Micro Level Trends - Electric Vehicles – 'Range Extending' the Business Distance Rhetoric

The electric car has over the last 20 years been proclaimed as a magical panacea for the ecological worries set about by the 'Climate Challenge' agenda which emerged in the popular consciousness during the mid 1990s.

That apparent 'panacea' was once again showcased recently with the heralding of Rolls-Royce's Phantom EV and the Parisienne 'Autolib' EV rental scheme: which seeks to replicate the much vaunted Velib bicycle scheme. The former is most definitely in the singular, whilst the latter seeks the numerous, starting with 66 cars now, 250 by year-end and citing 3000 by 2012-end.

This news arrives on the back of Robert Bosch GmbH stating during the Frankfurt Motor Show that it seeks its future in the EV, a very bold move given its general dependency on the ICE powered vehicles manufactured by its clients. Investment-auto-motives' believes the statement was made to keep in step with German government policy announcements, to return procurement-pricing pressure tactics upon its current VM clients who've gained much input price reduction over the last 18 months, and to keep in step with the ideology of the seemingly permanent EV ideology from both strategic and CSR perspectives. But ultimately, given Bosche's electrical heritage such a grand statement of intent was always to be expected.

Yet the real-world EV picture is far less 'cut and dried' than as portrayed by the press or PR centric company statements.

With a touch of irony, the EV is seen by constituent players from two groups that ordinarily sit at logger-heads; or more accurately commodities 'logging-heads'. However, with regard to this issue environmentalists view this mode of automotive propulsion as their preferable 'dark-green' option which can 'save the planet', whilst portions of the investment banking world believe that such a “disruptive technology” can offer a completely new automotive economic platform (within the green economy).

The 'Rainbow Warrior' mindset sees a healthy world of zero-emission, quiet 'paradise-like' urban life. The 'Progressive Wall Street' mindset foretells of new, alternative business streams. Streams gained from dramatically reduce product production costs (electric motors [excluding battery chemistries & costs] technically simpler than ICE), and the creation of through-life rental-use models. So providing for theoretically both enlarged margin at point-of-sale, and an on-going steady-rate margin from (ideally life-time) 'service contract' deployment.

The originating business model was of course that of the mobile phone, and the ideology was born at a time when the mobile phone's provision and popularisation were in the ascendency. But it as witnessed, the mobile phone model has been over the course of the last decade heavily diminished. The relatively low barriers to sector entry encouraged high rates of incoming new competition, thus squeezing margins, whilst traditional phone communications providers created 'bundled' multi-service packages adding greater pressure. Within an historically short time-frame market saturation at the functional level appeared, with profitability declines forcing both M&A and geographic expansions to scale-up the surviving businesses. To attract customers the pace of technological development has surged to metaphorically that of 'light-speed', whilst ever bigger alliances have been formed to try and leverage a mix of market penetration and technological edge.

Thus the very business model that the EV dream was based upon has shown itself to be less than sustainable over the long term; necessitating capture of scale and so leading to market domination by the relatively few. Whilst the low technical barriers foster the excitement of numerous new participants, many of those would & will ultimately fall by the wayside. This is what of course typically happens as a new market develops and the mix of consumer preference and scale economies are under-pinned by allocated capital from discerning investors.

Yet perception is everything, and some of those more 'business savvy' and fiscally astute business people – arguably with little true 'green aspiration' - saw the large opportunities to ride the EV wave and attract government funding through importing typically low-quality (often questionably unsafe) vehicles from China, as part of what was supposed to be meteoric rise into the future. This ilk best exemplified by Californian companies that leveraged the impetus of federal state CO2 policy directives, available funding packages and direct shipping lines from China.

There were those however who genuinely believed & believe in the product concept prospects and accordant business prospects of the pure EV.

Many of these new recruits emerged across a 15 year timespan from the early 1990s to late 2000s, but have (as of yet) failed to create tenable EV businesses, with only a few emergent brand-known names still effectively upon life-support from investors.

The majority were typically reliant initially upon VC monies, superseded by national and local government funding incentives, then upon private and/or public share sales.

The start-up process is known to be tentative and exceedingly fragile, funding often scant when considering the true establishment costs (facilities, overhead, personnel costs) and monies often short-lived when maintaining the cash-burn of a lengthy gestation period (ie R&D, prototyping, production set-up, marketing, possibly political lobbying, enhanced personnel costs etc). Thus, the business models of typical of start-ups are based upon the founder's willingness to work for basic subsistence living expenses (in expectation of reaping the potentially massive rewards tomorrow), the ability to attract replacement re-financing arrangements and the need to ensure successful product and business gateways so as to try and attract next-round support. Given the multi-party interests involved - possibly conflicting interests – this becomes a very fine business development balancing act.

This crop of recent (and indeed not so new) companies is chronologically exemplified by the following (non-exhaustive list) much of this surface observation derived from wikipedia and company websites, the former typically with 'pro' (self or 'agent' written bias) or possibly by those with counter interests:

1991 - 'TH!NK Global' (Norway), initially PIVCO later TH!NK, bankruptcy in 1999, bought by Ford with short run production until 2002 for US/UK, sold to KamKorp of Switzerland with focus on EV mini-bus sector but 2006 bankruptcy, sold to Norway's InSpire Investment Group and led by original founder and given present name, in 2008 GE & A123 Systems enter partnership for 'globalisation' and 'battery supply', late 2008 financing distress, early 2009 bridging loan supplied by EnerDel. 2009 recapitalisation from Ener1 (US)/ Rockport Capital (US)/ Element Partners (US) / Kleiner Perkins (US) / Valmet Automotive (Denmark). Early 2010, Production starts in Denmark & Indiana USA but halts in March 2011, bankruptcy in June 2011. Sold to EMS AS, new production cited for early 2012. (Four bankruptcies in 20 years).

2000 - 'Loremo' [with EV & ICE options] (Germany), presently run by Thomas Zollhoefer, originally conceptually powered by small cc ICE, replaced by EV powertrain in 2009 within unorthodox vehicle package (neither fish nor foul). Company reported closed in mid 2010, yet re-established in late 2010, presently seeking investors.

2003 - 'Tesla' (USA), backed by Elon Musk (re-instated as present CEO), Vantage Point, Draper Fisher, Bay Area Equity, Valor Equity, Compass Venture. Wikipedia article (seemingly written by Tesla) shows a total of eight private funding rounds to date: series-A: $7.5m by Musk, series-B $13m, series-C $40m, series-D $45m, series-E $40m, series-F $465m by US Dept of Energy as low interest bearing loan, series-G $85m, series-H via IPO of $226m. Thus in total raising $921m. In May 2009 Daimler took a 10% stake for $50m so valuing the company at $500m. The article shows that by Jan 2011, 1500 units of the (modified Lotus Elise) Roadster had been delivered, with the 'S' variant now produced. The 'Model S' sedan is being developed. The apparent business model also includes strategic e-powertrain deals with Mercedes-Benz and Toyota and the sale of accrued zero-carbon credits to VMs such as Honda.

2007 - 'Mindset' (Switzerland), backed by Spirit Avert AG and led by ex-Daimler & VW designer Murat Gunak. It originally sought $152m, latterly ran into funding problems, sought financing from the Turkish government which was later denied, and recently acquired by MIA Electric (see below). The vehicle itself was packaged as a EV & PHEV and mixed aesthetics of a Karmann Ghia coupe, dune buggy and shooting-brake.

2007 - Gordon Murray Design (UK), backed by Davidnow Ventures, Capero Group, the renowned vehicle designer created an alternatively packaged 3-seat micro-car which houses EV & ICE powertrains (T25 & T27) and has been constantly tracked by the UK auto-press. The product was created in tandem with a re-deployed 'yesteryear coachbuilt' build system (ie platform[variant] + body[variant]) named iStream®. The T27 EV will be produced by a partnership of GMD & Zytec, an EV integrator. However, this now appears to have been paralleled by development of a mid-engined EV sportscar for Toray Industries Inc, seemingly seeking to replicate / better the Tesla Roadster.

2007 – Bollore-Pininfarina (France & Italy), an obvious JV between Bollore conglomerate led by Vincent Bollore and the design and production house Pininfarina. This has produced the shared basic vehicle of the Bollore Blue and Pinifarina B0, with individual styling alterations to suit seperate market requirements. The Bollore Blue aimed at the EV rental sector, the B0 to be sold privately.

[NB see Autolib Paris Scheme mentioned below].

2010 - MIA Electric (France & Germany), backed by Prof Edwin Kohl (of Kohl Pharma) and acquired from the niche car builders Hueliez. MIA combines Hueliez work in the form of the primary vehicle the mini 'micro-bus' EV (available in SWB 3-seat, MWB 5-seat and MWB van configurations) and the aforementioned 'Mindset'

Additionally, mating EV and ICE technology with plug-in charging capability is the PHEV, this perhaps best seen by Toyota's own PHEV Prius, but additionally the favoured route for previous start-ups; Fisker the most high profile:

2007 – 'Fisker Automotive' (USA), co-founded by Henrik Fisker (present CEO) (ex BMW & AML designer) and Bernhard Koehler (COO) co-running Fisker Coachworks which heavily modifies BMW 6-series vehicles on a BTO basis. Fisker Automotive is co-owned by Fisker Coachworks and Quantum Technologies - a fuel metering and energy storage company. It was initially additionally backed by Kleiner Partners and Caufield Partners. Presented the PHEV Fisker Karma sports-luxury sedan in 2008, presently being engineered for stated production at Valmet in Finland. Originally intended for customer receipts in 2009, funding problems delayed to reported late 2011. Karma S convertible hardtop showcased in 2009, due for release in 2012, with Fisker Surf (shooting brake) showcased in 2011. Reports cite that Fisker aimed for 200 dealership across N.America and Europe by YE2011. The website shows 37 intended US dealers, 3 in Canada, and 8 in Germany, 6 in France, 3 in Italy, 1 in Belgium, and similar singles elsewhere. .


General Business Model Observations -


If the TH!NK experience is examined for practical investment guidance, then the city-car EV business model appears to attract interest on a 'chronological & geo-political' basis. Attractive to PE especially when government or state policy decisions create an external climate for the funding of zero-CO2 vehicle initiatives, with the ambition to kick-start new sustainable green business ventures for the nation or region. The process allows for a build-up of an EV-honed asset-base and development progression of new or existing vehicle(s). However, typically when support funding diminishes as a result of government spending cuts, the financial lifeline to the company is severed, and without a self-sustaining business model bankruptcy administrators dispose of the accumulated assets and inventory to typically a PE company located elsewhere with new assisted eco-funding on the horizon.

There is of course nothing immoral nor illegal about such activities, and indeed are wholly market-led, but simply highlight the schism between what is usually short-termist reliance upon achieved or expected public funding to provide a new lease of life for both old assets and newly established company. It has been this 'swings and roundabouts' experience that has given “arrested development” to both specific EV programmes and the EV genre in general.

The erratic TH!NK story is seemingly countered by the high profile stories of the apparently 'successful' few such as Tesla and Fisker, companies which maintain a high PR quotient to carve a place in the popular consciousness.

As a Palo Alto company the ownership and administrative centre of Tesla Motor was intentionally born into a very different funding environment; Silicon Valley's co-existence of IT orientated thinking, large scale VC backing and wealthy company owners then the seeming perfect 'hot-house' for the apparent technology-disruption intent of other sectors. Yet Tesla Motor is not the conventional niche car manufacturer, infact it does not manufacture, and could be argued as not even outsourcing 'its' vehicles. Thus far the business model has been to integrate a battery and control system into another company's vehicle; its Roadster born from this philosophy with cosmetic adaption of the Lotus Elise. Thus unlike its aforementioned counterparts (TH!NK, GMD, et al) it exists effectively as a brand-led virtual car company, with additional business income streams such as sale of zero-carbon credits to other car companies.

This then allows it to avoid sinking sizeable monies into a typically capital intensive production site, plant buildings, tooling, production line equipment and 'end of line' test equipment. It did infact purchase, at a 'drastic firesale' price of only $42m, an ex-NUMMI plant(GM-Toyota) in California to reportedly build the future Model S with Toyota support. It also avoids the growing trend toward manufacturers sharing supplier development and tooling costs. As such it is easy to note how it was born from the Silicon Valley attitude of outsourcing the lower order aspects of the value-chain, growing mass-exposure for the brand and focusing upon funding issues and the end customer.

Thus Tesla looks to be very much a brand-led 'Funding Vehicle' accessing advanced technology solutions by leveraging other companies' products and manufacturing processes). The company was not designed as a car company in the traditional sense – as seen elsewhere – but moulded effectually around building a company that could meet high-expectation, new business model demands of the investment community and latterly stock market.

Thus whereas conventional valuation measures can be placed upon other 'normal' car-makers, the fact that Tesla has positioned itself in an unconventional operating space / position makes direct valuation all the harder. The old market measurement perspective creates the view of absolute abhorrence that a company with little direct asset-base, absolute reliance on outsourced whole-car providers and their supply chain, having delivered less than 2000 can infact command a valuation of $2.8bn (its share-price rising from $24 to $27 over the last 2 days whilst this web-blog was being compiled). But then again, the company is not a standard car company its works as an apparent technology provider to VMs and offers synergistic by-products in zero-carbon credit to off-set others, this no doubt ironic given that it does not physically make its cars. But stock markets even in today's dour times, have ostensibly become gauges of sentiment and expectation, not Victorian value 'fundamentals'. Silicon Valley could be said to have been born from Wall Street, and thus has been Tesla Motor.

[NB The eventual delivery of the promised 6,000 Model S cars will undoubtedly help crystallise perceptions to the benefit of Tesla, though it appears that technical integration, manufacturing processes and plant support will be the responsibility of Toyota. Exactly how this arrangement will evolve remains unclear.

The reported production rate of 20,000 vehicles in 2013, and even up to 450,000 vehicles thereafter should be presently inferred as pure ambition].


Fisker Automotive was formed from Fisker Coachwork, a company cited the major potential for a market in 'coachbuilt' products. It used using heavily modified base cars platforms from the Mercedes SL and BME 6-series, thus able to pragmatically immediately access premium chassis, powertrain and systems technologies whilst offering unique exterior & interior finishes, However reports suggest that only 14 SL based Tramontos were delivered, whilst the newer 6-series based Latigo CS is limited to150 units (possibly as a result of the BMW sourcing agreement if directly procured), delivery numbers and so turnover etc unknown. Fisker Coachbuilt also designed a mid-engined vehicle with for Germany's Artega, itself seeking to compete against Tesla. Thus it also performs as a outsourced design and engineering house for worldwide vehicle start-ups.

What is of interest but cannot be viewed is exactly how the 2 companies are entwined, investment-auto-motives presumes the initial Coachbuilt division (established in 2005) was effectively rolled into the newer Automotive division (est 2007) as part of a partial asset-backed funding agreement, though not known, or with the alternative possibility that Kleiner Partners and Caufield Partners took separate interests with the general intention that the Coachbuilt arm contractually services the Automotive arm. Trying to read 'between the lines' with limited information is hard, but the ambition seems to have been to initially develop exterior and interior engineering and production skills using the base car structures, then once assured for A-surface quality, closure gaps, lighting units etc, develop the understructure capability with advanced lightweight materials. Thus in effect designing the car 'outside-inside' using the VM cars as the benchmark quality base – this then an effective method to create an all new vehicle seeking to try and mimic premium VM quality standards. Adding to theoretical profitability margins, the application of naturally occuring 'non-perfect' leather skins for interior trimming means that it can procure far cheaper animal hides – compared to quality perfect quality hides as is the norm – and sell that as an eco-luxury USP; thereby boosting margins at procurement and retail levels. The company stated in January 2011 that deliveries would commence “within weeks”, little is known as to how many cars have been delivered.

Thus, Fisker looks to be very much an 'Operational Vehicle' for internal and external client niche model development

Expectation -

It is proposed by investment-auto-motives that the 'Funding Vehicle' Tesla Motor will, in the medium term if not before, strike an accord with the 'Operational Vehicle' that is Fisker Automotive.

This done to 'piggy-back' its technology platform for future Tesla models, with the Karma offering the Karma's 'carcuss' for the Model S sedan, and its Surf 'carcuss' for the Model X cross-over, and the SunSet 'carcuss' for a retractable hard-top variant There is of course a close technical coupling between Tesla's Model S and the Fisker Karma as Fisker Automotive was contracted to design the Model S but was accused of 'taking the best' of that design for its own Karma creation. A law-suit entailed and Tesla was required to pay Fisker over $1m. Such a re-formed business relationship as client and contract manufacturer would then provide Tesla with an almost immediate 3 variants of its Model S: sedan, x-over and convertible

Overview -

The EV and PHEV worlds are new, and they apparently offer the panacea of 'eco guilt-free motoring' if the concern of the traditional 'well to wheel' equation is subsumed by the not so 'free lunch' of nuclear/gas/coal/oil 'generator to e-motor'.

The emergent business space has thus developed new (or renewed) thinking both technological and business model realms, perhaps even multiplying the potential for financial reward if the two can be combined.

The accompanying graphic depicts very generalised views of the business models that have been formed to explore and ideally conquer the sector. The graphic (top right) consists of a 3x3 matrix conveying funding levels (low, medium, high) against chosen approach (traditional Product Self-Build, Flexible Product & Process Case-Specific Application, Virtual Car Company – Outsouring of all with Financing & Brand focus)


Headwinds -

But what of the real-world customer reaction to the EV? That will be very much on a product by product and brand by brand basis, but for the moment the following cars and schemes face respective challenges.

Tesla Roadster & Model S :

The Roadster looks like a sports-car and has the driving dynamics of a sports-car, but does not have the visceral sensuality of sports-car. There are no gear-changes in the traditional manner (or even 'flappy-paddle' manner), nor the marque-characteristic exhaust notes which are intrinsic to PorschePorsche, Ferrari, Lamborghini, Bentley, Aston Martin, and the 'lower-order' makers such as Ginetta. Thus there is far less physical engagement with the vehicle compared to conventional sportscars.

The car was / is priced in super-car territory yet could not offer either the real-world driving range nor high-speed upper limits, limited at 125 mph, presumably because of battery energy exhaustion rates. The battery pack is expected to last 7 years with a replacement cost of $33,000 (but$12,000 if order with the car), and is expected to hold 70% charge after 5 years. This then exhibits a more apparent powertrain performance decline than with ICE systems.

The new Model S sedan looks to have typically 'amazing' 0-60 mph EV performance but when produced is destined to be an urban runabout given lack of infrastructure. As with Roadster the top speed will require restricting. Thus 'off the line performance' will no doubt win many (inappropriate) quarter-mile drag runs between traffic lights in the US or Middle East, but in far more congested UK, European, Japanese streets even that thrill may be often negated.


Rolls Royce 102EX :

Rolls-Royce is presently exhibiting its own EV concept, the 102EX, via a world-dealership and events tour. It displays a beautiful illuminated “Spirit of Ecstasy” upon the Palladian nose (very much in the 1920s Rene Lalique radiator mascot style) and offers a seemingly retro-moderne alternative merging the 1920s & 2020s.

On paper the silence of e-propulsion is perfect for the Rolls-Royce brand, a virtue that has been engrained since its earliest days of the first Ghost. Indeed, some years ago investment-auto-motives provided a blog comment on just-auto.com that e-propulsion would be perfect for Rolls-Royce.

[NB Turan Ahmed initiated the idea of the car's floating R-R wheel-hubs as part of a personally created skunk-works proposal for R-R's re-birth when at BMW-Rover during the mid 1990s. The floating hub to primarily provide for a 3rd long-lived marque USP accompanying proprietary palladian grille & 'flying lady', but also for the functional and visual delight possibility of utilising hybrid and e-drive axle for 2WD and 4WD modes, the hubs illuminated with the R-R logo when powered].

Yet upon later consideration, that original quietness that was and is a hallmark of Rolls-Royce is a consequence of its crafted engineering of an ostensibly noisy power unit. That USP of 'near silence' from the 1907 Silver Ghost onward has a direct corollary with the usual rumble of ICE. The Ghost was the very opposite of 'Chitty Chitty Bang Bang'.

But that achieved silence becomes a lost USP within the EV world, since all other EVs of whatever ilk and price – including golf carts - can claim similar levels of powertrain refinement. Thus the EV solution for Roll-Royce, when sat amongst the broad EV crop, could be argued as a liability.

It has been argued that e-propulsion would be an natural solution since it is assumed that most Phantoms are used for city centre and short-hop travel for luxury shopping and evening leisure pursuits such as the theatre or opera. And this may well indeed be the case, especially of course for hotel tenders such as the Phantom at The Ritz or Hyde Park Hotel here in London.

Yet those cars are also driven, albeit infrequently, out of the city centre to social events such as Royal Ascot, Cheltenham, Henley Regatta, Glyndebourne et al. Thus the 125 mile range of the e-power-pack of the 102EX does not suffice and may only serve to aggravate the (near) assured arrival time, the courtesy of providing another with a 'lift', wishing to explore the country-side or the often required flexibility of short-notice travel.

It may also be argued that the actual CO2 output from such typically small annual mileage may in fact be less than that of the standard mid-size 'company car' saloon which trundles the commuter run and across the nation's motorway network.

The 102EX looks a wonderful machine, but will very probably lead to the emergence of Hybrid powertrain variants of Phantom & (new) Ghost which allows R-R to directly access BMW's R&D activities and more directly reduce its overall CAFE rating.

Paris Autolib :

On Sunday (02.10.11) Paris saw the launch of an automotive equivalent to the Velolib bicycle rental scheme. Whilst the bike scheme is run across many cities and towns, Autolib will for the near and mid term be concentrated upon Paris.

The scheme looks to be in the French grand tradition of technology inspired 'socialist experiments', exemplified by the Eiffel Tower, TGV rail system and Millau 'skyway' road bridge, and is the apparent shared brain-child between the Parisienne Mayor Bertrande Delanoe and industrialist Vincent Bollare (of Bollore Group & Bollore Investissements SA), so a Public-Private Partnership deal.

As stated previously, Bollore formed a JV with Pininfarina SpA. The agreement that the French company supplies the solid-state lithium polymer battery-pack for the shared new vehicle project, whilst the Italian company develops a singular vehicle base providing for 2 car variants.. Bollore to receive a basic no-frills product designed for rental 'hard-knock' use, whilst Pininfarina would obtain a more up-scale car for private sale.

The Paris scheme has the cost city-centre administrators and surrounding 'arrondisement' councils approximately Euro 200m to erect the complimentary infrastructure equipment needed to service the cars. Initially 66 vehicles have been released from 66 parking/docking spaces, with an expected 250 cars by December, ramping up to 2000 - 3000 cars by YE2012 – highly ambitious. Criticism has come from some public and commercial quarters stating that the eventual 12.5km of allotted Autolib spaces critically undermines already tight parking availability for private drivers.

This then is a progressive effort to cut the city's congestion levels, CO2 levels and create a more socialist 'caring & sharing' environment, based upon an almost utilitarianist economic theology.

Yet it will undoubtedly also be a prime target for crime, just as the French Velib scheme and other bike-hire schemes have proven; London loosing over 14,000 bikes since inception to theft, vandalism or irreparable damage. As neither respected privately owned items, nor 'nailed down' publicly owned items, the vehicles will undoubtedly be stolen for their parts content: wheels, tyres, lights, wipers, seating, dashboard instruments and metal content scrap values (under the plastic skin). Thus a constant monitoring of the fleet with emergency response teams looks necessary, but if the scheme has priced in loss and vandalism coverage, any losses will simply be recovered or possibly sought from the city's coffers itself if contractually obliged.

An admirable scheme to change the personal transport face of Paris, especially during this period of economic contraction so providing an alternative cost-effective method for city drivers. But previous precedents indicate that the car-share scheme will not be the long-term antidote Bollore publicly hopes, the opportunity for abuse may only serve to add new income streams for the criminally minded, and the eventual economic upswing will diminish participation in public vehicle hire.

In the meantime though Bollore's industrial interests will have scaled-up its battery production base and presumably helped prove and develop the technology. Providing a new opportunity to service Renault & PSA within France and possibly serve FIAT in Italy.

The public's partial financing of Autolib then could well act as the public springboard for one of France's largest private industrial concerns, from which it will seek to serve other niche manufacturers and 'electrified' VMs.

London, we recently saw the 'Ecovelocity Show' held in literally within the shadow of Battersea Power Station – the underlying sub-text obvious! It was a display of the recent crop of EV, ULEV and LEV vehicles, ranging from multi-billion dollar though scantily seen range-extender GM Volt to the wholly frugally developed efforts such as the Westfield EV. Yet it must be noted that such cars were mirrored by a raft of more conventional Hybrid and low CO2 ICE cars.

Thus we clearly see that the fact remains that over the last 100 years and still today modern transit is dominated by the massive 'energy enablement' that oil provides. We undeniably live within a powerful auto-centric world, in which the triumvirate sectors of automobiles, petroleum and insurance act as massive interdependent economic generators. It is a seemingly irresistible force that now has grip over the EM world, the scale economies generated therein perhaps only serving to add an even greater impetus to the conventional technology model, as even higher volume platforms and engine families are devised to satiate the now truly coupled global economy. That in turn adds greater weight to the aforementioned economic triumvirate, spreading ever broader and deeper tentacles throughout horizontal, vertical and diagonal value-chains. From the oil well to refinery to retailer's tank to pump-nozzle and within the global insurance sector where the modernisation of EM road networks to match that of western infrastructure effectively allows for 'mimic-modelling' of risks and premiums seen in the western past and applied to the EM future.

Yet perhaps, if western nations are truly serious about trying to deliver lower emissions immediately, the UK and Europe and indeed North American should look to the USA example of in the 1970s.

[NB another age in which the EV was said to be a soon dominant force].

It was during that era, after the 1973-4 oil crisis scare that Washington passed legislation to reduce the national speed limit to 55mph (and later re-rate gasoline octane chemistry). That singular initiative undoubtedly improved real-world fuel efficiency rates and saved the national atmosphere from the exponential CO2 emission typically experienced at increasingly higher speeds.

The investment community must continue to seek out new solutions in answer to the CO2 challenge, and the business world must identify opportunities therein. Opportunities that range from overtly pragmatic 'in the box' thinking (such as ICE cylinder de-activation) to seemingly remote 'out of the box' thinking (such as community shared vehicle schemes).

But the real challenge as ever will be to identify the winners from losers amongst the plethora of technological solutions and allied synergistic business models. And critically to remember, that given the historically imposed macro-level PESTEL boundaries present, even the radically micro-level 'change the world' youngster typically matures to meld into the slowly evolutionary conservative centre ground.

In the meantime a host of concepts, prototypes, and limited edition models will keep emerging from start-ups, M&A-driven PE and VMs. This all then sets to repeat the “survival of the fittest” - or rather read that as: “survival of the richest” since that is the true determinant - and continues to makes for a generally bumpy but interesting low emissions ride into the future.

Macro Level Trends – UK Eco Investment – Incorporating Green Banking

In the midst of a Comprehensive Spending Review which markedly alters the relationship of the state and the British economy, the ideology of a new state sponsored 'Green Investment Bank' dedicated to eco-commerce has understandably shrunken. The overtly grand aspirations for eco-tech that were set before the financial crisis – and which swallowed massive sums in direct and indirect aid - has had to be trimmed to reflect the new financial and political reality.

The headline (figure) of which has been a reduction in available monies from £6bn to £2bn. But such adaption of size, scope and roles of various systemically critical economic agents is, in the Green Bank's case, not necessarily such a bad development. As with much else of Chancellor Osborne's policy, the core action is consolidation of effort and finances for greater applied force, consequential influence and ultimate achievement.

From a global eco-competitiveness standpoint, the UK undoubtedly lags; given the progress made in Asia (ie Japan, S.Korea), Europe (ie Germany, France) and the US. It is said that the global market is worth $3 trillion, of which the UK holds less than 5%. Current UK exports equal £10 billion, versus Germany's £50 billion. And by 2020, it is estimated that more Germans will be working in Eco-commerce than within its car industry. [NB investment-auto-motives suspects German policy is to use its own auto-industry as a technical and organisational 'spring-board' toward that aim]. Thus the “ability to share risk and foster innovation” is noted as key.

The structure and methods of a Green Investment Bank was explored between January-July 2010 via a team led by (ex-Merrill Lynch) Bob Wigley, with Lord Stern advising, and a broad selection of contributors. As perhaps the prime vehicle for attaining the 2050 CO2 reduction goal of 80%, the objectives of that Conservative party generated Commission were to:

- Recommend a bank funding mechanism which includes both 'Green Bonds' and Private Capital
- Ascertain the likely value/size of funds to be managed (using a US model with 10:1 ratio)
- Identify the Bank's investment criteria centred around high-growth and low-carbon companies.
- Offer guidance on Bank Governance relative to any differences in Public & Private Oversight.
- Understand how to ensure an appropriate geographic balance of investment

To summarise the Commissions findings were:

- That £550 billion is required by 2020 to achieve a sustainable low carbon economy.
- Interventionism should be used to overcome 'market failures & investment barriers'; primarily:
“market investment capacity limits”, “limited utility balance sheet capacity”, “political & regulatory risk given policy-driven returns expectations and the history of changing policy”, “confidence gaps for investors linked to technology risks / policy transparency / high capitalisation levels”, “the challenge of making numerous but individually small projects attractive to institutional investors”.
- Interventionism tooo also be used to: “ensure de-carbonisation targets are met”, “energy security & growth”, “reduction to exposure of high/volatile fuel prices”, “creation of a large number of businesses and jobs”, “address underlying externalities”.
- Operationally it should work under strict guidelines so as to not 'crowd-out' the private sector:
“to leave the private sector to open and execute all viable deals, only acting as a public partner in deals that necessitate involvement to attract private investment” (for the overall public good),

Thus the Green Investment Bank (GIB) seeks to alter the eco-investment landscape, by managing & ideally mitigating investor risk, rather than increasing the current hi-risk / hi-reward quotient.

Such a mandate comes as no surprise, though free-marketeers may be rightly concerned about the level of interventionism plied: at what point does positive interventionism become state direction ?

Yet, the call for co-ordination and the under-pinning of investor confidence to create tomorrow's 'eco world' is hard to fault; especially given the recent past. Creating an investor environment of relative stability via a more harmonious PESTEL equation seems to be key.

As seen by the financial crisis and bursting of the housing bubble, for far too long the tail of the capital markets wagged the dog of the real economy. These still recent events and their consequential concerns re-highlight the very rationality behind the call for stability that brought about the creation of the original (olde worlde) capital markets. Then newly formed capital markets in Persia/Levant, Florence, Amsterdam and London that had to deal with the task of major economic reform given changing PESTEL conditions. Their remit: to create a commercial and trading environment in which harmonious relationships would serve all stakeholders - banking, commerce and the nation at large.

Of course, the changing landscape of events in diplomacy, trade routes, new goods, adapted and new vessels aswell as the core enterprise organisation and the very nature of competition honed investor perception, much as these and many more factors do today. But objective fundamentals largely ruled even if short-lived 'land-grab' and 'commodity' bubbles periodically arose from the overt entwined polemics of disingenuous over-enthusiasm and self-interest feeding off of greed. But during those periods, a level of damage limitation prevailed, generally within the circumscribed and circumspect circles of wealthy merchants, Lloyds names and such. People who could afford to 'venture' portions of their wealth. Today's capital markets are made-up for the most part by the paper-wealth of those many millions who realistically cannot afford to 'venture' – the 1929 crash being the stepping-stone between these 2 worlds. Thus whilst the dynamic of the investment foreground appears similar, the background is not.

Today, more than ever, the requisite harmony between banking, commerce and the nation is critical, done so set against the prevailing disruptive yet opportunistic winds of macro and micro change.

Beyond the prime aim of assisting in reaching CO2 reduction targets (80% by 2050), surely this is the philosophical remit of the new 'UK Green Investment Bank', such sentiment behind its very ethos, structure, capability and delivery.

Yet, how best to achieve this is the hot-topic of the day, with two ministerial level camps emerging debating the prime aspects of Role & Responsibilities', 'Bank Funding Methods' and 'Marketable Products'.

[NB To the layman recent press reports tend to infer that the split may appear to be over 'free-markets' versus 'overt-interventionist' ideologies*. (See Post Script below). Though as seen by the report, this not in actuality the case given the 'PPP' format the GIB takes].

The devil then instead appears to be in the detail of the recommendations:.

Roles & Responsibilities:
1) To amalgamate and centralise the efforts of CO2 relevant quangos, retaining core skills.
2) To absorb recommendations from the recent National Audit Office Report
3) Further analysis of the role of GIB across the UK and the use of devolved administrations
4) Implications of GIB for Government Policy; esp regards Infrastructure UK.

Funding Methods:
A) Gov't Funding for dispersion of Grants,
B) Operational Funding via Green Bonds, Green ISAs, GIB Debt Fund, Levy on Energy Bills
C) Initial GIB Capitalisation to support A & B, via Private & State-Owned Bank capital injections, Use of Bank Levy and Bank Bonus Taxes, Proceeds from Sale of Government Assets and UK Revenues from EU ETS Auctions.

Financial Products offered:
1) Early Stage Grants,
2) Equity Co-Investment,
3) Wholesale Capital,
4) Mezzanine Debt,
5) Purchase Offers for Competed Renewable Assets,
6) Purchase & Securitisation of Project Finance Loans,
7) Insurance Products,
8) Long-Term Carbon Price Underwriting.

Such debate is of course very necessary as part of a process to exactly hone the very nature of the enterprise. To enable its efficient start-up (via an Act of Parliament) and be capital markets relative and sensitive. It had been hoped that process would have completed by early October, ahead of the Comprehensive Spending Revue, but no so; it is far more important to create the right form of entity than to hit nominal reporting deadlines.

The political and bureaucratic debate will continue, yet whilst creating the right framework for the GIB is vitally important, equally so will be its ability to act as an efficient investment catalyst when formed, in situ and operational.

Critically, the GIB must be seen to be highly intelligent regards the commercialisation fields of eco-tech and eco-service, and not simply as a second-hand recipient of knowledge (right or wrong) from private investor circles. This will of course span the various sub-sectors by which the CO2 reduction task is classified, including atmospheric discharge across: Energy Generation / Domestic / Industrial / Transport etc arenas..

Here, along with other eco-tech spheres, the importance of GIB knowledge regards the UK and global auto-industry will be critical. Knowledge that delves far deeper than the headlines of CO2 discharge responsibility levels. As both an incorporator of self-developed technology, an adopter of transferred technology, aswell as its potential as a tech-disseminator to other sectors, the industry must be recognised as a central enabler and facilitator toward the CO2 reduction ambition.

But behind the emotionally charged rhetoric and diatribe must be objective knowledge to understand the complexity of the issue.

Given the level of 'green-wash' and 'green-mania' previously apparent, the emergence of a green-tech bubble seemed inevitable, indeed investment-auto-motives believes that new entrant players in the western auto-industry today still enjoy a level of press-driven exposure which massages popular perception thus in turn intendedly 'over-drives' a company's market capitalisation levels which by supposed virtue of credibility then attracts government grants. Thus playing the 'capital markets game' which stalls on promises year after year, delivering little to actually 'save the planet', yet maintaining an illusion of progress.


The following cases provide an overview:

Tesla Motor has sold just over 1000 units of an 'eco-bling' novelty car with little functionality which has had a truly miniscule real-world impact, yet vaults its MktCap at near $1.8bn since it IPO'd 12% of the company in mid 2010; all on the promise of tomorrow. A recent SEC release states that it will run a JV with Toyota for a RAV4 EV, a replay of something Toyota did a decade ago which foundered.

At the opposite end of scale, as GM's IPO relisting approaches the new revelation is that Volt is in reality a hybrid vehicle, something that investment-auto-motives always suspected, so as to deliver a tenable car. The Volt hype spanned years, the new revelation thus demonstrates a cynical play on the public's and capital markets' 'naïve green consciousness' to date. Volt as a hybrid is technically and commercially more feasible, but gains no competitive edge versus leaders Toyota or Honda, instead essentially playing slow catch-up to the pack-leaders further the limited in-roads made by hybrid-Siverado, hybrid-Vue, hybrid-Malibu.

Nissan's Leaf EV compact sedan will be coming to market in late 2011/12, essentially trying to follow in the footsteps of the original 1997 Prius, but moving the eco goal-posts further. It too has had enjoyed massive PR exposure, but the reality is that whilst being based on a standard platform (bad technically but good commercially) it will represent only a small fraction of that platform's volume output. As an example the Sunderland UK plant manufactures 400,000 units p.a, exporting four-fifths. The accompanying satellite battery-pack plants set-up have a capacity of 40,000 units, yet it is expected that the first 3 years will see a real average output of 10,000 'married' bodies and packs; so approximately 2.5% of the Nissan factory's output – not (for the foreseeable future) the overnight game-changer that has massaged public understanding, nor indeed has set high-expectations for economic regeneration areas such as Sunderland.

The latter twin of Jaguar Land-Rover has had sporadic in-house access to hybrid technology for nearly 2 decades as part of the then Rover Group and Ford. There was chief engineer discussion regards the cross-brand learning and applicability of Mini Metro based 'series' and 'parallel' hybrid formats. This tech was considered as the ideal solution for Land Rover's military customers, providing little or no 'thermal signature' that could be traced for a vehicle in combat conditions. As to where such efforts sit today is of course confidential.
However, the Jaguar lag in developing an in-house or even bought-in hybrid system for use on XJ and XF has been disappointing. Execs with point to the instability caused by Ford's disposal of Jaguar on R&D policy, and by the financing concerns TATA Group had when it took-on JLR, but in truth Jaguar should have done far more far sooner as part of its own premium brand catch-up strategy.
The XJ LimoGreen project has been operating for some years now, yet even a very recent press article highlights that no introduction date has been identified, only that whilst the 'range-extender' (in reality read hybrid) technology is operative, the question is scale and so component piece price - the chicken and egg cycle. In reality it appears that progress on LimoGreen (which includes Lotus Engineering and Caparo Engineering) accords to the influx of government funds.
Many years ago investment-auto-motives openly recommended that as an interim 'saviour step' Jaguar ought to ally (formally or informally) with Toyota's Lexus to obtain much needed, speedy market differentiation, packaging hybrids into 'more classically sculpted counterparts' to a more contempoary Lexus. Instead Jaguar aesthetically mimicked Lexus in aspects of form and detailing, whilst directing efforts at modern diesels thus severely lagging in the hybrid stakes against the Japanese and relative to hybrid-demanding US, Chinese and Japanese customers. The recent article seems to indicate only more of the same expectancy for TATA-Jaguar to rely on government funds; funds which are now severely restricted.

Such initiatives when well intended and executed are indeed welcome as part of a multi-solution Eco reduction strategy. But it cannot be denied that the reality of CO2 step change will be smaller and more conventional than typically imagined, and primarily concerns ongoing eco-development of the ubiquitous, globally economically integrated and so value-adding, internal combustion engine.

These aforementioned 4 examples of 'tomorrow's world' must be objectively seen to suffer at best from corporate over-statement for brand differentiation, middling a reliance on government funds for eco-progression, and at worst, open to accusations of manipulation of eco-investor enthusiasm.

History illustrates that such investor-directed, auto-sector-disruptive, 'jam-tomorrow' enterprises are by no means without precedent; and every industry has had its cases promising radically new tomorrow's. The important matter today for the UK, the US and Europe is that industry-directed investment funds from whichever sources - institutionals, private equity, SWFs or even hedge funds - must be allied to truly plausible, reduced risk offerings across the vertical value-chain, and in both final product and service realms.

As the catalyst of conventional risk-averse investor consciousness, the new UK Green Investment Bank must demonstrate itself able to see through the 'eco-haze' so as to set UK and global eco-development on a firm footing. GIB must demonstrate its own credibility as an intelligent lender in this undeniably important field.

The long-term ambition of GIB must surely be to move from public ownership to private ownership via a private treaty sale or perhaps floatation in the years to come, when the more radical of the innovations and sub-sectors it backed becomes near mainstream, so leaving plenty of meat on the bone for the latter-day buyer(s).

Thus, it would appear an obvious step forward to provide the UK Green Bank with a 2-step growth path.

Initially, between 2011 and say 2015 limiting itself to the role of 'simple' grant, loan and other basic provider so a stable conduit toward larger eco-commerce, with an accordant in-built level of risk-aversion with perhaps covenant-heavy capital availability that implies. With latterly, 2015 onwards tranche by tranche disposal into private hands, developing as a broader 'sophisticated' products provider. Thus by implication of greater freedoms, broader access to UK and international capital markets, with a seemingly greater level of risk exposure theoretically counter-balanced by a more robust global economy and by then an engrained consumer eco-behaviour that is far less timid, and more exploratory than perhaps today.


Post Script*

To have delineated the new Green Bank as a copy+ of a conventional investment bank, it would have acted as market reactive conduit between the spectrum of capital markets and the commercial end-user. So obtaining liquidity at a market rate (LIBOR, other reactive-rate or bond-rate), and selling-on the available liquidity with either no a given margin, no doubt dependent upon the health of the market 'push', the commercial demand 'pull' and the required demands of the Treasury in its efforts to plug the UK debt deficit. This approach no doubt thus providing a sense of real-world 'eco-commerciality' whilst also demonstrating the UK's desire to be seen as a friend of the capital markets (so assisting credit-ratings) aswell as possibly presenting a Green Investment Bank vehicle / model / format which the UK could promote across the world; itself promoting the innovative spirit of the UK's financial services sector.

In contrast, to have delineated the GIB as simply a re-organised government entity, now with far less though centralised financial muscle, would have led to a sense of even greater incredibility both within Whitehall, but especially across the capital markets and industry / commerce. Yes, it would have no doubt had greater 'non-negotiable' powers regards regulation and interventionism, but interaction with the external business world would have undoubtedly suffered, so in effect pseudo-control without the real power to alter the direction, structure and growth pace of the UK economy].