Automotive Cleantech Fallbrook Technologies Relocates Near Austin

5/2/13Follow @bvbigelow

Fallbrook Technologies was founded in San Diego, and it spent 15 years working to commercialize its design for a new type of continuously variable transmission, with the potential to increase fuel efficiency, reduce emissions, and improve vehicle performance. The company bills its innovative “NuVinci” transmission as a greener and more fuel-efficient technology for cars, trucks, and other types of vehicles.

After generating negligible revenue through 2009, Fallbrook began to gain some real traction last fall, after the company forged strategic partnerships with three major automotive companies that specialize in transmission design and production. The big three deals helped Fallbrook generate more than $43 million in revenue last year.

Over the past four months, however, Fallbrook has released the parking brake on San Diego. The company has moved its headquarters to Cedar Park, TX, a suburb north of Austin that now lists Fallbrook (with 133 employees) among its biggest employers. Fallbrook plans to close its San Diego offices for good in May, leaving behind just a few San Diego employees who will continue to work at home—with occasional trips to Texas.

“The business has grown so fast and so big that we had to do something to centralize our operations in one place,” said Fallbrook CEO Bill Klehm. “It’s just critical to stay close to the action on a day-to-day basis.”

Fallbrook reached strategic partnerships in September with Dana Holding and Allison Transmission that account for much of the company’s increased business. Dana, based in Maumee, OH, has more than 23,000 employees and is a worldwide supplier of axles, driveshafts, and other components for every major vehicle maker in the global automotive industry. Allison, based in Indianapolis, IN, has 2,800 employees, and makes commercial-duty transmissions and hybrid propulsion systems.

Fallbrook granted Allison exclusive rights to develop and commercialize Fallbrook’s continuously variable transmission technology for such markets as commercial vehicles, military use, and certain large stationary equipment markets. The company signed a similar licensing agreement with Dana to adapt Fallbrook’s technology for passenger vehicles, and certain off-highway vehicles.

“Developing one application alone [requires] 150 engineers and $350 million,” Klehm said by phone recently from his new office in Cedar Park. He added that much of Fallbrook’s operations are co-located with Dana, which has an engineering center in Cedar Park. The companies’ work currently is focused on design and development, but Klehm said he expects the partners will begin assembling transmissions in the Austin area by 2015.

Fallbrook also reached a licensing agreement with Team Industries of Bagley, MN, which already is a leading maker of continuously variable transmissions and electric vehicle drivetrains.

"See through" image of NuVinci planetary design

Whereas a conventional transmission uses a set of gears with fixed-speed ratios, a continuously variable transmission (CVT) uses a mechanism that changes ratios seamlessly as a drive train accelerates and decelerates. Unlike CVT designs that use belts or doughnut-shaped designs, Fallbrook’s design uses steel balls in what the company calls a continuously variable planetary (CVP) drive train.

To Klehm, the deals with Allison, Dana, and Team Industries also provide Fallbrook with a major automotive stamp of approval.

“We never had that full validation of our variable transmission from the auto industry,” Klehm said. “Their due diligence said we had passed the physics and economics test. So we’ve been accepted now in the automotive supply chain.”

Allison and Dana also made investments in Fallbrook, which has raised a total of more than $115 million from angel investors, venture capital firms, and other investors over the past 15 years.

Fallbrook’s move also follows some longstanding ties in Texas.

The company conducted much of its early engineering R&D at the Southwest Research Institute in San Antonio. Fallbrook spun out its CVT technology for use in power-generating wind turbines to a startup in Austin, TX, and signed a development partnership with Austin-based Hodyon to incorporate Fallbrook’s CVT in air conditioner compressors for medium and heavy-duty vehicles. Fallbrook acquired Hodyon in 2011, and Klehm says its sales of auxiliary power units (APUs) for use in automotive air conditioners and other accessory drives has gone from 200 units per year (at $6,000 a unit) to 200 units a month.

“I think of Austin as the Palo Alto of the Southwest,” Klehm says. “Every single day, you’re seeing new startups pop up. Everybody here has a startup mentality.”

Klehm also described the Texas tax code as “just completely organized to optimize and incentivize innovation and job growth. In California, the tax codes are organized to dis-incentivize job growth.”

Fallbrook CEO Bill Klehm

The only thing holding Fallbrook back now, at least the way Klehm talks, is access to capital. In fact, Klehm recently urged a House Committee on Small Business to prod U.S. securities regulators to accelerate their promulgation of new rules intended under the JOBS Act of 2012 to make it easier for small companies like Fallbrook to raise capital from investors. His testimony was arranged by Connect, the San Diego nonprofit group that supports technology innovation and entrepreneurship.

“Our ability to access capital is the most significant challenge we face as a business,” Klehm said in his testimony on April 11 before Arizona Republican David Schweikert, chairman of the Subcommittee on Investigations, Oversight, and Regulations. “I personally spend over 50 percent of my time on it. With additional capital, we would expand our manufacturing base in Texas, and build out our engineering development team, which would create new high-tech jobs, and accelerate our product development and partnership opportunities.”

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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