revenue. The revenues from the Fisker contract is cash from equity investors in the Fisker/Quantum JV that then shows up as revenue for Quantum as they do the work to build the drivetrain for the Karma (It would be interesting to have been a fly on the wall for that contract discussion.)

CEO Alan Niedzwiecki sums up the situation this way:

"The Company's third quarter operating performance was impacted by the downturn in the economy and especially the challenges faced by our automotive OEM customers. Despite uncertain times, we remain optimistic that the continued focus on hybrid and "green vehicle" technologies will benefit Quantum as dramatic change continues to take place in the automotive industry.”

Which leaves me wondering what risk Fisker Automotive faces as their JV technology partner struggles with pressure in their core business. A possible survival strategy appears to be the same as their competitor, Tesla Motors, and seemingly every automotive company today:

"We continue to advance technologies under funded Department of Energy programs and additionally have applied for a $175 million loan in connection with the Department of Energy's $25 billion Advanced Technology Vehicles Manufacturing Loan program. …We are also in the process of applying for grants under the 2009 Economic Stimulus Package and other government programs available to the Company."

Join me on "EV Cast" Wednesday 1pm EST

2009-03-10T18:57:00.000-04:00

I will be the guest on this podcast that focuses on EVs. You can listen at their website: http://www.evcast.com/members/evcast

They also take listener calls and comments during the latter part of the show.

High Quality, Affordable EVs. Made in China?

2009-03-09T17:29:00.000-04:00

I clearly remember a very interesting debate I was involved in while at Tesla. The debate was about the manufacturing strategy for the WhiteStar (now known as the Model S) sedan.

The plan had always been to manufacture the car in the US, but the new CEO was challenging our thinking on that plan. Michael Marks had built an extraordinarily successful company in Flextronics by providing outsourced electronics manufacturing services for its customers. Michael was one of the more knowledgeable people in business when it came to high quality manufacturing in China.

The debate took place at the table in a hotel bar in Detroit with several members of the Tesla team. In order to achieve the necessary cost targets for the car, Michael had concluded that the only solution was off-shore manufacturing, preferably China. Alternatively, he said, you could consider near-shore manufacturing in Mexico, but the cost advantages of Chinese manufacturing were so great that it made the most sense. And the kicker: according to Michael, there would be no trade-off in quality or safety.

The debate at the table was whether it made a difference if we manufactured and assembled the car in China. When Michael posed the question to me, I recall I answered one way and then immediately contradicted myself in the course of the same sentence.

What was happening was the logical mind and the emotional mind were colliding in my head. I accepted the logic that low cost, high quality manufacturing in China would be the best solution to achieve our cost target. The problem was I also knew that the prevailing American consumer sentiment was (and still is) that cars made in China are low quality and unsafe. The part causing the most conflict was that it was clear in the world of consumer electronics and chip manufacturing that low cost manufacturing had been achieved while also maintaining the highest standards in quality. Why couldn’t this be the same case for automobiles?

Today, I find myself concluding that not only can it be the answer, it may well be the best answer that allows for competitively priced xEVs (BEV, PHEV, etc.), which is a pre-requisite for mass market adoption. This is particularly true for xEVs because manufacturing cost pressures are exacerbated by the very high cost of batteries.

One need only look to the developing landscape of Electric Vehicles and Plug-In electric vehicles to realize that the cost issues are still problematic. The highest volume prospect is the Chevy Volt, which GM plans to produce in the hundreds of thousands. Even at that volume, and sharing platform costs with the Chevy Cruze which is planned in the 300,000+ unit volume range, the Volt will still be priced at or above $40,000, making it one of the more expensive Chevy’s ever produced (I consider the Corvette a special case, and essentially a brand of its own). Another aspect of the Chevy Volt that keeps price lower is the smaller, 16kWh battery associated with the series hybrid setup, which offers only 40 miles electric range.

Tesla Motors and Fisker Automotive, both aspirants to the xEV sedan market are targeting price points that are even higher. This is the right business strategy to cover vehicle costs, overhead and distribution, but the total volume of cars at the price points they will compete at is small and dwindling. (Fisker has announced a target price of $87,000 for the Karma, which is to be contract manufactured in Finland by Valmet. Tesla has boldly communicated $57,000 as the price for the Model S as they try to position themselves as a mainstream manufacturer, but in reality I expect that price to be close to where Fisker is when all is said and done. Tesla plans to manufacture the car in the US.)

Other manufacturers are dealing with the cost issue by targeting the “City Car” segment, with cars that are less full featured and intended for sale in urban commuter markets. The lower range, smaller size and lower expectations for utility of this vehicle format achieves a lower price point, but these cars will still be very expensive from a “total cost of ownership” perspective relative to similar ICE cars (excluding the effects of unusual tax and credit schemes)

The only company I am aware of that plans to offer a full-featured EV sedan at a more mainstream price is Miles EV. Their strategy - Chinese manufacturing for both the chassis and battery, with engineering and safety testing managed out of their headquarters in Los Angeles.

Recently, we have seen announcements from Chinese car makers, including BYD and Chery, indicating that they will plan to enter the fray with low cost xEVs in the US in the next few years. These announcements have been greeted in the US automotive press with a very healthy dose of skepticism. The key challenges raised are whether China can produce a car that meets US safety standards or meet the quality expectations of the US consumer. This perception is not based on any cars that have been built for the US market by US companies using outsourced manufacturing. These perceptions are from existing Chinese cars built for the Chinese market, where safety and quality expectations (and regulations) aren’t at a similar level.

But surely people don’t think that the Chinese are incapable of manufacturing cars and batteries to a high quality spec? In reality, a US or European car manufacturer could manage the engineering and quality of a vehicle and manage the manufacturing implementation to a high quality spec using a Chinese partner. In consumer electronics, this happens all the time. For example, look at the back of your iPhone and you will see the words “Designed by Apple in California. Assembled in China.”

And what of the perception of poor quality and safety? This is a very real issue that needs to be overcome by companies that plan to go the route of high quality Chinese manufacturing. A very carefully planned and executed communications strategy can help address the product specific issues that will be raised in the media and among consumers, and can also attempt to influence the overall perception. But the iPhone example is informative here too.

There was once a time when “Made in China” was bad for marketing consumer electronics. Now, the manufacturing origin of electronics is not a significant issue in and of itself. The market for iPhones has not suffered from its manufacturing origins, since the quality and brand appeal is associated entirely with Apple brand. Importantly, Apple protects this brand by closely managing their manufacturing partners in China (and elsewhere) thereby managing the quality of the end product. And the cost? It is estimated that using Chinese manufacturing, Apple is able to manufacture each iPhone at a cost of just $173. I can’t even guess what that number would be if the iPhone was domestically manufactured.

The car industry is just a few decades behind in taking advantage of this opportunity. While the business environment might drive some innovation in this direction to reduce costs, the political environment may prevent any real progress. Outsourcing car manufacturing will translate into less domestic manufacturing jobs, which will be a very sensitive issue for incumbent automakers being bailed out by US taxpayer dollars. Even the startups have heavy incentives through the DOE ATVM loan program to manufacture domestically. Regardless, the significantly lower cost of Chinese manufacturing is too important a factor to prevent an inevitable shift in that direction. With the added cost pressures of xEVs and their batteries, perhaps we will see this shift come first in the market for xEVs.

Some progress on my startup - "Plato's Forms"

2009-03-04T20:04:00.000-05:00

I've talked a bit on this blog and left various cryptic messages on twitter and facebook about the new startup company I have founded and am working on.

I have a few bits of news to add today:

For starters, the provisional name of my new startup is "Plato's Forms." I say this is provisional because I may change the name prior to launch depending on how it grows on me and how the business model and product evolves (as they tend to do.)

The inspiration for the name is quite simple: when I first conceived of the business idea and the problems I was trying to solve, I kept thinking back to Plato's Allegory of the Cave. After the usual endless iterations of what I might call the company, I kept coming back to Plato's Forms. All I can say about the company right now is that it is a software service aimed at corporate customers that addresses some of the challenges of communicating in complex, rapidly evolving industries, like the Cleantech industry I have been involved in for the last 2 years.

So it's pretty obvious I am not founding an EV company or anything like that. The company is a software service delivered over the web, so I won't have to worry about faulty transmissions or crash testing (of the physical type.) I will stay closely involved in Cleantech in my new role at Peppercom as their Senior Analyst for Cleantech.

Since I am founding a technology company, I imagine it is important to get someone on the team who knows something about technology. So the second bit of news is that Ben Metcalfe is joining me as "Acting CTO." What this means is that Ben is advising on the high level technology issues as well as doing some of the hands on work in the early days. Ben will also help me build the initial team of developers to get the first product launched. Ben not only understands technology, he understands media, having spent a good part of his early career at the BBC working on their digital properties and establishing an award winning developer network.

I will start to post more on what I am doing with Plato's Forms here on this blog, but please understand that it may be a bit murky at first. I hope to have a first public beta ready to go in 6 months or less and will be launching it initially in the cleantech sector (hence, the synergy with my other job at Peppercom.) I will also continue to post on Cleantech topics.

Thoughts on Strategic Philanthropy

2009-02-24T14:44:00.000-05:00

This is the text for an interview I did with Gennefer Snowfield that was published on Triple Pundit.

It is a bit of a blast from the past, since I am talking about a program i started while CMO of Fireman's Fund. One interesting thing I realized, however, was that there are applicable themes to some of the issues that exist today with corporations developing "green" strategies. Whether you are talking about philanthropy or the broader issue of CSR, including "green" practices, I believe the most important thing to do is to have your programs tightly aligned with your business model.

How do you define for-profit philanthropy?

In the case of corporate philanthropy, there is often a false dichotomy between profit motive and philanthropic endeavors. I believe that the best results come when the corporation’s philanthropic programs are completely aligned with their business strategy and profit motive. If a corporation can see the specific impact of their philanthropy on their bottom line, that corporation is more likely to apply significant resources to their philanthropic program. If the philanthropic programs are only loosely tied to the business strategy, or completely disconnected, then the philanthropy is perpetually at risk of being marginalized or eliminated, especially in tough times.

This may seem obvious, but it is rarely done right. A common refrain in corporate philanthropy circles is “the CEO and board really need to champion the corporate giving program.” But what is missed is the fact that it isn’t just about them being good or caring people – they have a fiduciary duty to the shareholder. If you run a corporate giving department, you should be striving to create a situation where your programs are key to the business success, and that the impact is obvious and measurable.

Last I checked, only 10% of charity came from corporations. Corporations that take this strategic philanthropy approach will ultimately give more to charity because it helps build shareholder value. Ultimately, everyone gains from this.

Please describe your philanthropic business plan and your current charitable activities.

Back when I was CMO of Fireman’s Fund Insurance Company, I launched a strategic philanthropy and branding program called “Fireman’s Fund Heritage.” The name of the program was based on the fact that the company had originally been founded 140 years ago to provide a portion of its profits to the local fire departments. In reviving this mission, we offered grants for equipment and programs to fire departments in the communities we served, which both helped them protect the properties we insured, and also created a strong sense of trust and customer loyalty among the company’s employees, agents, and customers. The program was shown empirically to have a positive impact in customer loyalty, employee morale, and sales. This easily justified the millions of dollars in grants that were given each year, which were tied the amount of business generated by local agents.

How do you communicate the impact of these efforts to your customers?

The program was heavily oriented around customer communications and employee engagement. To a certain extent, we also regarded our independent agents as “customers.” The most important message in the communication was explaining and demonstrating how the grants that were going to fire departments were actually resulting in improved protection in their community and lives saved. By showing the natural connection of the money given in grants and the reduction in property losses and lives, we educated customers as to why this type of corporate giving was appropriate and did not amount to higher prices for their insurance policies. It also gave them a sense of pride and connected them to their community in a way that no other insurance provider could offer.

Why do you think it's important for companies to adopt philanthropy as part of their revenue model?

I don’t think it is necessarily important for every company to engage in philanthropy. If they do so, however, I think it is critical that the CSR programs be closely tied to revenue (or drivers of revenue, like customer loyalty or referral.) By doing this, you have a “virtuous circle” that reinforces itself and sustains itself, benefitting both the business and the community.

That being said, in today’s environment of transparency and easy access to information, customers do want to know more about the companies that they choose to do business with, so good corporate practices are just good business. I would caution, however, against establishing a corporate giving program that is just window dressing or is totally disconnected to your raison d'être as a company, because your customers will see through it very easily.

What would you say is the most critical element in successfully implementing philanthropic endeavors?

Aside from what I mentioned above about the philanthropy program being absolutely tied to your business strategy, the biggest learning I had at Fireman’s Fund was that it is critical to get your employees involved to the maximum extent possible. The power of the grassroots involvement of your employees in your corporate philanthropy creates a powerful connection between company and employee and also fosters teamwork and community among your employees.

Orthogonal Vectors

2009-02-19T13:21:00.000-05:00

When I decided to leave Tesla last October, I didn’t know what I was going to do next, and I had very little time to figure it out. I had committed to myself to make my exit as smooth as possible for the benefit of the company and there was a lot of work to be done, leaving no time for planning next steps.

I did know a few things though: for starters, I was quitting a good job in perhaps the worst job market since I graduated college.

But such is life. You can’t always pick the circumstances that you find yourself in, but you always have the choice of how to handle them and ultimately one’s character is defined by the decisions they make when confronted with tough choices.

It is this philosophy that led to my leaving Tesla, but more interesting is how this philosophy led to what I am doing now.

When I left my previous job as CMO at Fireman’s Fund Insurance Company to join Tesla, I knew that the risk associated with such a move would be hedged by the fact that the experience alone would be extremely valuable, regardless of the outcome. I felt this way for two reasons:

First, it was clear that cleantech was going to be the next important sector for innovation and industrial growth. I had missed out on the last “big thing” in Silicon Valley (for better or for worse) and felt that living in the Bay Area but working at a large financial services company was somehow incongruous. I felt the tug toward participating in what makes Silicon Valley extraordinary.

Second, I believe that one’s growth, both personal and professional, is maximized when you pursue orthogonal vectors. There are incremental gains to be had by continuing to try to advance in the same direction. The gains are exponential when you strike out in an entirely new direction.

Which brings me back to what I am doing now. I’ve been bitten by the entrepreneurial bug. Aside from starting a short-lived record label (don’t ask), I’ve never been an entrepreneur. While I have always done well working within someone else’s system, I have a strong predisposition to independence and originality. The idea of having a much more direct path between my effort and the outcome is very compelling.

Once again, my timing is impeccable. As a first time entrepreneur, it isn’t the most opportune time to raise funds to start a new venture. This is why I concluded that I would need to try an innovative approach to starting this company. It was a tough choice to pursue this route rather than the comfort or safety of taking another job at an established company, but I believe it is the right choice.

The announcement that went over the wire today that I am joining Peppercom as their senior analyst in cleantech is a part of the story. I am going to do my best to help build Peppercom into a leading player in cleantech communications and at the same time will be launching my startup, with Peppercom’s support, while working out of their offices in downtown San Francisco.

Peppercom is a great partner for several reasons. My startup is a software service aimed at journalists, media relations professionals, and CEOs, so working closely with a leading communications firm will help me build a better company. My background in cleantech communications and branding will be a great addition to Peppercom’s already strong capabilities in that area. Also, Peppercom believes that the best way to provide value in the business of communications is to have a deep understanding of the clients’ business. I believe this is especially true in the cleantech business, and Peppercom definitely lives up to this promise. In fact, when I concocted the idea of developing my startup company out of a communications firm, the first and only firm I spoke to seriously was Peppercom.

I think this certainly qualifies as an orthogonal vector, no? I’m looking forward to the next few years of growth. May they be as valuable as the last few have been!

If not a gas tax, increased battery subsidies

2009-01-31T13:12:00.000-05:00

Previously, I suggested that our country should implement a gas tax. Several other blogs picked this up and the commentary was fairly vitriolic. The gist of the nasty stuff was the notion that raising the gas tax was an attack on families struggling to survive in this recession. I respect this point of view, if not the unseemly way many express it.

The point I was making, and continue to make, is that the current economic situation will make it increasingly difficult to maintain the momentum we have built to address the longer term issues we face as a society. The progress on this front has been very positive and it will take extraordinary leadership to sustain it given the short term economic challenges and the powerful forces of populism.

The fact is we need to do something radically different to re-orient our hyper-consumerist society into one that is sustainable in the long run. We cannot continue the slash and burn type of development that the industrial revolution brought.

A major piece of the puzzle is the shift of automotive transport from petroleum to electrical power. The technology is maturing and we are in the midst of a real shift to practical electric transportation. Nearly every large automobile manufacturer has announced plans for plug-in hybrids or pure electric cars.

The shift is taking place. It is inevitable. The only questions that remain are how far and how fast.

The answer lies in the relation of two things - the cost of petroleum and the cost of batteries. For the sake of simplicity, lets say the price of a gallon of gas and the price of a kilowatt hour of energy storage.

Today, the costs of automotive battery storage (expressed in $/kWh) have improved relative to just 10 years ago, but they are still too high to be economical for mainstream automobile buyers.

With today's gas prices, no EV manufacturer can credibly say that purchasing an EV will save you money over the typical life of a car purchase. They may point out the savings in gas costs, but if you account for the initial cost of batteries, and potentially the required replacement costs of the battery, the numbers don't pencil.

In the absence of any incentives, the market for EVs today would be for technology and/or environmental enthusiasts who are willing to pay a healthy premium for cool technology or for reduced CO2 emissions. The good news is that this is a healthy, attractive market. The bad news is that it is a niche market relative to the enormous automotive market (incidentally, a "niche" business in the automobile business can be a billion dollar business, but it won't move the dial from an environmental perspective at that scale.)

For electric vehicles to become mainstream, either battery costs must come down significantly or gas prices must rise significantly. Over time, fossil fuels will become scarcer and therefore more expensive. It can also be assumed that over time, technological innovation will bring battery costs down. This is why I say the shift is inevitable. But if you want to accelerate this shift, you must either make gas artificially more expensive (via a tax) or make batteries artificially cheaper (via an incentive.)

So while I have criticized the political courage of our leaders in not confronting the issue of increasing the gas tax, I must acknowledge the significant battery subsidies that were passed last fall and have just become effective January 1st 2009.

If you aren't aware, the current tax credits on the books start with $2,500 for a car with a small, 4kWh battery (assume 10 miles usable electric range) and max out at $7,500 for a car with a 16kWh battery (assume 40 miles usable electric range in a PHEV configuration, or about 70 miles in an EV configuration)

Those aren't small numbers. At $468-625/kWh in subsidy (depending on the size of the battery, up to 16kWh), you are looking at a tax credit that offsets more than half the total cost of the battery.

But I would argue that it isn't enough. Specifically, the cap of 16kWh effectively maximizes the benefit for plug-in hybrids like the Chevy Volt (this is not a coincidence!) but the per kWh subsidy decreases as batteries get larger, as you might commonly see in pure EV applications.

What this means is that under the current incentive scheme pure EV sedans, which are more efficient and emit less CO2, are price-disadvantaged to plug-in hybrid models and to their pure gasoline competitors.

By maintaining the current formula but eliminating the cap of 16kWh, EV manufacturers would have a level playing field with plug-in hybrids and would approach cost-competitiveness with their gasoline competitors. With such a subsidy, an electric family sedan with substantial range could start to be cost competitive with it's gas-only competitors.

Over time, the subsidies could be phased out as the natural forces drive energy costs up and battery costs down.

Perhaps this approach could accomplish the same result for accelerating the electrification of the automobile without inspiring the public outrage that a gas tax seems to bring.

What will 2009 bring for EVs?

2009-01-22T14:42:00.000-05:00

I know the time for all of the "best of" lists and "predictions" is past but as an observer of the EV and alt fuel industry, I think that it is going to be a very interesting year with some surprises.

In many ways, I think 2009 will be the shakeout year. One obvious reason will be that the recession and difficult capital environment will continue to put pressure on established companies and startup companies. Another reason is all of the projects and plans that were previously in the development phase are due to start maturing, and it will be clear who the serious players are.

So here are some of my predictions for the EV industry in 2009:

1) The first Tranche of ATVM loans will be heavily weighted toward legacy manufacturers and building domestic battery capacity - perhaps the most important decisions that will impact the EV industry are being made now in the halls of the DOE. 70 applicants await decisions on whether their projects will receive direct, low interest loans from the government. While there is a bit of a "pigs at the trough" mentality going on, at the end of the day I think that the incoming administration will be looking at this program in the larger context of the economic stimulus and will therefore show a bias toward preserving established jobs and manufacturing capacity when it comes to vehicle programs. As for batteries, the lack of any domestic capacity is both a concern and a great opportunity to build a new industry. The big winners (but certainly not the only ones) will be GM, Ford and A123 in the first round of loans.

2) Recession and government involvement in funding advanced vehicle technology will accelerate the convergence of Silicon Valley and Detroit - for similar reasons outlined above, the DOE will attach conditions to loans that will either explicitly or implicitly encourage new companies to leverage old manufacturing capacity and job bases. Imagine, for example, that the DOE approves the application that Tesla has submitted for battery Model S assembly, but conditioned on them using an existing plant with excess capacity or a plant that is planned to be closed by one of the Big 3. The example is hypothetical, but you can bet the government is going to be very hands on in not just the "who" but the "how" these loans are implemented, and it will be done with an emphasis on protecting existing jobs and stopping the bleeding. The other force driving convergence will be the economy. Lack of capital will drive startups to get out of the manufacturing business and into the patents/components business, turning to the incumbents as their customers.

3) GM will announce a "pure EV" version of the Chevy Volt with 100+ miles range. This would be very easy for them to do, since it basically would only require the use of a different battery chemistry and the depopulation of the ICE and genset. This would be a popular move from the perspective of the EV community, but the hard business reason why they will do this is because it will enable them to more easily meet their commitments to the CARB ZEV mandate in 2011 and beyond. Add to this the announcement by Ford that they intend to produce a pure EV Ford Focus and you've got the cross town rivalry thing going as well.

4) Lotus will announce both a pure EV and range extended EV version of the Evora at the Geneva show, and will release at least one of the two - this is another no-brainer (and the rumor was reported by the FT). Lotus has enough experience with Tesla, Chrysler and who knows who else to have the confidence and desire to go it alone in what is one of the only growth segments for the automobile industry. The longer, more luxurious Evora will be a very compelling offering, although it will likely sacrifice the "+2" seating to accommodate the drivetrain.

5) All major players will seek equity tie ups in battery makers to ensure supply - in the future world of EV production, guaranteed access to cell supply is absolutely vital. The current projections for demand for automotive lithium ion batteries vastly outstrips current capacity. What is shaping up is the possibility of a battery squeeze play, with some being left wanting for supply. The situation was made worse by Panasonic's acquisition of Sanyo. Toyota has already made it clear they will develop batteries in-house (in addition to their JV with Panasonic). Daimler has already announced their tie up with Evonik. Nissan has a JV with NEC. GM will be looking to strengthen their ties to LG Chem (possibly through a US based JV) and Ford will be looking for a partner. With so few players in the cell manufacturing business, smaller players or those late to the game risk being squeezed out.

Update: Thanks for the video response, Alan:

It's not all rainbows and unicorns

2009-01-04T13:04:00.000-05:00

While the prevailing campaign optimism was that the Obama administration would be able to address all of the country's problems, the reality is that tough trade-offs will need to be made. Many of these trade-offs will, of course, upset supporters who assumed that the new administrations decisions would fall in a direction that favors their personal interests.

For example, will Obama stand firm and demand strict concessions from UAW as he catches the problems that the Bush administration punted to him? Or will he avoid alienating his UAW supporters at the expense of a competitive US auto industry?

Another example: how will Obama walk the line between broader economic recovery and environmental policy? Some insight into the opposing points of view already existing within the administration can be seen in a NY Times article today, contrasting the views of Larry Summers and Carol Browner.

An excerpt is provided here:

As Mr. Obama seeks to find the right balance between his environmental goals and his plans to revive the economy, he may have to resolve conflicting views among some of his top advisers.

While Mr. Summers’s thinking on climate change has evolved over the last decade, his views on the potential risks to the economy of an aggressive effort to limit carbon emissions have not. But he now works for a president-elect who has set ambitious goals for addressing global warming through a government-run cap-and-trade system.

It may once again prove to be Mr. Summers’s role to inject a rigorous economist’s reality check into the debate over the scope and speed of an attack on global warming.

The inherent policy trade-offs between economy and environment in the short run, and the increasingly hostile populist environment that inevitably comes with recession, is what prompted me to predict (somewhat provocatively) that in 2009, recession and populism would defeat environmentalism.

In truth, the outcome will not be so binary and absolute. The progress made in the past few years in terms of public awareness of environmental issues has created a new status quo, where environmental issues are no longer fringe issues. In the struggle to find the right balance of environmental progress and economic health, which do you think is more important to the average American citizen?

Where will the money go?

2009-01-04T12:40:00.000-05:00

Earth2tech had an article this morning commenting on Obama's "radio address" this morning, where he lays out some plans for job creation at a high level. The Youtube video is embedded below, with my additional analysis below that.

I agree with Earth2Tech that the speech will be applauded by certain parts of the cleantech industry - those related to renewable energy production. But other large sectors of cleantech are also hoping to fit in with the administrations plans. If the focus of the administration is on green investments that also create large numbers of jobs ASAP, I think you will see a tendency toward large projects like he is describing, and away from subsidies for R&D to solve the longer term problems of global warming.

Here is the problem the administration is working through. If they have $100 to spend to solve the problem, where do they allocate the money? They are going to place bets that will address as many of their goals simultaneously. One major goal is immediate job creation (not jobs in four years). Another goal is reduction in carbon emissions. A third goal might be supporting the industries that are developing green solutions. There are other goals, no doubt, and certainly if you compile the goals of those lobbying for the administrations attention, the list would be quite long.

This, I believe, is why the idea of doubling renewable energy production is an attractive program for the administration. It creates jobs now, provides market support for companies in the renewable energy production industry by stimulating demand, and builds low-carbon energy capacity directly.

So far so good, but remember that in this exercise there is only $100, and if the monies are spent on these types of large infrastructure projects, less might be available for other programs that might generate fewer immediate jobs per million dollars invested, such as R&D investment, manufacturing subsidies, and market subsidies (addition incentives for EVs, residential solar, etc).

Overcapacity touted by the FT as the major issue

2009-01-02T02:28:00.000-05:00

An editorial in the FT that is very much in alignment with my previous post on the problem of overcapacity in the auto industry.

Here is a snippet - the full article can be found here.

"But while the auto manufacturers have cyclical problems, their underlying faults are structural. They are not just in trouble because a fear-stricken public is hanging on to its cash and not buying cars, but because they are still set up to make far too many vehicles – and inefficient ones at that. Across the world, carmakers need to cut both workforces and output. The auto market is saturated. In 1971, nearly half of all UK households had no access to a vehicle, but more families now have two cars than have none. And Britain is typical.

Overcapacity has been long acknowledged within the industry: surveys of car company executives show they have been trimming output for some years. Even in a painful downturn, politicians should not stand in the way of this process. If every government aims to keep its local car operations going during the recession in the forlorn hope that someone else’s excess capacity will disappear, the result will be a world subsidy war. Companies will end up competing on the size of the hand-outs they can grab."

More on the gas tax...

2008-12-28T02:08:00.000-05:00

Apparently Tom Friedman concurs - here is a link to his op-ed in the NY Times this Sunday.

Angus MacKenzie, Editor in Chief of Motor Trend, also writes about it over here.

Also a NY Times Editorial Piece from Dec 27

In 2009, recession and populism will defeat environmentalism

2008-12-27T13:13:00.000-05:00

In the last two years or so, I have witnessed what I believed to be a sea change in society's views about the environment, and particularly the acceptance of global warming by the mainstream as a critical challenge of our era.

When faced with the questions of whether this surge of popularity of "green" issues was just a fad, I confidently answered that no, this time things were different. Progressive thinking about environmental issues had penetrated the mainstream. Even president Bush acknowledged the issue in his 2007 State of the Union. A new generation of children would grow up with sustainability as the norm just as my generation grew up with computers as the norm.

But today, I fear that we may see a major setback in 2009. The combination of recession and populist notions will gain momentum, stoked by fear and hardship. These forces may be strong enough to stop the progress of environmentalism dead in its tracks.

The essential problem is the tragedy of the commons. Global warming and concern about CO2 emissions is a global, social problem that has extraordinary long term impacts but when you look at it on an individual level, the marginal returns that a selfish individual can gain by ignoring the greater good far exceeds the marginal cost to that individual in the short run. In the long run, though, everyone pays more.

For those not familiar with this concept of Economics, an example that everyone has experienced is the group dinner where everyone agrees to split the bill. Relieved of their individual accountability to pay for only what they use, each person orders more than what they would normally order, knowing that the additional costs will be borne by the group. The individual also reasons that if they alone behave responsibly, they will not be rewarded with a lower bill but rather will still have to bear the higher cost of the average bill.

The predictable result is that the average bill is much higher than if each paid their own way. A nasty side effect is paranoia and suspicion, as people watch what each other is ordering and get angry at the irresponsibility of each other.

With recession upon us and fear of long term depression, powerful populist notions will challenge the "greater good" notions of environmentalism. Put simply, if people are out of a job and can't afford to pay their heating bill, they could give a rat's ass about global warming and will be infuriated by billions in government spending for environmental causes including electric car subsidies and investments in solar power or biofuels.

The media loves to play the populist line, as it is a sure winner for readership. Politicians are highly susceptible to populist trends, and will be quick to change directions. You will hear a lot of politicians saying "I support these environmental causes and issues in the long run, but the people can't afford them today."

What first triggered this thought for me was the not-so-friendly response that I received to my blog on the need for a gasoline tax. One commenter even went so far as to call for my hanging! Then this morning I read in the NY Times that cheap coal is making a resurgence for home heating.

Watch this play out in 2009. The media will stoke the fires of populism and environmentalism will come under fierce attack. In the absence of private capital to fund major investments in advanced technologies to reduce CO2 emissions, the government will come under intense political pressure if it tries to step into the breach. Great courage will be needed to stay the course of tackling long term global challenges while also addressing the short term economic hardships.

Cheap gas is a big problem

2008-12-21T13:34:00.000-05:00

UPDATE: Tom Friedman of the NYT wrote an op-ed piece calling for a gas tax on Dec. 28, one week after I wrote this post.

Here we go again.

Driving to coffee this morning I couldn't believe that gas was $1.86 a gallon. Most people are relieved when they see gas prices go down, but it makes me nauseous.

Some have described our country as addicted to oil, and I think the metaphor is more accurate than many think. It goes beyond mere dependency on oil - we are so hooked that we behave irrationally and delude ourselves that we can simultaneously tackle environmental issues and force automakers to build "green cars" while celebrating cheap gas as essential to our economic well being.

This is the stark reality: $1.86 gas (in SF), combined with ever increasing CAFE standards forced down the throats of automakers, will give the automakers no hope of survival. It is a suicide mission. The fact that Obama and Pelosi and other democrats simultaneously hold the industry's feet to the fire to build ever more efficient (and expensive) cars while simultaneously decrying high gas prices as a threat to the livelihood of our middle class is so intellectually bankrupt it is depressing.

Why? because these politicians and their staffers are smart enough to know that as long as gas is cheap, the masses will not have any real incentive to purchase fuel efficient cars, rendering battery electric and plug in vehicles to a niche market for consumers who are willing to pay a premium for the peace of mind of driving a car with significantly lower carbon emissions. Since they clearly must know this simple fact, it follows that they have made a calculated decision that they will not confront this politically difficult truth and instead will continue the hypocrisy of forcing automakers to produce more efficient, expensive cars that the mass market has very little economic incentive to purchase.

The solution is simple from an economics standpoint. Pass a gas tax to keep gas prices at a relatively high figure. Let's say $5-6, which is sacrilege in the US but still 30% cheaper than gas in Europe. Ever wonder why small, efficient cars are popular in Europe but not here? Look at the gas prices.

From a political standpoint, this is considered suicide. Perhaps this was true during campaign season, where running on a platform of a gas tax in times of record high prices and looming recession would have killed Obama's chances. But now he has won the election, and the best time to confront a nasty truth that requires some very bad tasting medicine is now, at the beginning of his first term.

Alternatively, if the government is unwilling to do this, they should at the very least drop their hypocritical efforts to drag the auto industry into ever higher CAFE standards against market forces, adding insult to injury by criticizing the automakers for not building cars that the public wants.

If you want to comment over on Seesmic, see below:

The week in review Dec. 20 2008

2008-12-20T22:02:00.000-05:00

The stubborn appeal of hydrogen

2008-12-19T12:57:00.000-05:00

There are some very strong arguments why hydrogen (used in a fuel cell EV) does not make sense as a short, medium or long term solution. The most fundamental argument is that hydrogen is an energy carrier, not a fuel, since it requires energy inputs to "refine" into pure hydrogen from water or natural gas (it cannot be mined, like oil, coal or gas). Since the energy to create hydrogen for use in a fuel cell can be more efficiently transmitted and stored in a battery for use in a EV drivetrain, it will never make sense to pursue hydrogen since the energy is always better used in a battery electric vehicle (so the argument goes).

The problem with this argument is that it is a technical argument and it ignores the consumer psychology side of the equation. I'm not saying the argument is wrong, I'm just saying to really understand the persistent attractiveness of hydrogen, you can't underestimate the consumer appeal of the overall system relative to a battery electric vehicle. At a minimum, proponents of EVs must understand this because it offers very important lessons and conclusions for where EVs must evolve to gain broad adoption.

Why, battery proponents must ask, does the public and consumer appeal of hydrogen persist so stubbornly?

It is simple: the idea of being able to refill the tank in a matter of a few minutes is a very strong consumer benefit - one that is deeply embedded from decades of pouring extremely energy dense gasoline into our gas tanks. In our hectic lives today, even the four or five minutes it takes me to fill my tank at the gas station at the corner seems like an eternity.

I believe that this issue is acknowledged by the battery EV community but the importance and impact is vastly underestimated. Recharge time is the single most important barrier to customer adoption of EVs in the long run, not range.

One reason is that as long as recharging a battery pack (in practical, readily available locations) takes hours and not minutes, it is a major shift in consumer psychology for a driver to accept the fact that when the battery is depleted they are essentially down for the count. Even getting the charge time down to one hour or 30 minutes will not be quick enough to be practical and acceptable for broad consumer usage. Enthusiasts will plan lunch stops around the one hour charge during a road trip, but it won't be practical for daily use.

Another reason is that range becomes less important as quick charge becomes more readily available.

Imagine a future scenario where the energy density improves to enable 500 miles on a single charge and the infrastructure for quick charging exists. The availability of practical quick charge will mean that no one will need to carry the weight and incur the cost of the additional batteries for the full 500 mile range. Put another way, if the infrastructure for quick charge exists, improvements in energy density will result in cars with fewer batteries (resulting in less weight and less cost) to achieve the same distance between refills.

So my conclusion is that EV companies, battery companies and utilities must innovate in the area of quick charge and infrastructure development if EVs are to gain broader adoption. It will be more important than innovating on increasing the maximum range of EVs.

(Note: the tradeoff that is implicit in my argument is that battery chemistries that tend to have better rapid charge capability and cycle life also tend to have lower energy density. High energy cells tend to have shorter cycle life and less ability to handle a quick charge. This is true today and has been true for a while, but perhaps we will have a breakthrough in the future that is the best of both worlds.)

4th and goal, and Bush Punts

2008-12-19T10:30:00.001-05:00

The announcement of government support for bridge loans to the GM and Chrysler is disappointing in that it amounts to punting the problem when a solution was at hand (in the form of a structured bankruptcy)

The deal, from what I can see from the first reporting by the WSJ, sets out targets for the companies to achieve by March 31, 2009, but these targets are non-binding.

The supposed "teeth" comes with the requirement that the automakers "show viability" by March 31st or the loans would be pulled (effectively forcing them into bankruptcy.)

This is interesting for two reasons. First, viability is defined as "Net Present Value." This means that the case can be made for a "viability" without actually doing anything meaningful since any assumed future profits will be discounted to the present. In other words, it will all be a debate of assumptions, not hard facts.

Second, the threat of pulling the loans and forcing the automakers into bankruptcy is an empty one because it is a threat made by the outgoing Bush administration that would have to be carried out by the Obama administration, who will no doubt want to replace the whole thing with a fresh framework, whatever that might be.

Bottom line: Bush punted when he had the opportunity to do something meaningful in his last days.

A simple solution to support EV startups

2008-12-16T19:44:00.000-05:00

I have been noodling on some of the issues I first raised in a blog post last week regarding how government funds could be used to help support innovation in the EV or alt fuel space.

The fundamental problem I raised was that the types of terms and conditions that will be placed on government loan guarantees might not work for startups. In particular, the government oversight and administrative burden that is being talked about for companies who take loans from the government might be incompatible with how VC backed startups operate. Another problem is the massive dilution that startup investors (and employees) may face if the government requires 20% of the loan value to be matched in equity.

The overall picture of how this plays out has many considerations, but I think there is one area where the government can provide support that would be politically acceptable and level the playing field between innovative startups struggling to bring their products to market and big companies.

In the business of manufacturing cars, a massive amount of capital is tied up in inventory purchases prior to building the product. For a startup, your suppliers demand aggressive terms so your cash outlay for the parts and other associated costs to put together a vehicle occur many months before you actually deliver that vehicle to your customer and collect the revenue. A simple way of demonstrating this would be to imagine that you have a great car that many customers want to purchase it for $30,000, but it costs you $20,000 per car to purchase the inventory for each car and you don't get paid by the customer until you deliver that car many months later. If you are trying to sell a large number of these cars, the working capital you require to support this is very large.

Most established businesses with similar issues can access a revolving line of credit for working capital needs. Startups have a hard time doing this because they may not have established credit or sufficient assets to provide as collateral. If they are able to get financing, the terms are likely to be onerous. If they cannot get financing for this working capital, they must fund it with equity, which is expensive and increasingly difficult to raise.

I don't have direct information on this, but I am confident this is one of the challenges which confronted Th!nk, which recently declared that it may close its doors without financial support from the Norwegian government.

The Big 3 get around this issue because they have tremendous leverage with their suppliers. They do not pay their suppliers for the inventory they use until some time *after* that part is assembled into the vehicle. These types of terms would be impossible to negotiate as a startup.

This is where the government could play a very valuable role. By providing low or no interest working capital loans which could be used only for funding inventory purchases and other similar up-front product costs (such as shipping & logistics), the government can level the playing field for startups and allow them to scale production rapidly to put products in the hands of their customers. To prevent abuse of the program and overproduction of vehicles, the government could require that these startups demonstrate a credible order book that proves (to the extent possible) that the products being built will indeed be sold to customers.

A strong order book has not been a major challenge for the new crop of EV startups. Financing the working capital required to deliver products to these waiting customers is a bigger challenge, and focused government support for this will not be as controversial or problematic as direct injection of government funds into VC backed startups.

Such a program also avoids the problems, perceived or real, of having the government pick the winners among the crop of EV startups vying for government support. The program could be made available to any Advanced technology Vehicle startup that is able to demonstrate a viable product and a credible order book.

The Fundamental Issue in the Auto Industry is Overcapacity

2008-12-14T06:51:00.000-05:00

There has been a wealth of wisdom imparted from every corner of the blogosphere as to why the domestic auto industry has failed and why they do or do not deserve a bailout from taxpayers.

One thing I have learned from my crash course in the auto industry these last two years at Tesla: because (nearly) everybody owns a car, they feel they are qualified experts on all matters automotive.

The truth is, the auto industry is very complex, and some of the criticisms that have become the conventional wisdom are misplaced and sometimes naive, especially what has been written about the auto industry by some tech and social media bloggers.

Waving your hands around and talking about making the iCar and or the appointing Steve Jobs as auto Czar is just plain silly, OK? Yes, it is true that the products of the big 3 are poorly conceived and/or poorly executed, but that alone will not save the industry.

Also, talking about how you owned an American car in the 70's and it sucked is totally irrelevant to the issue today (as the old ad campaign suggested, have you driven a Ford lately?)

The fundamental problem is OVERCAPACITY.

Supply has exceeded "true" demand for many years. This shouldn't happen in efficient markets but this imbalance was perpetuated by the availability of essentially free credit which allowed consumers to overbuy and overspend.

The industry was tooled up and structured to deliver against total market sales of 17MM units a year. When credit dried up this last summer, and markets started the wrenching process of reaching a new equilibrium, it was shocking to watch as the annualized sales figures dropped 20, 30, and then over 40% by November.

For those who question why the management wasn't prepared, imagine seeing your total market size shrink 40% in 4 months after being generally level or climbing for years. At the New York Auto Show in March, a lot of the discussion was about forecasting the coming reduction in total market size, which is an important thing because it takes time in the industry to adjust production volume (i.e. reduce shifts and close plants) to meet demand. People were debating whether it was going to go from 17MM units to 16 or 15MM. The most conservative projections were, if I recall, for 14M. In November the number was 10M.

Because the underlying reasons for the previous market size was driven by the temporary, and now evaporated, availability of cheap credit to anybody with a pulse, this shocking dislocation is likely to be closer to the true market size going forward.

The the credit of the manufacturers, their plans submitted to congress assume future sales in the 11MM unit range, so they have gotten past denial and are into acceptance. This leaves the very ugly process of restructuring the industry to be healthy in a market that has shrunk 36% in 4 months.

So what does this mean in terms of all of the helpful advice being proffered? In my opinion, there is no way around the following conclusions:

1) The industry must shrink capacity dramatically and quickly to be healthy

2) therefore, a massive restructuring is inevitable. This could be bankruptcy or something that looks just like it but uses nicer words.

3) In this restructuring, many jobs will be lost. To try to protect jobs (or uncompetitive wages) in this process is simply to be providing welfare and not confronting market reality. Propping up the industry with the logic that it will preserve jobs when the fundamental problem is overcapacity is equivalent to the UAW "jobs bank" that most people immediately recognize as absurd.

The problem with this is that it is a very scary prospect, and otherwise intelligent people start sounding the alarm with overblown predictions of doom. They say we will have no industrial base, as if somehow the end result of this will be the total destruction of the entire manufacturing capacity of the industry, as opposed to a resizing. They say there will be millions of jobs lost, as if taking steps to artificially sustain these jobs will somehow fix the problem (it will exacerbate it.)

I wonder if these folks realize that the rationale they are using (pain avoidance) is the same thing that they criticize Detroit management of for not adjusting to market realities sooner.

gadzooks! Auto Bailout Bill is dead?

2008-12-11T22:10:00.000-05:00

Looks like the bill died in the Senate and no action will be taken until next year? I'm watching live on C-SPAN and Harry Reid is saying that he is "dreading seeing the response from Wall Street tomorrow"

Key issue was the republican demand for a specific date where the UAW would commit to wage parity.

GM and Chrysler have said that they will not make it to the end of the year without immediate help. It was quite an ultimatum. We will now see if it was an exaggeration or a bluff to try to force action from congress.

Another key question is how, if at all, this changes matters for the EISA funds. Do terms and procedures for the moneys allocated to advanced technology move forward as planned, with the first disbursements by Dec. 31?

Senator Stabenow from Michigan is giving an impassioned last minute plea to get the votes they need, but it looks unlikely.

Is VC compatible with DC?

2008-12-08T20:57:00.000-05:00

One of the interesting stories shaping up in the bailout of the Detroit 3 is the potential government support for silicon valley startups. Joe White wrote a good piece in the WSJ today, that covers many of the salient points.

What hasn't been covered yet is whether the government support (and the strings attached to it) will be compatible with the capital structures and business goals of the silicon valley ecosystem.

First lets get a common misconception out of the way: the original $25B loan program developed by the government is known as EISA (for Energy Independence and Secuity Act). The money was appropriated for the specific purpose of providing loan guarantees for the development of advanced vehicle technology to improve the efficiency of automobiles. A specific carveout was allocated for small companies (including suppliers and startup automobile manufacturers). Somewhere along the way various political interests suggested that this money should be diverted to address the short term cash flow problems of the big 3. It now looks like that is the way things are playing out.

So for anybody out there talking about a silicon valley company asking for a bailout, you missed the point. The real point is the money originally intended for fostering advanced technologies is being redirected by congress to support a general bailout.

That isn't to say that some type of bailout isn't called for, but somewhere along the line these two things got intertwined and the consequences extend beyond the public relations challenge of separating the "bailout" from support for advanced technology development.

The real interesting question is: what will happen when Washington gets around to considering the applications of technology startups for federal loan guarantees under EISA?

It is clear that there will be many strings attached for companies that take these funds (the current thinking can be found here.) Will the same strings be attached to funds dispensed under the original intent of EISA? The original terms of EISA were relatively lax, but the recent political pressure brought to bear on congress to show that the taxpayer's money is being invested wisely and protected against misuse may lead congress to attach similar terms to monies granted under the original intent of the law.

What then? Will the current backers of silicon valley startups be as willing to subject themselves to the onerous terms of the government loans as the Big 3, whose only alternative at this point (at least for GM and Chrysler) seems to be bankruptcy? The extensive control and oversight provisions would be hard to swallow for a privately held startup accustomed to controlling its own destiny.

Admittedly, it is a big leap to assume that the same strings attached to the "bailout" will be attached to funds distributed under the original intent of EISA. However, in the current political environment congress will have a tough time differentiating between the two. The vast majority of EISA was allocated for the big 3's use in the first place, and it is hard to believe that these funds (assuming EISA survives intact) will be directed to the Big 3 with terms any different from the bailout currently being considered.

If that's the case, I think we might see might see silicon valley saying "thanks, but no thanks" and going it alone.

The example of Hummer

2008-12-07T11:55:00.000-05:00

Thanks to John Voelcker for sending me this link to an article in the Detroit news that offers the perspective of a Hummer dealer who invested $3.5M in their new dealership and is now facing the possibility of Hummer's demise.

It may sound harsh, but I think independent people who develop and invest in distribution for any new product (in this case, Hummer) should carefully understand the risk of that product's viability, because they should also bear an appropriate level of that risk.