Navigant Research Blog

Tesla IPO: Much Ado About Nothing

— June 28, 2010

Tesla Motors IPO on Tuesday is giving investors and industry insiders much to talk about. Will shares rise during the first day over the announced price of $14-16? Will shares continue to rise or lose that value, much like last year’s A123 Systems offering? Will more cleantech companies be likely to file if Tesla’s IPO is a success?

While these are great story lines, in reality, Tesla’s raising of capital won’t mean much to the company’s future success or have a significant impact on future cleantech IPOs.

For a company that wants to sell tens of thousands of vehicles per year, the $178 million that Tesla Motors hopes to raise is a drop in the oil pan. Tesla is borrowing nearly 3x that much from the DOE to build the upcoming Model S sedan, and the offering represents a minority of the overall shares of the company. For Tesla to reach its goal of producing 20,000 Model S vehicles per year, it will likely have to acquire additional funding as the company had just $100 million in the bank at the beginning of the year, and with a burn rate of $3 million per month it will take $108 million just to get through 2012. That doesn’t include the additional costs from the planned expansion from 10 to 50 dealerships, as well as any marketing expenses related to the launch of its first mass market vehicle. Tesla Motors must also spend $116 million to produce the Model S and manufacture battery packs to get full access to the DOE loan.

Tesla Motors may need to rethink the pricing strategy for the Model S, which is supposed to sell at $57,500, or nearly $25,000 more than the Nissan Leaf. Yes, the Model S is a bigger car with longer driving range, but of concern to investors should be Tesla’s plans for producing up to 20,000 Model S cars in 2012. Pike Research estimates the entire U.S. market for EVs will only be 34,000 in 2012, and the Nissan Leaf and Mitsubishi I-MiEV will have a considerable advantage in coming to market sooner. When you consider that Tesla Motors has sold scant more than 1,000 cars in nearly two years in a market where the company was effectively alone, it will be a formidable challenge to sell 20,000 vehicles annually when contending with a field that will include fellow newcomers Coda Automotive and Fisker Automotive. If Tesla Motors significantly drops the price of the vehicle it may have difficulty selling the Model S at a profit, which would increase the challenge in finding other investors.

In its S-1 filing, Tesla also noted that the company is likely to see increased losses as it slows down production of the Roadster and transitions to start producing the Model S. The company got a reprieve of sorts in March when Lotus agreed to build an additional 700 chassis for the Roadster, which should carry the company into 2012 sales. But if the Model S doesn’t ship on time (a definite possibility), the company could face a period of dwindling revenue.

Tesla Motors may get a better deal on batteries thanks to partner Panasonic’s new manufacturing plant. This could boost opportunities for Tesla to sell complete battery packs to companies beyond Daimler, which is using Tesla’s technology for its Smart EV.

While Tesla Motors’ IPO is notable because of the scarcity of cleantech companies going public recently, we should expect more entrepreneurs to take the plunge in the coming months as the economy improves. Barring a wild swing (from either overly enthusiastic or skeptical investors) in the stock price, Tesla’s IPO will go down as just one necessary stop in the long journey towards building a successful enterprise. How the company recharges itself during the next few years will tell the tale.



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EV Charging Primed for Consolidation

— June 21, 2010

Last week’s announcement of a marketing agreement between EV charging company Coulomb Technologies and energy services provider Siemens should come as no surprise. Siemens has been an investor in Coulomb, so a closer relationship was all but inevitable. Siemens gains access to Coulomb’s ChargePoint networked charging station technology, while Coulomb can leverage Siemens’ smart grid infrastructure and applications.

The EV charging equipment market is currently led by relatively small niche players such as Coulomb, Better Place, AeroVironment and ClipperCreek. But larger entities including GE, Panasonic, Samsung, and Sanyo have all announced intentions to enter the market. Larger software integrators such as IBM, ABB, Cisco, and SAP are all working on smart grid initiatives and could also form alliances with charging equipment companies. The next 12-18 months will see significant shakeout that will include partnerships with, and acquisitions of, the smaller players by companies with more experience in developing the smart grid and energy services. This is because utilities, which are conservative in adopting technology by nature, want to partner with large companies with the bandwidth to handle any integration issues. They don’t want to deal with multiple charging equipment vendors, and will likely tie up with one smart grid integrator to handle integration of EV charging. Smart grid “middleware” companies such as GridPoint, Grid2Home and Silver Spring Networks are an alternative to direct charging equipment to utility communications, and they are hoping to be bridge the gap with software that connects the two.

Charging equipment, whether in a home garage or parking lot, cannot operate as an island and be helpful to the grid. The energy demand of all EVs must be aggregated to minimize the load on the grid. Integration with other smart grid efforts will be the fastest and most cost effective means of managing EV charging. EVs are merely oversized appliances that over time will participate in demand response and other grid ancillary services.

Today, EV charging is being tested through mostly “one off” pilot programs using proprietary technology that is unlikely to scale in their current form. Many houses don’t have smart meters, and they are serviced by utilities with small or no smart grid services. The Department of Energy’s EV Project is sorting through many of the technical issues and will provide a significant step in the learning process. Standards will be developed over the next 2-3 years that will streamline the process, but we should expect a lot of bumps along the way.

Today’s EV charging leaders can’t go it alone and expect to be easily accepted by utilities, and their success will greatly depend on with whom they partner.



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Hummer Home Becomes EV Epicenter

— June 17, 2010

The winds of change in transportation have blown into Texas. NRG Energy, a power services company, is setting up one of the nation’s most extensive utility programs for supporting electric vehicles in the most unlikely of places. Not only is NRG Energy’s EV Services division setting up shop in petroleum-friendly Houston, the company also chose the site of a former Hummer dealership for its new office. Consider the torch passed to the next generation of transportation.

Some of the many utilities I’ve spoken to are in the early stages of developing a comprehensive strategy, while others have done some small scale studies but aren’t likely to move forward any time soon. They are largely taking a wait and see approach – when EVs start selling in significant numbers in their area, they will begin to implement programs for monitoring and reacting to EV power consumption.

NRG Energy however, not only wants to begin tracking EV charging in its Houston-area service territory within the next year, the company is unique in the U.S. in plans to own and operate many charging stations. The former dealership was chosen because NRG will bring in EVs and charging equipment to be able to demonstrate how charging works, according to NRG Energy’s Mike Harrigan. He said the changeover isn’t quite finished as they still need to paint some interior walls because “we don’t want to look at pictures of Hummers all day.”

Harrigan told me that because NRG’s Reliant Energy subsidiary isn’t a regulated utility, the company can make long term investments in charging infrastructure without having to get regulatory approval to pass the cost onto rate payers.

As outlined in the recent Pike Research report Electric Vehicle Charging Equipment, utilities in Europe and in Asia are much more interested in operating public charging stations, while in the U.S., employers, retailers, and government are likely to drive the market. The benefit of utilities operating charging equipment is that load can be more closely controlled so that EVs can help instead of hinder grid operations. The move to smart charging will create a $1.8 billion charging infrastructure industry by 2015.

Harrigan said the NRG Energy will offer monthly plans for “all you can eat” EV charging, and is considering an integrated billing plan where charging done at home or away would be combined on a single bill. Harrigan has seen all sides of the EV equation – his resume includes stops at a lithium ion battery company, EV maker Tesla Motors, and charging equipment company Coulomb Technologies.

In the long run, utilities are likely to get much more involved in EV charging. Regulations to streamline operating charging equipment – such as California’s recent decision not to regulate vehicle charging – will ease the path towards building out a charging infrastructure. It will take many years before a majority of utilities are actively monitoring EV charging, but because of the impact on grid equipment (such as transformers) and reliability, their participation is inevitable.

 

For EV Charging, You Can’t Beat Free

— June 2, 2010

The San Francisco Bay Area and eight cities will receive nearly 5,000 charging stations and residential charging equipment courtesy of the federal government. The Department of Energy has funded a $15 million project that will provide equipment from Coulomb Technologies of Campbell, California.

This build out of charging infrastructure is paid for under the 2009 American Recovery and Reinvestment Act (ARRA) and will provide equipment to applicants in Austin, Detroit, Los Angeles, New York, Orlando, Sacramento, Redmond (WA), and Washington DC. Companies and individuals seeking the charging equipment would have to cover the installation and other service costs, which is expected to net Coulomb another $22 million.

Individuals who purchase the Ford Focus Electric sedan or Ford Transit Connect Electric van in the nine areas can apply to receive the free charging equipment. Coulomb also has marketing agreements with General Motors for the Chevrolet Volt and Daimler’s Smart fortwo to promote its charging equipment. Coulomb has not announced pricing or availability for its upcoming residential charging product, but CEO Richard Lowenthal assured me in a recent interview that it would be available in advance of any electric vehicle deliveries. He said that Coulomb is also applying for state grants to provide additional charging equipment.

Charging equipment vendors have been relying on government funds for much of their revenue to date. Previously the ARRA allocated the funding of 11,210 charging stations and residential equipment across five states in a project administered by charging equipment vendor ECOtality.

As outlined in our recently released Pike Research Electric Vehicle Charging Equipment report, the lack of a clear business model for operating public charging stations is likely to hamper commercial sales. The government-sponsored charging stations will provide rudimentary charging infrastructure in 14 areas, and retailers and other commercial entities are expected to either charge for access to their equipment or provide free charging.

The companies that receive free charging equipment through these programs are more likely to provide complimentary charging because of the low cost of electricity, but this could make pay-for charging more challenging. As consumers get accustomed to free charging (and low cost charging at home), they are less likely to want to pay for charging elsewhere.

 

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