Green Marketing

Bad Karma for Fisker Automotive: Of Loans and Lawsuits

February 21, 2012 22:59
by J. Wylie Donald

As if it wasn’t hard enough trying to displace the internal combustion engine as the motive force of the automobile, then this happens.  First the plug-in hybrid Chevy Volt’s battery starts catching fire.  Then battery-maker Ener1 files for bankruptcy protection.  Last Thursday, the electric vehicle arena acknowledged more bad news.  Fisker Automotive, maker of the electric sport coupe Karma and promisor of the Nina, issued a press release following a set of disquieting reports from various outlets.  The sour news:  “As a prudent business measure, project Nina has been temporarily put on hold until financing, either from the DOE or elsewhere, can be secured.”

Fisker is the high end of electric vehicles.  Its “plug-in extended range” Karma sedan seats four and retails between $96,000 and $109,000.  It can do 0-60 in 7.9 seconds in full electric (Stealth) mode (the plug-in part).  But turn on its gasoline engine, which turns its electric generator, and you’re down to 5.9 seconds (Sport Mode) (the extended range part).  Motor Trend calls it “a sweetheart to hustle.”

Nina is (was?) the more consumer-friendly version of a Fisker. It is to be (according to reports) a compact or midsize sedan, priced in the $40,000 range (after the $7,500 federal tax credit).  It is to be built in a refurbished GM plant in Delaware, which Fisker bought out of GM’s bankruptcy in 2009.  Predicted production levels were 100,000 vehicles per year.  That goal is currently not realizable.

Fisker has raised a lot of money.  Besides over $850 million in private financing, in 2009 “Fisker Automotive closed a $529 million loan arrangement under the Department of Energy’s Advanced Technology Vehicles Manufacturing Loan Program for the development and production of two lines of plug-in hybrid electric vehicles. The project is expected to create about 2,000  jobs in Wilmington, Delaware.”   Times change.  In May, after providing $193 million to Fisker, DOE stopped lending because various milestones in Karma sales and production had been missed.  Or as Fisker put it in its recent press release:  “In May 2011 Fisker Automotive opted to stop taking reimbursements from the DOE while the company entered negotiations to implement more realistic and achievable milestones.”

Fisker's financial difficulties are not being kept secret.  The tip of the proverbial litigation iceberg made its appearance earlier this month in the form of a lawsuit filed in California Superior Court: Wray v. Fisker Automotive Holdings et al. (Complaint attached below.)  In the suit Mr. Wray, an investor in Fisker and various Fisker investment entities, claims he was deceived into buying Fisker securities because he was unaware that a subsequent "pay to play" offering could require him to increase his investment or lose the beneficial position he had procured by virtue of his earlier contributions.

Mr. Wray put over $200,000 into Fisker. In return he received preferred stock with various benefits such as "conversion price discounts", "anti-dilution protection", and "liquidation preferences." While risks of investing were disclosed, nowhere, it is alleged,

did the offering memoranda inform Daniel Wray, or any other investor, that if he did not participate in future forced financing of Fisker, as Fisker and Advanced Equities [the broker/dealer] dictated, he would suffer a significant dilution of all of his earlier investments; conversion of the convertible preferred stock to common stock loss of all the rights, preferences and privileges that his ownership of preferred stock conferred, including liquidation preference, anti-dilution protection and initial public offering discounts/special conversion rights. Complaint ¶ 26.

But on January 18, 2012 the broker/dealer wrote Mr. Wray (and presumably others) seeking money: "Due to Fisker's urgent need for equity capital, the Financing now contains a "pay to play" provision that requires all holders [of certain securities] to purchase Series D-1 Preferred Stock in an amount equal to at least 40% of such holder's aggregate dollar amount invested ...".  Id. ¶ 28.  Mr. Wray had slightly over $200,000 invested, and was now on the hook for another $83,922.32. In his complaint, Mr. Wray alleges breach of fiduciary duty, fraud, negligent misrepresentation, and various violations of the California Corporations and Business & Professions Codes, among other things.

The greencarreports blog did a little investigating and is not overly sanguine about Mr. Wray’s chances on the merits.  We look at it from a different perspective.  We are not privy to Mr. Wray's thinking but his suit may be an astute way to buy time before committing to the next $80,000. If the DOE funding hurdles are cleared, or private sources come through, then the investment, particularly for one in preferred status, may be particularly fruitful. And if the big money is not forthcoming, then throwing good money after bad might be avoided.  In that case, Mr. Wray might not find himself alone on the tip of the iceberg any longer either.

20120207 Complaint, Wray v. Fisker Automotive Holdings, Inc..pdf (707.64 kb)

Climate Change | Green Marketing | Solar Energy

Renewable Fuels Take Off - Algae Arrives and Certiorari Denied

November 8, 2011 11:41
by J. Wylie Donald

Yesterday was a good day for renewable fuels enthusiasts and not because someone figured out how to make ethanol cocktails from pond scum.  In Houston American renewable fuel use literally took off on its maiden flight and in Washington the Supreme Court denied certiorari in a suit brought by the oil industry challenging the USEPA's regulations promulgating a revised renewable fuels standard.

In National Petrochemical Refiners Association and the American Petroleum Institute v. EPA, the plaintiffs asserted the EPA's final rule, Regulation of Fuels and Fuel Additives: Changes to Renewable Fuel Standard Program, 75 Fed. Reg. 14,670 (Mar. 26, 2010), was invalid because it "violate[d] statutory requirements setting separate biomass-based diesel volume requirements for 2009 and 2010; [was] impermissibly retroactive; and it violate[d] statutory lead time and compliance provisions."  630 F.3d 145, 147 (D.C. Cir. 2010).  From those arguments, one might justifiably conclude that watching paint dry would be far more exciting than this opinion; we will leave it to others to explicate.  E.g., see the case comment in the Texas Journal of Oil, Gas and Energy Law Blog. In any event, the court of appeals denied all of petitioners' arguments and left EPA's rulemaking completely intact.  The Supreme Court saw no reason to step in. 

What does the standard mean in the real world?  It is huge.  Among other things, according to the EPA's website it raised the mandated volume of renewable components in motor vehicle fuel from 9 billion gallons in 2008 to 36 billion gallons by 2022.   And it "appl[ied] lifecycle greenhouse gas performance threshold standards to ensure that each category of renewable fuel emits fewer greenhouse gases than the petroleum fuel it replaces."  In other words, if one measures all the greenhouse gases emitted in the production of, for example, one gallon of corn-derived ethanol, fewer gases would be emitted than in the production of one gallon of gasoline.

But the standard is not huge for airlines.  It only applies to motor vehicle fuel. 42 U.S.C. § 7545(o)(1)(C)(i).  Nevertheless, airlines are starting to line up for renewable fuels.  A case in point is the news story in yesterday's Houston Chronicle, Algae helps power flight to Chicago.  The gist of the story is that a United Airlines Boeing 737 lifted off from George Bush Intercontinental Airport for Chicago with a fuel tank filled with a blend derived from algae and conventional aviation fuel.  Passengers noted nothing different despite participating in history.  As stated by United:  "the first U.S. airline to fly passengers using a blend of sustainable, advanced biofuel and traditional petroleum-derived jet fuel."  More details are provided in the press releases from Solazyme (the biofuel manufacturer) and United. The blend was 40/60 algae to conventional fuels, complied with the ASTM D7566 specification for aviation fuel, and is a "drop-in replacement[] for petroleum-based fuel, requiring no modification to factory-standard engines or aircraft."  Tomorrow Alaska Airlines takes off with used cooking oil product in its tanks. The price for this "green" fuel?  One internet source puts it at between $17 and $26 per gallon. 

Is this cutting edge?  For the United States, yes, for Europe not at all. Lufthansa flies 8 flights daily to and from Hamburg and Frankfurt using 50% biofuel in one engine. The press release goes on to explain the single engine:  "next to reducing CO2 emissions, the main aim of this long-term operational trial, [is] to examine the effects of biofuel on the maintenance and lifespan of aircraft engines."  That is, the two engines will be torn down to the last o-ring at the next overhaul and compared, providing valuable data for future operations.

Both United and Lufthansa emphasize the role renewable fuel has in their sustainability initiatives.  Good public relations and potential competitive advantage may be reason enough to incorporate biofuels.  But besides green-ness can $17 per gallon be justified? It might be if it could reduce costs elsewhere, and faithful readers have already figured out where that might be. As we reported recently, the EU will start imposing carbon emission fees on flights originating or terminating in the European Union. Bio-fueled flights can get credits and reduce their fees.  With that, a little innovation, some economies of scale, and some luck, we might soon find ourselves enjoying a little pond scum at 30,000 feet.

Green Marketing | Greenhouse Gases | Regulation | Renewable Energy | Sustainability

Notwithstanding Solar Bankruptcies, Government Clean Technology Funding Has Not Stopped (For Electric Vehicles Anyway)

October 10, 2011 00:13
by J. Wylie Donald

Notwithstanding the bad press garnered recently by some clean technology business models that relied on government largesse (most notably the failure of Solyndra LLC and its accompanying half-billion dollar government guarantee), government funding of "green" is not going away.  Last Thursday, ECOtality announced the award of a five year $26.4 million contract with the Department of Energy to continue to test and evaluate advanced vehicles.  

As stated by ECOtality, "The primary goal of the Advanced Vehicle Testing and Evaluation project is to provide key data for technology modeling, and research and development programs, by benchmarking and validating the performance of light-, medium-, and heavy-duty vehicles."  So ECOtality is testing; is anyone buying?  The predictions are that quite a few will be. 

The Department of Energy and others have put together $230 million to promote the development of electric vehicle infrastructure in six states (Washington, Oregon, California, Arizona, Texas and Tennessee) and the District of Columbia.  The EV Project, as it is called, is a significant venture and one in which ECOtality is heavily involved.  This month marks the beginning of the third and final year of the project. 

How many drivers are we talking about?  Initially, the numbers are small, but the upside is not.  To quote ECOtality again:  "The ultimate goal of The EV Project is to take the lessons learned from the deployment of these first 8,300 EVs, and the charging infrastructure supporting them, to enable the streamlined deployment of the next 5,000,000 EVs."   As of the end of September the lead electric vehicles in this country are Nissan's LEAF, with sales of approximately 7,000 and General Motors' Volt, at a little more than half that.   So there is a ways to go.

But we are confident that we will get there.  Although justifications for shifting to electric vehicles include minimizing carbon emissions and energy independence, the reason the switch will happen is cost.  The advantage over the internal combustioin engine is immense.  According to General Motors:   "The Volt should cost less than 2 cents per mile to drive on electricity, compared with 12 cents a mile on gasoline at a price of $3.60 a gallon." 

Which leads to the most interesting part of the story:  the companies that are part of all this.  Besides electric utilities and state and local governments, partners in the EV Project include, among others, retailers (IKEA, Sears, Macy's, Best Buy), property managers (Jones Lang Lasalle), restaurants (Cracker Barrel), hotels (Loews), oil companies (BP), and supermarkets (FredMeyer).  The business model is simple.  With a high-speed charging connection, a customer's EV can be recharged to 80% in about 30 minutes.  Enough time for a quick lunch or a little shopping.  And if the customer will be there longer (like at work or overnight), then there is a further opportunity.  Practitioners should take note.  Even if EV's are not here yet, the leases and zoning approvals that one is negotiating now could be set up to ensure that the opportunity will be available, but only if one is thinking about it. 

Green Marketing | Renewable Energy

CT’s Field of Dreams: If We Build It, Electric Vehicles Will Come to the State

September 2, 2010 11:39

A panel of Connecticut’s energy, environmental, transportation and economic development leaders reached consensus this week on a road map for supporting the next generation of plug in electric vehicles.

The initiatives identified in the report, state officials said, promise to create incentives for electric car consumers and send clear signals to the automobile industry and trade allies that Connecticut should be high on the deployment list for the next generation of clean cars.  Officials also promised that the efforts would help the state to reduce greenhouse gas emissions and promote energy independence and security.

The Electric Vehicles Infrastructure Council, which was formed last November in response to an executive order issued by Gov. M. Jodi Rell, issued its Final Report Wednesday, identifying strategic priorities intended to pave the way for improvements like a network of public and in-home charging stations and legislative priorities that would offer tax incentives to help consumers avoid sticker shock.

Council members emphasized in the final report that Connecticut’s goal is to gain early access to the first wave of mass-produced electric cars, vehicles promising to promote green jobs and smart grid features while reducing carbon dioxide, a key contributor to global climate change.

Two automobile manufacturers with next generation electric cars in development, General Motors and Nissan, have already informed the state government that, especially given the interest and industry support demonstrated by the work of the Council, they plan to include Connecticut in their first wave of product roll-outs this fall.  While welcome news, that also puts pressure on the state’s electric utility industry, building officials, transportation officials, utility regulators and others to work together to develop public electric vehicle charging stations and facilitate the deployment of affordable home charging stations so that electric vehicles can charge in garages overnight.

Only 24 Connecticut motorists have registered plug-in electric vehicles in the state so far, but the Council’s Final Report sets a goal of 25,000 by 2020.  To achieve that goal, officials agreed they need to work together to streamline regulatory and permitting processes, encouraging overnight charging with favorable “time-of-use” electric rates, and build public-private partnerships to develop a network of convenient charging stations across the state to ease so-called “range anxiety,” the fear that a motorist might not be able to find charging stations on the road.  Rapid installation of home charging stations is also critical, officials said, to ensure that electric vehicle buyers can get the home equipment installed promptly after purchasing the new vehicles from auto dealer showrooms.

The Council concluded that addressing these infrastructure concerns and enacting tax incentives and other laws that streamline approvals for electric vehicles will induce consumer interest in buying the vehicles and attract the industry to prioritize the upcoming product releases in Connecticut.

Many of the more than 30 recommendations of the Council are underway already, as officials form implementation teams to begin to tackle the challenges of the industry.

Author’s Note: The author is a member of the Council, having been appointed by Gov. Rell to serve as a representative from the private sector member of the electric energy industry.  All documents and presentations assembled by the Council can be viewed by copying the following URL into your browser: http://www.ct.gov/dpuc/cwp/view.asp?a=3856&q=452086

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