Eyes turn to auto start-ups' funding, aid requests

Auto start-ups join the Big 3 auto companies in looking to raise money through outside investments or government aid. The public isn't giving either group a free ride.

While millions of Americans watch the saga of the Big Three automakers pleading the federal government for a bailout, the finances of tiny electric car start-ups are coming under the microscope.

The Irish Independent newspaper on Sunday reported--incorrectly--that Irish utility Electricity Supply Board (ESB) invested in all-electric luxury car make Tesla Motors.

A representative from ESB on Monday said that ESB's clean-tech fund put a bit less than $20 million into a fund run by Tesla investor Vantage Point Venture Partners. ESB's money has not gone directly into Tesla, but ESB is backing other clean-tech companies including electric car firm Better Place as well as solar firms Miasole and Brightsource Energy

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Although it's not involved with Tesla, ESB's investment in Better Place shows that the idea of electric utility investing in a car company is far from outlandish.

The Irish government recently launched a program designed to get 10 percent of cars running on electricity by 2020, according to reports. Denmark, Israel, and Portugal have signed on with Better Place to build a network of charging stations.

Meanwhile in the U.S., utilities are considering purchasing thousands of plug-in electric cars to jump-start the industry for battery-powered cars and to reduce their greenhouse gas emissions, according to a recent report in The Wall Street Journal.

Car companies in spotlight
The topic of automakers' finances is becoming a daily topic in the news.

Top executives from the financially strapped Big Three car companies are scheduled to go back to Washington, D.C., this week to present a turnaround plan which they hope will result in a federal government loan.

Tesla itself is having cash-flow problems . The company had tried unsuccessfully to raise $100 million earlier this year. Instead, it secured $40 million in convertible debt.

But the idea of giving money to aid auto start-ups apparently has rubbed some people the wrong way. The New York Times on Sunday ran a column criticizing Tesla because it is angling for federal assistance.

Tesla hopes to secure a portion of the $25 billion set aside in 2007 for auto companies to retool. It has also applied for a loan guarantee worth up to $400 million to build a plant for its second electric car, called the Model S.

Henrik Fisker, CEO of competitor Fisker Automotive, which is making a plug-in hybrid luxury sedan called the Karma, last week said that he thinks that Fisker should get a piece of the federal assistance as well.

Tesla's argument for getting federal incentives is that it has managed to produce a much-coveted electric car--the Roadster --after having raised less than $200 million, a relatively small sum for a car company.

But federal assistance going toward a luxury car company which caters to multimillionaires and billionaires seems unjust to New York Times columnist Randall Stross.

"The program is intended to encourage automakers to improve fuel efficiency, but should it be used for a purpose like this, as the 2008 Bailout of Very, Very High-Net-Worth Individuals Who Invested in Tesla Motors Act? Can you conceive any way that federal dollars could be put at greater risk--and for no equity in return, keep in mind--to benefit fewer people?," he wrote.

On Thursday, Tesla's vice president of business development, Diarmuid O'Connell, said on the company's blog that the intent of the $25 billion "retooling" money was to spur technology innovation, rather than to keep auto companies from running out of cash.

Judging from the flow of venture-capital money, the auto sector is poised for substantial technology change. A report on Monday from Xconomy noted that investments in auto start-ups have skyrocketed in the past two years.

"It's a difficult industry, but there are opportunities. It is a $100 billion industry in which innovations are really needed, really fast," General Catalyst Partners investor Bilal Zuderi said.

Updated at 3:05 pm P.T. with corrected figure.

 

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