As Loan Funds Shrink, Green-Car Startups Scramble
The flood of funding from the Energy Dept.'s $25 billion Advanced Technology Vehicles Manufacturing loan program—$8 billion for Tesla Motors, Nissan (NSANY:US), and Ford (F) in June—has slowed to a trickle in recent months, adding up to just two awards totaling some $552 million. The remaining $16 billion or so in low-interest loans slated to go out under the program's current budget won't be enough to cover the more-than 90 projects that have reportedly requested funding. As they wait on a final yea or nay from the DOE, many applicants face a potential cash crunch over their manufacturing plans.
Startups in particular may face pressure to come up with matching funds for conditional commitments from other investors. We've already cruised past the dates when applicants such as V-Vehicle and Bright Automotive had said they expected final word on their loan requests (for $250 million and $450 million, respectively). For applicants that don't already have a realistic Plan B on hand, this is the time to develop one.
The backup plans that have emerged so far include outsourcing manufacturing, pursuing more private equity investment, and establishing less-capital-intensive sources of revenue. We may start to see more strategic alliances and partnerships taking shape among green-car startups and manufacturers as well.
Aptera's long-shot ATVM loan requestFisker Automotive and Think, for example, have both contracted Finland's Valmet Automotive to manufacture their plug-in vehicles. Fisker won a nearly $529 million ATVM loan this fall, which will help it set up its own manufacturing stateside, but the startup plans to meet the 2010 launch target for its first model through the Valmet deal. And while Think hopes to set up manufacturing in the U.S. with DOE funding, the automaker's Think City started rolling off the assembly lines Thursday at Valmet—an investor and strategic industrial partner that helped rescue Think from the financial brink after the Norwegian government initially rejected Think's request for aid. (A Norwegian government-backed investment fund ended up stepping in, along with Valmet, battery maker Ener1 (HEV) and other private investors.)
Three-wheeled vehicle developer Aptera Motors, meanwhile, has just scored eligibility for the ATVM program—until this fall, open only to four-wheeled models—just as its venture capital funding is running out. But according to Lux Research senior analyst Jacob Grose, an ATVM loan for Aptera—it has requested $75 million—is a long shot. "I would imagine that four-wheeled vehicles will continue to get the nod, given that, unlike Asia, to date there has been no appetite in the U.S. for electric vehicles with less than four wheels," says Grose.
What's Aptera's backup plan? Marketing chief Marques McCammon recently told former Tesla Motors vice-president Darryl Siry that if DOE funds don't come through, Aptera's alternate route to financing production is "still private money." ATVM funds would allow the company to turn "into a big boy much faster than if you had only organic growth," he said, adding that, "We have a sizable amount circled and we intend to get the rest." Still, as this week's shuttering of battery startup Imara demonstrated, it's no easy task to raise private capital when still-pending government funds could alter the competitive landscape.
Bright eSolutions' timely Army dealBright Automotive CEO John Waters described a similar strategy to us earlier this year, saying that the company had either to secure DOE loans or raise capital from private equity markets by the end of May in order to reach its target of producing fleet vehicles in the fourth quarter of 2012. Yet in June, Waters told us that Bright was still awaiting a final answer from the DOE—and still in the process of raising private equity. No word has since been heard on either front.
Bright has pursued other sources of revenue. It launched a consulting business called Bright eSolutions in October, snagging a $1.4 million demo project, reportedly two years in the making, with the U.S. Army's department of Tank-automotive and Armaments Command (TACOM) to test Bright's plug-in hybrid vehicles for noncombat situations.
V-Vehicle, meanwhile, has raised $100 million from high-profile investors, including T. Boone Pickens and Kleiner Perkins, and an $82 million grant package through federal, state, and local government channels. The grant package comes with strings attached: V-Vehicle has to meet it with $350 million by Mar. 1 to trigger most of the incentives. The company is counting on that DOE loan to cover more than 70% of the obligation.
sell something soon, build core lineIn October, the 3-year-old startup said it expected an answer on the loan by the end of November. Last week, the News Star of Monroe, La., quoted Horst Metz, vice-president of assembly operations for V-Vehicle, as saying: "[W]e remain very confident that we'll be approved for the loan." He added that "[W]e haven't been given any timetable on when that might be." DOE spokesperson Ebony Meeks noted that the agency has not scheduled any new ATVM loan announcements.
As Peter Wagner, a venture capitalist with Accel Partners, and Dan Squiller, CEO of battery startup PowerGenix, told me (GigaOM Pro, subscription required): If you're trying to break into a capital-intensive business, an entrepreneur who finds "something he can sell right now," and strengthens that core business, can then position a startup to produce the bigger-ticket item as the market grows. (They were talking specifically about the energy storage market, but the advice would seem to apply to advanced vehicles.)
The DOE brought former venture capitalist Jonathan Silver on board as executive director of the ATVM program (and also the green-car loan guarantee program), with the idea that he would "strengthen and streamline" the agency's operations. As Silver heads into his second month at the post, the clock is ticking on the streamlining effort. It also ticks for loan applicants as they ready plans to enable them to hit the ground running—whether the DOE gives them a green light or a red one.
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