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Wednesday, June 24, 2009

More good news for Tesla

Tesla has landed $465m in a federal loans for its electric car development; the other winners with Ford ($5.9b) and Nissan ($1.6b). The award was prominently played in the FT — curious whether it will become a trade issue (as French and German subsidies for Airbus have become).

It’s been part of a string of good news for Tesla and CEO Elon Musk recently, which includes favorable reviews for the Roadster in the FT. Tesla says it’s getting production costs for its $109k roadster down to $80k, from the former $140k (losing money on every unit, making it up on volume).

It still has an ongoing lawsuit with founder Martin Eberhard. The WSJ (blog) said
Eberhard unfurls a long list of grievances against Tesla and Musk in the complaint, accusing Musk of trying to “appropriate control of Tesla…and Eberhard’s legacy as the company’s founder and visionary” from the moment he became involved in the company as a first-round investor in 2004.

He claims that Musk caused the delay of the launch of the Roadster, Tesla’s two-seater, luxury sports car, compromised the company’s finances and engineered his ousting in November 2007. The lawsuit also lists a number of occasions in which Musk is portrayed publicly in the media as the founder of the company and doesn’t try to rectify that, and another number of instances when Musk says that Eberhard was to blame for the Roadster’s delay and the company’s financial difficulties.
Musk counters on his blog. The WSJ summarized it as
Much of the dispute with Eberhard centers on delays in getting Tesla’s cars on the road. Eberhard blames Musk’s ambitions, while Musk cites Eberhard’s unrealistic business plan (which he said foresaw a $65,000 price tag for the Roadster after 25 units produced) and ill-chosen suppliers.

The reason the Roadster cost so much to develop is that Tesla had to spend development money twice, Musk said. After Eberhard was asked to leave two years ago, the company had to redesign or retool many of the cars’ vital parts, including the body and power electronics, he said.
As always, Musk is not lacking in confidence:
"We don't need to raise more money; we may choose to, but we're not out there beating the bushes to find other investors." And he predicted "the entire automotive market will eventually become fully electric, mark my word. It's just a question of how long."

Asked why he was so sure, Musk offered Tesla's recent sales as proof. "We sold 1,000 cars in a month and a half without having the money secured from the DOE, in the worst economy since the Great Depression, and with no advertising. What more do you need?"
At the time of Daimler’s ≈10% investment in Tesla last month, one estimate placed a post-money valuation of Tesla at $550m. With $700m in VC funding, the VCs will still want another 10x-20x increase in the market cap before they sell Tesla to Daimler (or another car company).

Despite the good news, the Merc quoted one analyst as remaining skeptical about Tesla’s ability to reach adequate scale.
Automobile analyst Philip Gott with IHS Global Insight welcomed Tuesday's announcement, but he wondered whether a niche company like Tesla, despite its innovative prowess, was the best place to put government money. …

"This will be a very tough global race for technological superiority over the next decade," he said. "It's about time we got started. But with all due respect to Tesla, and I admire their entrepreneurial zeal and perseverance, my view is their business model works only in a very specialized premium market. And I wonder if our tax money would be better spent on a more mainstream player."

Tuesday, June 9, 2009

Multinationals' inconsistent cleantech committment

This morning’s Financial Times reports a potential strategic shift by the MNC formerly known as British Petroleum:
The head of BP's alternative energy division is to retire at the end of the month as the company sharply scales back its rate of investment in the business.
The decision by Vivienne Cox, 49, to retire is somewhat ambiguous, because in a previous interview she mentioned a desire to assure that her two small children (now 10 and 5) continued to get enough time. The website women-omics.com saw Cox’s departure (being replaced by Katrina Landis) as a sign of a “female brain drain.”

However, the broader issue is BP’s commitment to developing renewable energy, which caused the company in 2000 to adopt the slogan “beyond petroleum.” The division includes biofuels, wind farms, and manufacturing solar modules, as well as power stations that capture and store CO2 emissions.

BP planned to invest $8b from 2005-2015. Last year it spent $1.4b but this year the spending is expected to be $0.5b-$1.0b, as part of broader cost cuts (which apparently are hitting solar investments hard).

For the past 30 years, big energy (i.e. oil) companies have been providing much of the funding for solar power manufacturing — either directly through their own actions, or indirectly by providing an exit strategy for innovative startups seeking to provide liquidity for their investors (and gain access to additional growth capital). Such has been the insurance bets that these companies have been placing to remain in business should alternative energy eventually trump petroleum as our major energy source.

However, like all public companies, they have a short-term focus that emphasizes quarterly results. If alternative energy will be huge 5 years from now, then these MNCs need to be aggressively invested in the future. If it turns out to be 20 years, they gain no kudos from their shareholders or the stock market for being 15-18 years early.

Finally, there is the clash between entrepreneurial visionaries and corporate bureaucracies that applies to all corporate innovation — both for ideas developed within the big firm and for entrepreneurial startups acquired later.

On the one hand, this leaves the burden for developing new technologies and new markets on focused entrepreneurial startups run by visionaries with a passion to do one thing, and one thing well. This is not something that any MNC could ever provide.

On the other hand, this is a troubling sign for AE startups, because it suggests that BP (and perhaps other big companies) see the payoff period lengthening for investments in AE. This means that VCs (and other investors, supplemented by government subsidies) will have to provide the capital for AE development for much longer, and making acquisition less likely for VCs who were hoping for the conventional 3-7 year exit.