Never Mind That Bailout: Venture Funding for Auto Innovation Accelerates As Startups Race to Leave Detroit in its Own Dust

12/1/08Follow @bvbigelow

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called the Roadster—with a base price of $109,000.

Rather than investing in “one-off cars that cost $100,000 apiece,” Zuberi says many VCs are looking for automotive innovations that make conventional vehicles more energy-efficient or significantly reduce pollutants, especially carbon dioxide and other greenhouse gases.

He cited as examples:

— San Diego-based Achates Power, which has been developing “a radically different” high-efficiency two-stroke diesel engine conceived by founder James Lemke of UC San Diego. The startup, which is in stealth mode, has received undisclosed venture funding from Sequoia Capital, RockPort Capital Partners, Interwest Partners, and Madrone Capital Partners.

A123 Systems of Watertown, MA, which has developed innovative lithium-ion batteries for use in motor vehicles, portable power markets, and electric power grids. The startup founded in 2001 raised at least $102 million this year alone from more than a dozen corporate and venture investors, including North Bridge Venture Partners, General Electric and Qualcomm Ventures.

ISE Corp. of Poway, CA, about 25 miles north of San Diego, which is making hybrid-electric drive trains for heavy-duty vehicles such as buses, garbage trucks, cargo “yard hustlers,” airport ground vehicles, and military vehicles. “You can think of it as a very large version of the Toyota Prius,” says co-founder David Mazaika, who recently raised $17.5 million in a fourth venture round led by Siemens Venture Capital, Macquarie Clean Technology Fund, and DTE Energy Ventures. Gaining a major industrial partner like Siemens was key to increasing production at ISE, which did about $28 million in sales this year.

Geo2 Technologies of Woburn, MA, which is developing high-temperature ceramic air filters with the ability to remove up to 99 percent of particulates, or soot, from diesel engine exhaust, without affecting engine power or efficiency. The company, where Zuberi worked before joining General Catalyst Partners, has raised about $25 million from Firelake Capital Management and a number of wealthy individual investors, including Gary Jacobs, eldest son of Qualcomm founder Irwin Jacobs and Gary Weiss. Both Jacobs and Weiss also are investors in San Diego’s Fallbrook Technologies.

Of the automobile startups, Tesla Motors probably ranks as the largest and best-funded company. The five-year-old startup has raised about $145 million from venture investors, including $55 million from PayPal founder Elon Musk, who is the chairman and current CEO, and Google co-founders Sergey Brin and Larry Page. The company recently secured another $40 million in convertible debt financing, but is facing fresh challenges in its plans to build a $250 million manufacturing plant in San Jose, CA.

Fisker Automotive of Irvine, CA, also has been developing a sleek, hybrid sports car for the high-end market. The company recently raised $65 million in venture funding from Kleiner Perkins Caufield & Byers, Palo Alto Investors, and others.

Aptera Motors of Carlsbad, CA, about 26 miles north of San Diego, is taking a more practical approach by developing a futuristic, two-person electric car for suburban commuters. The startup, which has raised $24 million from Idealab, Google, and others, has had no trouble attracting additional funding despite the economic downturn, CEO Paul Wilbur says.

“We are talking to a number of VCs right at this second … Next Page »

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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  • http://www.teslamotors.com Rachel

    To answer the fundamental question that this article poses: Yes, absolutely, the federal government should provide low-interest loans to R&D-focused automakers that have already demonstrated a commitment to building fuel-efficient vehicles. This will encourage and hasten the time to market of a sophisticated all-electric, zero-emission powertrain for affordable, family cars. If this isn’t in the public interest, what is?

    Just to set the record straight among the good folks in the blogosphere:

    Tesla is not applying for a loan from the Department of Energy to fund anything having to do with the $109,000 Roadster sports car pictured here but rather future generations of more affordable sedans and a powertrain facility to make battery packs and other components for other automakers, which could also use them for affordable sedans and subcompacts.

    To be sure, the Roadster is an important, paradigm-shifting product. Tesla has delivered nearly 100 to customers already and is increasing production starts to 30 per week in 2009. The all-electric, zero-emission Roadster is a viable production vehicle that also serves as an innovative precursor to other, less expensive products in Tesla’s pipeline. Ask the Xconomy guys if they enjoyed their test drive in September in Seattle — it’s a real car with amazing fit and finish, performance and handling to rival much more expensive cars.

    On that note, it’s obvious but critical to emphasize that R&D and early-adopter technology is relatively expensive. Whether it’s the iPhone or photovoltaic panels, the first owners pay the most. But the technology inevitably becomes affordable within several product cycles, whether on the timeframe of Moore’s law or (in the case of battery capacity) at the fair clip of 8 percent per year. Given the Tesla Model S five-passenger sedan (base price expected at $57,500) and the Bluestar project (all-electric, zero-emission subcompact for $30,000), a government loan to Tesla would inevitably help speed delivery of more affordable vehicles that eliminate dependence on foreign oil and reduce drivers’ carbon footprint.

    Finally, let’s discuss the difference between the Detroit Three’s “bailout” and what was originally a progressive and well intentioned program to encourage fuel-efficient vehicles. The loan wouldn’t be used for the Roadster or Tesla’s ongoing operations — and it would go to the company that has arguably done the most to rattle the Detroit status quo when it comes to developing vehicles with far greater well-to-wheel efficiency than a Prius.

    Tesla’s blog clarifying the distinction:
    http://www.teslamotors.com/blog2/?p=66

    FWIW, I’m all for spirited debate about public policy, but it should be based on facts. Blog on!

    Rachel Konrad
    Senior Communications Manager
    Tesla Motors, Inc.

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  • http://www.auto-facts.org/automotive-blog.html Auto mechanic mark

    No bailout needed but venture capital welcomed. My Ideas are not government approved but here they are any way. We will have to save America ourselves. The power of people. Rock stars and celebrities for buying American cars. Angelina and Brad love to help so lets get them to lead with a trade of some venture capital going to their favorite causes. We the people can bailout the big three with a focused effort. If the state and local governments want to help the effort they can reduce the sales tax for each sale in 2009. And how about 0 percent financing backed by the government. If the banks will not help the automotive credit market with the money they where given take some back and start a federal financing program to approved buyers. Stimulate and escalate sales saves the industry without additional tax payer money. But yes we will still need that bridge loan to get there!