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VC land a coup & A123 loses its CFO

Posted on by S Klamp

Black Coral Capital, Flybridge Capital Partners, Stata Venture Partners landed a coup when they announced that A123 CFO Michael Rubino was going to join their venture backed firm Digital Lumens.

A123 – The consequence
This move may be a blow to A123 but a great opportunity for Digital Lumens. We wrote about ‘The Past, the now and the future of A123‘ earlier this year. With Michael Rubino leaving we feel that A123 has a lot to answer for. A123’s share price is down some 40% since IPO and the future path is somewhat in limbo. Losing a senior executive certainly adds to the uncertainty. Thus it is not surprising that Wunderlich Securities downgraded the stock. The new target price stands at $6! Now, for a company that was never profitable $6 may be considered good (remember those dot.com valuations?) but it certainly does reflect that the growth trajectory and EV/PHEV adoption curve is likely to be slower than anticipated. Arguably, we could see the stock trade lighter than current levels. However, at some point we would think that some large automotive players East (SAIC) or West (VW, Daimler – Smart) may have an interest in looking at the company.

The hard facts are bleak: A123 posted a loss of some $44m, with revenues at $26m. A turnaround seems still some quarters away.  A $6 share price doesn’t sound too bad when compared to our dot.com friends who may have had similiar costs but nowhere near as interesting revenues.

How does A123 business success relate to the EV sector? One of the interesting electric vehicles we have looked at is Th!nk, the Norwegian EV producer. (A HBR case study can be found here; paid content.) In May 2010, Think  presented an update on its business. It essentially announced that another $40m of equity was provided by the existing shareholder base. Moreover, the company projects that it will be cash-flow positive by 2011. A123, Enerdel (promo video) and Zebra will provide batteries ranging from 18 Kwh to 28 Kwh.

Think and Deutsche Bank provide a chart (see above) that summarized EV model releases over the next few years. So is A123 depending on the speed up model ramp up or are EV manufacturere depending on battery capacity? The interdependence is obvious and securing battery supply has long been a key battle ground.

Digital Lumens – Opportunity in the LED & SSL space
Digital Lumens operates in the energy efficiency segment which we consider is more attractive in the near term than betting on technology backed companies alone. Rather, the opportunity to replace existing stock with better materials seems obvious and makes both commercial and ‘green’ sense. LED lighting in particular appears to be attractive for its energy savings potential. The Department of Energy (DoE) has set up the Solid-State Lightening initiative (SSL) that proposes that it can cut US energy lighting usage by 25%. In March 2010, the DoE published a Muli-Year Program Plan for SSL. The report states that ‘[t]he global lighting fixtures market is expected to reach $94 billion by 2010, and SSL is expected to play a substantial role in the market by that time. Sales of high-brightness LEDs (HB–LEDs), the technology associated with LEDs for lighting applications, were $5.3 billion in 2009.” Siemens‘ Osram’s Sylvania program notably focuses on SSL.

Khosla Venture and General Catalyst have both been active in the LED space: both funded LumenZ, a Boston based University start-up. Checking on Khosla’s website, we fail to find it in their Portfolio section. However, in a presentation delivered in 2009, it is still in the portfolio. Highland Capital Partners made an investment in QD Vision. QD’s pitch is interesting ‘QD Vision is developing quantum dot solutions for efficiently backlighting mobile phones and other mobile displays, as well as LCDs for desktop and notebook computers and LCD television screens. These initial applications alone represent an addressable market exceeding $2 billion by 2014 for quantum dot-based components’. According to some news sources, QD Vision has raised a total of US$33m to date.

Overall, as costs of LED is coming down the adoption curve is likely to increase significantly. For now, technology hurdles, costs, and general consumer/ commercial acceptance are issues that need to be addressed.

Tresalia Capital makes Artega Investment: Fraunhofer’s EV platform/ Electromobility concept

Posted on by S Klamp

What do BMW, Aston Martin and Artega have in common? Its designer: Klaus Dieter Frers. He was instrumental in designing BMW’s Z8 and Aston Martin’s Vantage. The Artega GT was his latest work. Now Artega has been sold to Mrs Maria Asunción Aramburuzabala. She heads Tresalia Capital.

Tresalia Capital is probably most famous for its interest in ‘Corona’ brewer Modelo Group. Tresalia essentially acts as a family office to the estimated $2bn net worth of Mrs Aramburuzabala. The office is relatively secretive and information is difficult to come by. Nonetheless, it appears an odd addition to the stable of deals the office has made recently or are electric vehicles only a ‘lifestyle’? We would disagree if that is what Mrs Aramburuzabala and her team think.

On a more serious note, Germany’s Fraunhofer institute uses the Artega GT to test its latest research in electric hub motor technology. The Fraunhofer Institute has been granted significant resources to pursue Germany’s thought leadership in electromobility. The institute secured €14m of the Stimulus I package and a further €44m are likely. The electromobility research is overseen Fraunhofer Institute for Structural Durability and System Reliability LBF. Recently, the Economist issued a critical piece on Germany’s research heritage. The paper cites that the nations research capabilities measured by researchers age 25-24 years is the smallest in the EU. For what it is worth, the fact that both the public and private sector appear to be working together to put resources into this paradigm shifting industry and technology may just be enough. Germany’s Mittelstand and corporates are likely to be among those firms that will drive the future of electromobility.

The electric hub engine research appears to gather momentum. Firms such as Continental, Protean Electric, Bosch, Michelin and other traditional tire manufacturers appear to make progress.

To echo the efforts made by the Fraunhofer’s Institute, the political debate surrounding Electric Vehicle’s (EV) and electromobility continues to get ever more attention not only among parliamentarians but with the general public also. The German government released a 2009-report (German Federal Government’s National Electromobility Development Plan) that set forth the neccessary investment that is needed ‘to speed up research and development in battery electric vehicles and their market preparation and introduction in Germany’.

The forecasts made by the Fraunhofer Institutes are exciting. As ever, execution will be key. We will monitor in which ways corporates engage. Thus far, Aral Petrol Company (in German) has published a study that shows that Germans are willing to pay a small premium for EV’s. That premium is between €2000-€3000. Thus the cost of new technology has to come down further or the price for fossil fuel to raise substantially before a significant change in consumer trend may be observed.

Efficiency, the alternative Alternative

Posted on by brettalan

Earlier we wrote about the superior returns on investment efficiency plays offer when measuring reduced energy and emissions per dollar spent. Today we tackle the question- what does a region do that is renewable energy resource poor? What if there are no windy areas? When solar, biomass, geothermal and nuclear play a limited role- how do we lessen emissions, energy use and the need for additional power plants? The answer is not a surprise- reduce wasted energy.

A recent report by both Duke and Georgia Tech Universities gives further support to the argument that focusing efforts on efficiency can have a more dramatic effect than other methods, and can do so in areas where renewables are not competitive or available. The SouthEastern US is a perfect place to focus- an area that has virtually no wind resources.

Here are the highlights from the report:

  • In 2020, energy bills in the South would be reduced by $41 billion, electricity rate increases would be moderated, 380,000 new jobs would be created, and the region’s economy would grow by $1.23 billion. (regional GDP)
  • The cost/benefit ratios for the modeled policies range from 4.6 to 0.3, with only two showing costs greater than benefits. When the value of saved CO2 is included, only one policy is not cost effective
  • The initiatives would involve actions at multiple levels (state and local, national, utility, business, and personal). In the absence of such initiatives, energy consumption in these three sectors is forecast to grow by approximately 16% between 2010 and 2030.
  • The nine illustrative policies show the ability to retire almost 25 GW of older power plants and also avoid over the next twenty years the need to construct 49 GW of new plants to meet a growing electricity demand.
  • 8.6 billion gallons of freshwater could be conserved in 2020 (56% of projected growth in cooling water needs) and in 2030 this could grow to 20.1 billion gallons of conserved water (or 45% of projected growth).

Investments of $31.5B over the 20 years (to 2030) would generate a savings of $126B (4.0x ROI.) Clearly this is a net positive investment for any region and returns numbers that most renewables currently can not beat. The nine suggested policies include: increased appliance standards, weatherization of buildings, retrofit incentives, enhanced building codes and more (see page 15 of study.) Increasing appliance standards has the best ROI at 4.6x and all of the policies together have a 3.4x ROI.

Energy Use with & without efficiency (Duke/ Ga. Tech Report)

The South consumes 43% of the nation’s electric power, 40% of the energy consumed in residences, and 38% of the energy used in commercial buildings, says the study- thus a successful efficiency policy would have a major impact on both the US as well as any other renewable resource region in the world.

One would expect resistance for any political measures that mandate clean energy requirements from areas that are not fortunate enough to have the natural resources to comply. Accounting for improved efficiency standards in commercial and residential homes is a worthy compromise that achieves the same goals as clean energy and does so, at times, at a more economical rate. Because the numbers speak for themselves, it likely is a good idea for the capital and policies to follow.

CleanTech Skepticism

Posted on by brettalan

Most readers of this blog are likely those we could call CleanTech “early adapters.” People who are excited about a technological breakthrough, especially when it is also economic and profitable. The demand for energy is mostly inelastic- and usually the game is to figure out a way to produce it cheaper, cleaner and more efficiently. If you can do this, you have a huge market. However new events are bringing to light a once less relevant issue amongst the CleanTech sector- customer acceptance and preferences (aka skepticism).

We discussed briefly some skepticism about CFL and LED lights here, but probably the best example of CleanTech skepticism is in the widespread deployment of smart grid meters. The deployment of the meters may come with a press announcement but many of the residents are unaware until the meter is actually installed. Significant news coverage has been given to recent ‘episodes’ where utility customers claim their bills doubled overnight due to the new meters.

Customers in Texas are organizing a group to fight smart meter deployment- claiming they inaccurately raised their utility rates. One customer is San Francisco refused to let PG&E install the smart meter- claiming Constitutional rights! This customer claimed, “It permits PG&E to actually come into your home at any time during the day and know what appliances you are using. This is corporate intrusion on your life.” Is he correct? Of course not. Does it still matter? Absolutely. Complaints about smart meters are not isolated incidents and have numbered in the thousands. Bakersfield residents filed a class action lawsuit against their utility. Worse however is that large utilities do not want negative publicity on a very important initiative that will reduce the need for meter monitors, inefficient peaker plants, energy consumption and evolve their business into the 21st century. What can be done legally? Utilities have the right to monitor energy usage and also the right to turn off service for customers who do not comply with monitoring capabilities. Clearly this law does not help to placate customers.

Validating smart meters

This is not just an American issue either- a $2billion program was halted prematurely in Australia due to rate hike concerns. Why is this happening? In February, 2010, a Harris Poll found that 68% of Americans have never even heard of a smart grid yet 67% said they would reduce their usage if they had higher visibility to their consumption rates. 22% did not want the utility company to monitor their hourly usage.

Research performed by IDC Energy Insights commented “[utilities] have not thought through the implications of new technology and products on customer relationships or the business process.” It noted that the smart meter fundamentally alters the relationship of the customer from once simply a recipient of a monthly bill to now an ongoing, active partner in an energy management role. If 2/3 of your customers have not heard what a “smart grid” is, implementing an active energy management relationship will be very challenging.

To be sure, there are multiple meter audits being performed to ensure the accuracy of the meters. If they are found to be inaccurate and consequently incorrectly billing customers it will be a big embarrassment for utilities. If the meters are found to be accurate, which is what this link from Texas is showing, it is further validation of the challenges of implementing a smart grid system. Consumer awareness is not enough, to make the full deployment of smart meters successful utilities will need: customer support, customer trust in the accuracy of the meters, ongoing communications and education programs. Utilities need to invest some of the cost savings they will realize from smart meters into customer support.

Real time pricing, which incites customers to move discretionary use to off-peak hours, may cause issues because some customers simply don’t want to change their behavior. These customers will pay more for power, and are of course more likely to complain. That doesn’t mean the smart grid isn’t working, it just means some folks are unhappy that it does.

Batteries, Lithium Ion and the Automotive Industry

Posted on by S Klamp

MEET (Muenster Electrochemical Energy Technology), Germany is getting ready to launch a new 2000sqm research hub focusing on battery technology, most likely a significant effort will go into lithium-ion.

Prof Winter, MEET (University of Muenster, Germany)Professor Winter (recently at Graz, Austria) will chair the workgroup at MEET (homepage). Research-in-Germany.Org gives a summary of the plans and objective proposed by MEET. We note that the commitment by the regional government, the University and the private sector (including Volkswagen, Evonik and Chemetall) is impressive, on a regional scale: “The Ministry of Innovation, Science, Research and Technology of the state of North Rhine-Westphalia is funding the project to the amount of €5.5 million for the coming three years. Münster University is contributing €7.5 million. Further funding is coming from the North Rhine-Westphalian Ministry of Economic Affairs and Energy as well as the German Federal Ministry of Economics and Technology.” The private sector is financing the chair at the University with some €2.25m which is certainly impressive given the economic climate we are in.

We wrote about Evonik previously and consider it a very interesting company that may be in the position to shape the future of lithium-ion batteries. Naturally, since Volkswagen is one of the key sponsors of the centre we must assume that they have a commercial interest to link themselves with Professor Winter and his battery research team. The automotive industry is bound to change forever, no doubt. My colleagues focused on the supply side of the lithium-ion market and whether, subject to a successful scale of electric vehicles, the supply chain is secure. In his piece “The Great, Fake Lithium Supply Scare” Brett draws the conclusion that we should not worry. Although the market is too young to make credible predictions the debate is certainly worth watching. Arguably we need to better understand whether lower grade lithium-ion can be used as an input into a high-end technology process.

Autocluster, NRW (http://autocluster.nrw.de/)

Autocluster, NRW (http://autocluster.nrw.de/)

We wrote about the need to direct further money into research for energy storage and continue to see this as one of the most important research and investment themes for any serious cleantech venture investor. It is interesting that governments can play a significant role in kick-starting a debate as well as put money into the area with a targeted approach. Autocluster.NRW gives a strong, systematic approach how to create a new hub/ cluster that can concentrate core capabilities in a region. We would like to draw readers of the report to page 58ff (‘Screening of R&D project in NRW’). It highlights the efforts of various academic institutions and how their co-ordinate their efforts to maximize their combined research capabilities. The report highlighs efforts currently made by industry to drive battery technology forward. ‘According to the German government, the number of electric vehicles on the road will be 1 million by 2020’ and ‘[a]ccordingly, the resultant higher electricity needs for 1 million vehicles in 2020 must be addressed’. The authors deduct that this would require some 5 power plant blocks of 600 megawatts each (~total need about 3TWh).

To contrast the recent UK initiative of a Green Investment Bank, Autocluster’s core competence building based on a regional level sounds proactive, constructive and combines both a coordinated effort made by governments and the private sector. Can the UK mirror the effort and come up with a strategy that is as visible? Bob Wigley, good luck!

The Great, Fake Lithium Supply Scare

Posted on by brettalan

“But there’s not enough lithium for all those batteries- and now you’ll switch dependency to a few lithium supplier countries!” That is the claim less informed journalists and hacks often make when they need a counter point to balance their first article on the emerging, electrified transportation sector. Why do we care? Because if true would significantly affect the battery, transportation, grid storage and electronic appliance sectors. Let’s try a fact check:

1) Claim: Dependency on 2-3 countries for lithium (similar to oil dependency)
Fact: False. This table from the USGS best answers this claim:

Country Reserves (000’s ton Li) Reserves Base(000’s ton Li)
Argentina 2,000 2,000
Australia 170 220
Bolivia NA 5,400
Brazil 190 910
Canada 180 360
Chile 3,000 3,000
China 540 1,100
Portugal NA NA
USA 38 410
Zimbabwe 23 27

Plus, ore deposits in these plus other countries bring the total to over 17.1 million tons of reserves.

2) Claim: Lithium is the sole material these sectors must have to advance.
Fact: Yes and no. Shorter term most known batteries for next gen autos and electronics will use lithium (bar the also popular nickel metal hydrides.) Longer term- let us not ignore 15 start ups that are readying ultracapacitor break throughs, 27 manufacturers and 29 other companies that have recently developed ultracapacitor technologies plus 52 research institutions working on advancing ultracapacitor technology. We do concede however that lithium will play by far the largest role for at least the next 15 years.

3) Claim: All of the suppliers in the world won’t be able to keep pace with demand & thus prices will skyrocket.
Fact: There are an estimated 17.1 million tons of contained Li in reserves worldwide. In 2008, total global demand was 100,000 tons and of course projected to grow significantly. Lithium can be recycled. Do the math with your own assumptions and it appears we have a few years before supply concerns arise. One may even want to account for new, future reserves of Li to be discovered.

Additionally- advances in nanotechnology as noted here, here and here are making the current battery chemistries that do incorporate lithium much more powerful, economic and robust.

Let’s make money: 77% of lithium carbonate currently comes from 3 companies which are SQM of Chile, Germany’s Chemetall and FMC of the USA. Talison Minerals, a private Australian firm, is the largest spodumene producer and accounts for about 23% of global contained lithium. However, only 15% of this production is sold into the lithium chemical markets via Chinese lithium carbonate converters. (Special thanks to Dundee Capital Markets for the above research, “Lithium- Hype or Substance?” October, 2009. )

Conclusion: If you are bullish on the technology advancing, you likely believe the improved economics offered by advanced lithium batteries will enable stronger investments in the related sectors of grid storage, consumer electronics, military applications and of course transportation. The sky is falling claims should not play a role in any related investment decisions.

Which way, Toyota?

Posted on by brettalan

If everything goes according to plan, Toyota will make hydrogen fuel cell vehicles available to private buyers within six years. The company that pioneered the hybrid, made it popular, economical and sexy- is now moving forward with fuel cell vehicles as well as a plug in version of the Prius. Is Toyota now advancing from their comfortable lead with hybrids to the next level? A closer look at comments by Toyota executives may show another story:

Koei Saga, managing officer of the Toyota Motor Corporation said in January, 2010: All-electric vehicles (EVs) are best as “very small commuter-type vehicles” and that long-range EVs are only possible “if we forget about battery life and if we forget about the cost incurred for replacement of those batteries. In my personal view, I think we will never abandon the internal-combustion engine.”

Ok, but Toyota is planning a plug in version of the popular Prius within the next few years. Plug-ins are of course a close family member of the EV.   The plug in Prius will be the first and ONLY of the Toyota family (including Lexus) to use lithium and not the less efficient, less powerful nickel metal hydride battery. While other companies in the market charge full speed ahead with lithium ion technology (Fisker, Tesla, Nissan, Volvo & more) Toyota has been very reluctant to embrace lithium ion technology expressing doubts about reliability.

But Toyota’s core competency in next generation automobiles is the traditional hybrid. And just this month Toyota announced it will increase production from 500,000 hybrids/year in 2009 to over 1,000,000 by 2011. “Toyota plans to add about 10 new hybrid models in the next few years to its existing lineup and to increase the number of sites where it can assemble hybrid models, the Nikkei said without citing sources. For the foreseeable future, the focus of Toyota’s (low-emission car) strategy will be on hybrids, not electric or fuel-cell cars, said Yoshihiko Tabei, chief analyst at Kazaka Securities, adding the production volume reported by the Nikkei was in line with his expectations.”

Now- seeing this hybrid strategy- take a look at these 2 quotes from Bill Reinert- the Toyota manager of advanced technology in the US:

1) “I think you’ll see that for the next 10 to 20 years that a hybrid … is probably about as green as you can get. I would say within 10 years, that hybrids might be at 10-per-cent market share. Plug-ins are a very small subset of that. Electric vehicles are a smaller subset of the subset.”

2) “One hundred miles covers most daily trips but not all,” he says. “How many people can afford a specialized car that can’t be used on vacation?”

Reinert is referring to the Nissan Leaf- which will be released as early as December 2010 in Japan and the US. Nissan’s director of product planning, Mark Perry, sees an ulterior motive in Reinert’s skepticism. “Our friends at Toyota have invested in hybrids,” he said “and they want to get a return on that hybrid investment.”

“Still- Reinert says EVs could experience a five-year bubble, like solar panels during President Carter’s term in the late 1970s. If budget cuts force governments to end subsidies, only a handful of EVs could be left standing in the market. Ghosn says competitors are trailing Nissan in EVs, so naturally they’re going to play down the technology’s prospects. They cannot say, ‘we’re forecasting a 10 percent market share for EVs and, by the way, we have nothing, he says.”

Is Toyota disparaging plug ins and full electric vehicles to further promote the brand that has helped the firm gain additional market share? Perhaps Toyota sees their rival Nissan attempting to leap frog the hybrid market and skip forward to full electrics. What about the Prius plug in program and the fuel cells? Are these real programs or merely demonstration projects?

The modern hybrid is a technological innovation that many consumers love. It however is not perfect and offers modest efficiency with room for improvement. The hybrid is also widely considered a “bridge” technology to the holy grail which is an efficient, economic full electric vehicle.

Driving 100 miles/charge, as the Leaf and Tesla Roadster offer, is not the best an EV will ever offer. The Tesla Model S will cost just under $50,000 and travel up to 300 miles on a charge but is also $50k and yet to be released. However while the battery issues are well known, and well discussed, most expect these to improve over time in large part to the economies of scale first created by hybrids. Perhaps Toyota is hoping this bridge technology lasts a little longer than do their competitors who are now about to pass them up in the fast lane. It’s unclear what their intentions are, but as the industry aggressively tackles EVs and Plug Ins, Toyota may want to take a clear stance beyond hybrids and show commitment.

CleanTech Investing in 2009 & 2010

Posted on by brettalan

356 investments in CleanTech occurred in 2009, a new high. However the dollar amount is down to $4.85B from $7.6B in 2008 over 350 deals comparatively, according to a new report from GreenTech Media. The downward trend over more deals may reflect the global capital markets as much as it does the CleanTech sector itself. Or, the optimist could point out that overall investment was nearly $5 billion in spite of the global economic crisis!

According to several VC firms spoken to on a recent trip to Silicon Valley by the staff of this blog, investors are seeking less capital intensive opportunities while seeing an influx of opportunities. Partnering with firms that have smaller capital needs, VCs may play a more significant role in their management and development, while lessening the potential for large, future capital re-investments. This trend may in part be a result of the challenge to raise capital most funds are facing as well as their preference to maintain control.

Source: GreenTech Media

The solar sector is generally viewed as capital intensive, but despite this was the largest sector accounted for in 2009 investments with 84 deals over $1.4B. Biofuels was second, and energy storage, smart grid and automotive rounded up the top CleanTech sectors. Water now is on the radar with $130MM over 33 deals.

Things to look for in 2010:

1) Codexis IPO? Tesla Motors IPO? Solyndra IPO? (all 3 have reportedly filed)
2) Will oil price fluctuations help CleanTech?
3) Will a recovery of the capital markets occur to help encourage the flow of seed money?
4) Introduction of more electrified automobiles effect on energy storage and transportation (many new models expected this year)
5) And much more! (water, smart grid, government mandates, materials and infrastructure)

(CMEA Ventures invested in A123, and is also invested in Codexis and Solyndra- a nice, potential 3 firm IPO streak for 2009-2010!)

Electrification Coalition | News

Posted on by S Klamp

The electrification report (Nov 2009) published by the Electrification Coalition is very detailed; needs a few hours to digest the details. It appears to attempt to give a brief history of the sector and highlights challenges and potential road blocks ahead. In some areas it serves as a Primer.

We see that Ray Lane of Kleiner Perkins Caufield & Byers, Carlos Ghosn of Nissan Motors, Peter Corsell of GridPoint, Frederick Smith of FedEx and last but not least David Vieau of A123 are among the coalition members.

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