When Ryan Popple joined Tesla Motors (TSLA) in 2007, the electric vehicle maker was a mess. The technical issues plaguing its first car, the Roadster, pushed manufacturing costs above $150,000 apiece—50 percent more than Tesla had charged for preorders. As a senior finance analyst, Popple was part of the small team that spent months driving hard bargains with parts makers and simplifying the supply chain. Eventually, per-car costs fell enough to keep the company in business, and Popple later worked on its successful initial public offering before turning to venture capital.
At Tesla, Popple could rely on early adopters eager to pay a premium for an electric car. As the new chief executive officer of Proterra, which makes an $850,000 electric bus, he’s got a tougher audience: municipal governments that are used to paying as little as $300,000 for a diesel-guzzler. They’re reluctant to invest so much in the promise of energy savings down the line. Proterra argues that the wait isn’t long. “We’ve seen paybacks against diesel and hybrids in as little as two years and as long as six years,” says Popple. He’s persuaded some powerful backers. On June 18 he announced a $40 million round of investment led by Kleiner Perkins Caufield & Byers (where he remains a partner), GM Ventures (GM), and the Pritzker family’s Tao Invest, bringing Proterra’s total outside funding to $100 million.
The 10-year-old company’s 40-foot, emission-free bus can carry 80 passengers at a whisper. Depending on electricity rates, Popple says, each bus requires $5,000 to $10,000 worth of juice per year, compared with annual costs of about $50,000 per diesel bus or $30,000 for one that uses natural gas. The downside is the bus runs only about 50 miles on a full charge. Greenville (S.C.)-based Proterra’s solution is a $600,000 station that fully recharges the vehicle in just 10 minutes.
In March, Reno, Nev., began using four Proterra buses to cover a six-mile loop, partially charging them for two or three minutes at the end of each 20-minute circuit. “We are buying into a vision here,” says David Jickling, the director of public transportation for the city’s regional transportation commission. About half his city’s routes, he says, are 10 miles or shorter, brief enough to keep the per-lap recharge below the five-minute maximum he’s set for efficiency’s sake. He says he may buy 20 more vehicles from Proterra if Reno expands its transit line. The company has sold 50 buses to a total of 11 cities, including Los Angeles and San Antonio.
TechNavio, a technology researcher, estimates the global market for electric buses, including those powered by overhead wires, to be $9.2 billion. In a February report, TechNavio projected the market will grow to $19.5 billion by 2018, driven by sales of battery-equipped buses such as Proterra’s. “The issue is that municipalities are slow to change,” says Nicholas Pritzker, an early investor in Tesla and the senior development adviser for Hyatt Hotels (H). “But we have the conviction that, once a couple of big orders are made public, there will be a big upward swing in demand.” Popple says Proterra’s revenue topped $13 million last year and should at least double that this year.
A couple of other startups, along with giants such as Siemens (SI) and Volvo (VOLVB:SS), have been developing their own electric buses. Proterra’s biggest threat may be China’s BYD (002594:CH), which is backed by Berkshire Hathaway (BRK/A) and has a factory in Lancaster, Calif. Its buses require a night’s worth of charging but can then travel 155 miles. Micheal Austin, a vice president at BYD America, praises Proterra’s designs but downplays any rivalry, calling the other company only “a competitor on some levels.”
Production of a cheaper, roomier, more efficient Proterra bus is slated to begin this year once the company has completed earlier orders. Popple, who has moved to South Carolina, says he’s focused on boosting sales city by city and on speeding production to fill those orders. Each bus takes about 1,000 hours to make, down from 4,000 for earlier models. According to TechNavio, Proterra is known within the industry for its strong R&D team, but BYD has the bigger presence abroad. China is the top buyer, so if Popple can sell enough U.S. cities on his buses, that may be the next stop.