Investment Strategies for an Electric Car Eco-system

Cynthia S. Artin shares her perspective on who the players are in the emerging world of smart grids, batteries and electric cars.

Published: 19-Jan-2010

Raising new and growth capital may remain a challenge for some industries in 2010, but for “clean and green” investors, the stockpiles of cash are mounting.

Last summer, Vinod Khosla announced the final closing of Khosla Venture’s latest “cleantech” fund with $1 billion. A few months later, Westly Group closed on a $120 million fund that will emphasize, among other green plays, electric cars. We like the strategy behind these funds – they understand the multiplier effect of the emerging smart and green ecosystem connecting smart cars to the smart grid via battery and wireless technologies, making driving less costly – more environmentally friendly – and much, much safer.

Founded and managed by former California state controller and financial officer Steve Westly, the new fund will be used to fuel revenue-generating clean tech companies. With 13 companies already in the portfolio, it will be interesting to watch where the money is deployed. We’re guessing it will move quickly as reinvestment into holdings including Tesla Motors, alongside growth capital for smart grid technology company, Eka Systems which connects electric, water, and gas meters and control devices over a single data network.

The firm also plans to finance advanced battery companies (an essential component of this ecosystem) as well as smaller new high tech entrants, with the average amount given stated to be $5 million, with $3 million set aside for subsequent capital calls. The fund’s investors include pension funds, strategic investors and high-net-worth families, and the firm’s principals took a large personal stake, contributing 20 percent of the money according to Westly.

In general, more and more firms – including the stalwarts like Kleiner Perkins (refreshed by the presence of Al Gore) are directing investments toward smart cars, plus the smart grid – smart mobile ecosystem.

Based on data released in December by Greentech Media, solar energy still accounts for the lion’s share of VC investment: $1.4 billion with 84 deals in 2009. Biofuels, another capital-intensive area, received $975 million in 44 deals. After that, the research company said the next three segments to attract money were energy efficiency and the smart grid; automotive; and batteries, fuel cells, and storage. We expect to see more ecosystem economics at work during 2010– investment along the supply chain that will support more pervasive adoption of smart car (connected to the smart grid) alternatives.

Notable smart grid, smart green deals of 2009 included:

• eMeter’s $32 million investment from Sequoia Capital (News - Alert) and Foundation Capital and Tendril’s $30 million round from VantagePoint and good Energies for smart grid management software and hardware
• Tesla Motor’s $82.5 million round from Fjord Capital and Daimler Motors
• Fisker Automotive’s $85 million round from Kleiner Perkins et al. for their electric vehicles

Speaking of Fisker Karma, we want to keep our karma going…and since we wrote about Fisker’s competition, Tesla, we’re going to give some equal time to the company that will be supplying Al Gore with his new toy.

Fisker Automotive, another California-based company, is a joint venture between Fisker Coachbuild and Quantum (News - Alert) Technologies that has developed a plug-in hybrid sports car which it intends to begin selling in June of this year. Unlike Tesla, this “start up” started up with substantial financial backing topping $200 million in venture capital from Kleiner Perkins Caufield & Byers, Palo Alto (News - Alert) Investors and the Qatar Investment Authority.

The company is outsourcing most of its production and parts (similar to the Porsche model) – claiming it can reduce the cost of development by two-thirds ($350 million vs. $1 billion) and development time from 5 years to 2 years. Outsourcing includes an $18,000 22 kWh lithium ion rechargeable battery – yes, $18,000, in each car – coming from Advanced Lithium Power in Vancouver, Canada or EnerDel in Indianapolis.

On Oct. 27, Fisker officials announced that the company had signed a letter of intent to take control of GM’s Boxwood Road Plant in Wilmington, Del. In addition to a purchase price of $118 million, Fisker plans to spend $175 million on the plant by 2012. Vice President Joe Biden attended the announcement. The company plans to build between 75,000 and 100,000 Fisker NINA (a mass-market plug-in hybrid sedan) by 2014. The factory will create 2,000 jobs directly and 1,000 more indirectly (half to be exported).

We won’t focus on the roadblocks to Fisker’s strategy – including an IP lawsuit being filed by Tesla – mentioning it only as one more indicator that the competition among electric vehicle players is heating up as the stakes get higher.

Finally, like Tesla, Fisker secured a federal loan from the $25 billion Advanced Technologies Vehicle Manufacturing Loan Program. The $528 million loan will principally fund “Project NINA” to design, engineer and assemble Fisker’s second-generation, $39,000 sedan, for sale starting in 2012. That will put just 100,000 cars on the road – but that’s 100,000 electric cars that will be connected to the smart grid, managing and monitoring our energy consumption – and talking to us and each other.

We’ll continue to follow this convergence of connectivity in future posts – including observing how the traditional carmakers and utility companies are responding to what we may need to coin the new, electric and interconnected “superhighway.”

Cynthina Artin is Managing Director at Auster Capital Partners.

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