In Obama Administration a Green Economy Means Lobbyist Interests Get Rich

Anyone familiar with the political connections of VC firm Kleiner Perkins, reasonably assumes that if they go after federal stimulus funds, they will likely get what they want. As we've seen with Fisker Automotive and Silver Spring Networks, Kleiner firms now have won over $1Bil from the Department of Energy or roughly the size of what others have reported to be Kleiner's entire investment in CleanTech. (can anyone say "break even?") But, before you conclude that Kleiner only needs to show up to win these funds, take a note of caution: it turns out that Kleiner Perkins is not the only politically connected CleanTech firm with it's hand out for DOE funds. That's right, even if Kleiner Perkins companies in some cases do not have to compete in a market to win these DOE funds, Kleiner Perkins the VC firm will have to compete for President Obama's money. I'm sorry, I mean Tax Payer Money! (how could I screw that up?)

Competitor #1 to Kleiner's complete domination of DOE stimulus funding: another VC firm called the US Renewable Energy Group. These are the guys that partnered with Cielo Wind Power and The Communist Party of China, I mean bankers in China, to put together a Texas Wind project. It might succeed because have a look at the team trying to pull home the funds (well, tax credits anyway). The US-Reg team reads like a Barak Obama grade school soccer team roster. "Kick it over here, Barak!" Does anyone formerly in politics do anything but seek federal funding any more? Depends on what Dick Cheney is up to these days I guess.

Before the Obama US Reg good ole boys get too celebratory though, they still face steep obstacles...not so much on the merit of their technology or program (a throwback to a market system we used to have) but rather on political momentum. First of all, they have Senator Charles Schumer on their back complaining about their prospects. Senator Schumer has received campaign contributions from Kleiner's John Doerr (to name at least one). So Schumer is upset but not enough to necessarily ding Fisker Automotive for having an investment from an Arab Company on their financial sheets. (google prior blogs about that or search SEC records--you won't find it in a newspaper).

Cathy Zoi & Al Gore

Assume for the moment that Schumer settles down and US-Reg has a fighting chance. Probably not going to happen even in that case because, Al Gore's former Alliance for Climate CEO, Cathy Zoi is the Department of Energy's treasurer of $20Bil in stimulus funds. That's with a B not an M, US-Reg.

Kleiner's John Doerr and the rest of Barak Obama's "outside" Economic Advisors

If you are Al Gore, you don't even have to lobby the DOE to get a buck or two. Why would you? Crazy talk. But the idiots over at the Wall Street Journal asked Gore about this any way. Let me summarize: Gore, did you lobby anyone in the administration for DOE funds? Nope. Ok, good enough. So, it's silly because everyone knows Gore's connections are so tight he doesn't need to lobby. In fact, even when Gore is lobbying for DOE funds it's not even really lobbying really. At least, that's what it seems like considering the recently released White House Visitor's log.

Kleiner's Gore has visited the White House 4 times in 2009 including one visit with Kate Brandt, who is a special assistant to Energy Czar, Carol Browner. Browner made the news recently when she announced several million dollars in DOE funding would go to Kleiner Perkins investment Silver Spring Networks for a project in Browner's home state (see beginning of article). So, you see, US-Reg and Al Gore fans, there's a bit of a but not much of a contest here. And that's good, because there might not even be a problem around which a competition can be organized if the new revelations around the supposedly better understood causes of global warming being tossed around now...causes which include less impact by CO2.

Carol Browner

In case any other Kleiner competitors are out there wondering about their prospects due to doubts raised by this article, there's additional information to show just how tight this little political team is today. I'm going to quote at length from a US News & World report interview of John Doerr:

Has the recession affected what you do?

The answer is profoundly. Were it not for the policies in the stimulus bill, America would be out of the energy business. The capital markets to fund new solar—the capital markets are terrible. What has happened is Congress has said, "We want to see this kind of work funded."

How so?

More secure Department of Energy loan guarantees. There is funding for R&D. I am very optimistic.

Are you optimistic about the long-run?

There has never been a time to be more optimistic than right now. Obama has put together the dream team to work on energy and energy policy. I'm really privileged to be on the outside advising them. If you look at the team, they've got Cathy Zoi [DOE assistant secretary for energy efficiency and renewable energy], they've got Matt Rogers [a former McKinsey executive and now senior adviser to Energy Secretary Steven Chu]. He's creating four investment banks within the Department of Energy—here's $80 billion we want to invest really wisely. There's Carol Browner in the White House. We've got leadership in Congress that understands these matters—Barbara Boxer, Nancy Pelosi. This is an A-Team.

You were tapped for the p resident's economic advisory board back in February. What has your role been?

I think this president has said he is not interested in being trapped inside the echo chamber of Washington, D.C. [Our goal] is to provide outside advice directly to him about what we can do to get our economy going. He's juggling a lot of balls at once. I think he's going to achieve his agenda. I think he's going to make sure this isn't a jobless recovery. I am an American, a grateful kid from St. Louis, and I think we've all got a responsibility to the generations to come to ensure that America is a leader for the planet.

Which brings me back to batteries. Regardlesss of whether or not the Earth is warming and it's caused by humans, the United States needs better energy storage to kick the foreign oil habit. Unproven electric vehicle programs aren't going to get us there. Only better batteries. Yawn.

Photos are linked to original sources.


Note: many people who read an article like this ask, "How much does that cost?" If you're really truly cynical and you discount all human effort outside of pure money changing hands (which is incalculable unless you go by lobbyist fees), then the figure for $1bil in funding may be around $2Mil. At least, that's how one might read the Wall Street Journal's numbers. I'm not cynical like you though.

GO EESTOR!!!

Small World

Cathy Zoi & Al Gore

This is not a well researched article. It has almost no underlying fact checking. It doesn't have a central organizing principle or unifying theory. Just a set of related questions. It's being written only partially as a public service to anyone hoping the Obama administration lives up to it's goal to be the most transparent administration ever. It's written by someone who simply wants the United States to recognize the need we have for better batteries and to prioritize around that fundamental fact.

Point Number 1: The Wall Street Journal recently wrote an article highlighting the fact that Fisker Automotive received some funds from the Department of Energy and is backed by Kleiner Perkins with whom Al Gore works. Presumably, what makes this news above and beyond other similar announcements is that Gore is on the Kleiner team. Certainly, there is a story there about potentially deserving firms not receiving funds and sorting out the details of selection criteria, etc. But, honestly, I don't see that one having legs unless someone is going to lay out a substantiated theory about deliberate fraud on the part of DOE. That'll never happen. In the meantime, it's news primarily because Gore is involved. Agreed?

Point Number 2: The article does mention that Kleiner Perkins partners donate significantly to political campaigns. $2Mil recently. That's a good fact to report since it launches a set of related questions. What I can't figure out is why the article didn't address them directly. Here are the related questions:

1) Did Al Gore personally lobby the Dept of Energy on behalf of Fisker? (Not a problem at all provided the DOE selection criteria is easy to understand, explain and apply)

2) Has Al Gore had any contact with Cathy Zoi since she was appointed over the program that awarded funds to Fisker? (after all, she was Gore's first CEO for the Alliance for Climate Change Protection. Anyone home at the Wall Street Journal? )

3) Of the companies who have received DOE funds, what percentage have made campaign donations and to whom? Also, how much has been spent on lobbying by the winners vs the losers? (Everyone has a right to lobby congress and donate to elections. It's a fundamental aspect of participating in the political process. It's an opportunity every individual in this country enjoys. But, the question is, are procedures in place to ensure this participation in our Democracy does not afford less deserving projects with federal financing advantages? Not a pot shot at anyone--just a relevant question any ordinary tax payer may contemplate)

4) What exactly is the criteria DOE is following to provide funds to a foreign firm like Fisker? (We have no doubt that Fisker employs a great group of individuals of the highest character and caliber. They have great ideas, great designs and a rosy future. But, on what basis were they selected? Surely, the DOE staffs competent, fair and insightful staff. Laying out how they conduct their work is to their advantage.)

5) Does the DOE only look to provide funds to firms who seek them? Is anyone at the DOE proactively going out and looking at firms who have not submitted applications to learn whether or not they could be encouraged to gain some advantages with federal funding? (hint hint: EEStor).

6) What sort of lobbying does Kleiner Perkins perform? Does John Doerr's role on President Obama's Economic Advisory Board constitute lobbying?

Point Number 3: Let's dissect this last question a bit because maybe lobbying isn't the proper word. According to the white house press release from Feb 6, 2009, one of the functions of the Advisory Board is to:

"meet regularly and provide advice directly to the President on the programs to jump-start economic growth and facilitate economic stability. "

That is interesting because according to the Department of Energy website, Cathy Zoi's role includes the following:

"Ms. Zoi oversees EERE's $16.8 billion in funding under the American Recovery and Reinvestment Act. EERE is responsible for education, conservation, regulation, and efficient use of our nation's energy resources, including federal energy management, building codes, appliance standards, vehicle technologies, and the ENERGY STAR® program. EERE works to strengthen the United States' energy security, environmental quality, and economic vitality through public-private partnerships.

In her role as Assistant Secretary, Ms. Zoi manages the U.S. Department of Energy's $2.1 billion applied science, research, development, and deployment portfolio, which promotes marketplace integration of renewable and environmentally sound energy technologies."

Do you see the issue here? It seems we have one of those innocent and accidental situations where a group of loosely or tightly connected individuals comes together in a configuration that can only lead honest, hard working people to wonder. This wondering, if conducted unfairly, has no place in the constructive advancement of this country. So, let's put some fairness on the table.

In life, Cathy Zoi is an accomplished winner. She's devoted herself to important topics, ie, energy. Her list of accomplishments is a mile long and Obama was very fortunate to have her join the DOE. Indeed the whole country is fortunate someone of her caliber would mix with the historically unaccomplished federal government. Additionally, these energy issues for which Zoi is on the front line affect me deeply as an individual since I'm a staunch advocate of cleaner fuels and energy independence for this country. I salute Zoi.

Secondly, Al Gore is, to say the least, a politically interesting character in our time. His campaign for climate control is admirable even to those who do not agree with his evidence or conclusions. He's shown passion for his goals and I count myself as one of those who felt An Inconvenient Truth really humanized Gore and made him an endearing figure.

How can you criticize John Doerr? For what? For being a successful businessman whose personal activities rightly bring him in contact with political figures? I mean come on. He's made clear that his passion for climate change is not about money but in keeping a promise to his children and future generations to act now in the event climate change will make the earth uninhabitable for humanity. I'm sure even he would agree that as far as being a spokesperson for cleantech and renewable energy, his conflicts of interest run deep. No issue there.

So, what's my beef with all of this? Why even write any of the above? It's about means versus ends. Luxury sedans such as Fisker's or Tesla's or even GM-Volt's for that matter are secondary technologies whose impact is limited by the lack of a key, enabling technology that makes them viable: batteries! Energy Storage! Nothing Fisker or any automaker can do changes the fundamental importance of energy storage as a catalyst for economic change in our country. The lack of energy storage is what is preventing the adoption of electric vehicles. The lack of energy storage is preventing the adoption of renewable energy sources like wind and solar. It's preventing our grid from being efficient, thus, requiring power plants to produce twice as much energy as we actually need (and all the pollution that goes with that). It's the most important issue in all of renewable energy.

When you wake up to that reality and begin asking questions like, "how can we accelerate the delivery of better energy storage? Who can bring it to us the fastest?" and then you then start to wading into the available technologies such as lead acid, lithium ion, lithium from Bolivia, lithium from China, etc, you quickly arrive at a crossroads. The crossroads is this blog that you are now reading and a fundamental question sticks out: What is EEStor Inc.? How does it relate to all of the above? What is being done to advance EEStor?

Honestly, I don't care if Fisker and Tesla or even EEStor competitors A123 Systems or Johnson Controls have received federal funds or even if they gained advantage of available funds via political connections. What gets me is the distinct lack of attention to the more fundamental energy storage problem. And yes, here's where I take everyone to task:

Is Al Gore out there talking about better batteries or mentioning EEStor?

Is John Doerr out there talking about better batteries or mentioning EEStor?

Is Cathy Zoi or Steven Chu out there talking about better batteries or proactively contacting EEStor?

Is anyone anywhere talking about better batteries? President Obama, for example?

Robert J. Stevens at Lockheed Martin seems to know what is going on. Congressman John Carter seems to know what is going on. Senator Carl Levin and the Michigan political establishment would appear to know what is going on. Need I even suggest that Kleiner Perkins doesn't know what is going on? Why can't everyone know what's going on? Most especially, why can't the Department of Energy know what is going on? Is EEStor IT or not? If it is, let's acknowledge it and move on. If it is not, let's acknowledge it and move on. The stakes are too high to keep rearranging deck chairs or dipping one's hands in the various cookie jars.

I'll end this article with two things. One, as I've mentioned before, like Kleiner Perkins, I have an investment in EEStor via owning shares of Zenn Motor Company. Secondly,

MUHAHAHAHAHAHAAHAAHAAHAAHA!

Ford's 1914 Electric Car

running on batteries by Thomas Edison!

UPDATE: Last but not least, it's only fair that I lump EEStor into the mix partially. After all, if I'm criticizing these public figures for not saying/doing more about EEStor, it only makes sense that I include EEStor. Wait a second, I guess I have to criticize everyone then except for me for not talking about EEStor as much as I talk about it. That's really arrogant and pompous of me. I apologize. :-)

Another EEStor Skeptic Takes a Swipe

SeekingAlpha author John Peterson lays out the reasoning behind his EEStor skepticism in a blog post he emailed me about today. I think his points have been well covered at TheEEstory.com. It should come as no surprise to anyone just starting to learn about EEStor that there are many skeptics of EEStor. They have credibility. They understand material science and they don't think EEStor can deliver. Some will go to the next step and say what EEStor is attempting is impossible. If you believe in EEStor, you can't run and hide from that. It's not going to go away until EEStor does exactly what Peterson hopes they do, which is deliver some 3rd party confirmation.

In the meantime, in the absense of this confirmation, I'll simply restate my position: I believe EEStor has exactly what they claim and will deliver it as they promise. Everyone wants a time frame but I don't think that is quite as important. And skeptics have a point here regarding timeframes that, again, can't be ignored. But for me, based on all the information I have had the opportunity examine, I think EEStor has done it.

One final thing about John Peterson. I reached out to him via email a few weeks back because I learned he sat on a panel at Storageweek with a Kleiner partner. Did the Kleiner partner mention EEStor? No. Did Peterson ask? No. This brings me to rule #1 of anyone who would attempt to get to the truth about EEStor: when you get the opportunity to ask someone who owns 20% of EEStor a question about their prospects, you ask the question. :-)

How One Ought to Think of the Economic Stimulus Plan

Now that the economic stimulus plan is the law of the land and ordinary citizens like me are learning about it's various provisions partly through the salesmanship of its supporters, it's time to consider carefully whether or not it's going to work.  It's not going to work and here's why.  In the most simplest terms possible, the absolute best way to summarize what is wrong with the plan is to simply concede to the other side that the vast majority of provisions in it are going to work.  Healthcare, science, education, state/local govts, ie, lump it all together with everything except energy provisions. Assume that every bit of what I consider to be "the other stuff" may come off flawlessly, achieving it's most exact goals to a high level of success.  But before we go congratulating ourselves on successes in those areas, ask yourself a fundamental question:  will whatever we do in those areas matter at all if we're back to $5/gal gasoline in 18 months?  More fundamentally, can our way of life as Americans, complete with our freedoms and comforts survive in any significant way if the price of oil returns to and exceeds the prices that preceded our rapid downfall?  It cannot.  Paint your utopia any color but try to situate expensive oil into it and you've just made it a complete pipe dream. Smoke up. 

 The problem is that the American people are confused about the sources and causes of our economic downturn. They see chaos in the real estate markets, the financial markets, the automotive industry and don't have a grasp on cause and effect. Everything seems to be going at once and no one on TV can put their finger on what the economic dependencies were that drove us to where we are.   I can help in this case.  Mr or Mrs Citizen of the USA, the price of energy is the single biggest determinate of whether or not our country enjoys prosperity.  There are no good 'ole days during times when energy was expensive. Energy is fundamental to our way of life...unless you feel that perhaps things like TVs, Phones, Cars, refrigerators, ovens,  heaters and air conditioners are over rated.   The real issue with energy though is its impact on businesses: when energy prices are high, manufacturing and transportation of goods becomes expensive causing the prices of things we need to skyrocket.  When this happens, we buy less. Demand goes down and businesses go out of business. It's as simple as that. It doesn't take a PHD in Economics to say what I am saying. It's a fundamental thing that you too can arrive at  if you turn off the TV for 15 minutes and think about it.  For the politically blind please note: I'm neither a Republican nor a Democrat--and I don't identify with many independents either. I'm independently independent, a party of one but always enjoying consensus as a result. I digress. 

Let's get to the histrionics part of this article now.  How should our political leaders be conducting themselves given our state of affairs?  Let me make analogy.  Suppose North Korea started shooting 2 or 3 nuclear armed missiles per day at San Francisco at the same time that Iran started sinking US cargo ships & US Navy ships around the world.  We would be at war with foes we know we can defeat but we would be paying a heavy price especially if the other side had any luck.  Our leaders should be treating the economic situation as though the country were at war. (oh wait, I forgot we are at war)  We are experiencing a devastation to our country that is like 50 Hurricane Katrinas occurring simultaneously. It cannot be exaggerated...its worse than any damage any war has caused us in the last 150years.   4mil homes may go into foreclosure this year---yours may be one of them.  The bottom is falling out of this whole thing and you and I may get swept into it....because you refuse to educate your political leaders about what should be a priority. 

What is the answer?  3 Issues need to be addressed ASAP. 

1) Truly invest in energy indepedence.  We have to build out the grid's transmission capacity. If we dont do this, we can't add renewable energy sources to it,  allowing wind in North Dakota to produce energy for New York City or solar in Arizona to produce energy for Los Angeles.  A smart grid would move electricity to places where it is needed in a way similar to the Internet.  The funding in the stimulus plan to make this happen is a tiny fraction of what is needed. Building out the grid would create numerous jobs, an industry skill-set that would be exportable as other countries follow our lead.   The plan does not create enough energy jobs because it treats energy as though it were a nice to have in our economic recovery.  The price of energy is the same thing as that nuclear tipped missile zeroing in on San Francisco...or Menlo Park.  

2) Businesses that can create jobs should be worshipped by the tax code.  Nothing else in the code should take priority except the ability of small businesses to create jobs.  Related to this, every dollar of the stimulus package should be earmarked for companies who have less than 100 employees. Large firms should be required to partner with smaller firms to get a piece of the pie.  Every dollar!!!  Do you hear me Mr. Citizen!!!??? Every dollar!!!!! There are federal procurement laws in place that do this routinely with DoD contracts and it works well.  If it didnt, the United States would have only 5 stars on it's flag, one each for:  Lockheed Martin, Northrop Grumman, Boeing, Raytheon, & General Dynamics. 

3)  Across the board, the mortgage rates should be lowered for everyone by at least a full percentage point.   Rules should be put in place making write downs of foreclosure properties less lucrative than reworking a mortgage with the owner.  This would encourage people to look for ways to get into foreclosure?  No, put an up front fee on it. $10K--$15K...whatever makes the most sense for the property in question. That money has to be raised by the borrower to get the reworked mortgage and it has to be paid up front.  Bingo, more lending. 

Ok, I admit I don't really know whether or not #3 will improve our economy but every plan needs 3 prongs so I took a stab at it nonetheless.  But I'm telling you #1 and #2 are go-to-the-bank ideas. ...if only going to the bank meant what it used to mean.  Oh sure, of course, Dick Weir and EEStor should receive a grant of about $500Mil from Uncle Sam. That's a given since it would accelerate our energy independence unlike anything else.  Speaking of several hundred million for advanced batteries, what the hell happened to John McCain's battery contest with $300Mil going to the winner?   Resurrect it ASAP! I vote that the winning entry be hand delivered by Mr. John Doerr of Kleiner Perkins to McCain and a group of scraggly scientists from some large lab who verified the capabilities.   By the way, mark my words:  Doerr knows the potential & status of EEStor and since he's on the economic stimulus advisory council, history should judge him EXTREMELY HARSHLY if his actions  go towards filling his pockets more than giving this country what it needs in these HARSH times.  We should all ask 5 years from now, did Doerr use his insights to help this country by using his influence to accelerate the delivery of the key energy intitiatives that have the most positive impact on our country or did he act like an oil executive.   

The Manhattan II Project: Kleiner's EEStor Keiretsu?

Back in the late 1930s, when it became apparent that Nazi Germany was approaching the completion of a nuclear weapon, a US project involving over 130,000 people and the equivalent of $24Bil of today's dollars was carried out to develop nuclear weapons. Distributed at sites around the USA (and world), pockets of several thousand people would come to worksites knowing only enough to get their own particular job done each day and no one else's. Such was the secrecy of the project.

Toward the tail end of the project, when success was in sight, the project's leader, Gen. Leslie Groves, who also oversaw the rapid construction of the Pentagon (the largest office building of it's day), approached the New York Times to appoint a science writer, William L. Laurence, to work on a major wartime story involving science. Laurence had a track record of writing on the relevant areas of atomic research and was allowed access several top secret events including the testing at Trinity site along with the bombing of Japan, with two production line prototypes. Spies infiltrated the project ensuring that the United States would always have nuclear rivals.

Comparing EEStor's work to a Manhattan project is in many ways much more than a stretch, but it's something EEStor's leader appears to have no problem doing. In addition to statements Dick Weir made to Tyler Hamilton in this regard, I can confirm that Weir made a similar statement to me (one of multiple interviews I subsequently chose not to publish...yet) showing not only that the words were chosen deliberately but via repetition, underscored as if to advance a message. But a message to whom and for what?. What I can say is that ever since he said it, my radar has been locked onto any reference to Manhattan Project in the context of alternative energy, not so much because I believe the US Government is funding secret research in this area but more to the point, the use of an odd phrase like that is a linguistic clue that occasionally implies a community of closely related persons with a common set of experiences. Phrases sometimes are constituent to shared histories.

[Article continued here]

EEStor's use of Kleiner Stealth

For historical purposes, it's important to note that the secrecy surrounding EEStor's activities has largely been attributed to EEStor. This probably makes persons familiar with how Kleiner Perkins manages it's investments chuckle somewhat. Maybe there are several sources for this information but I've been reading David A. Kaplan's book "The Silicon Boys and Their Valley of Dreams" to understand better how Kleiner operates. Most of what I write in this topic is based on Kaplan's book so hopefully you'll forgive the lack of exact citation and simply go buy the book yourself immediately and without delay. Or, maybe you'll be kind enough to post a blog comment with an even more revealing book, article or conjecture.

There are at least 3 reasons EEStory fans should read Kaplan's book. First, it goes into some detail about the rigor behind Kleiner's efforts to find winning projects including weeding through proposals, eliminating weaknesses and finally settling on an extremely select few in which to invest their millions. Convincing Kleiner to invest in your project is an accomplishment in itself. Due diligence is almost always involves bringing in SME's from the field of interest. (something I learned myself by speaking with persons Kleiner spoke to about EEStor, ie, John Miller). Second, it speaks to how involved Kleiner becomes in day to day operations of a start up. Kaplan says the first law of Kleiner according to John Doerr is "identify the risk up front and get rid of it." A good excercise for EEStoryians is to ask what that risk may have been for EEStor. The third reason for examining Kaplan's almost 10yr old book is that it speaks to the use of stealth as a market strategy.

[article continued here]

Kleiner Perkins' EEStor Investment: 1 of 30 Green Techs

In April 2008, John Doerr gave a keynote speech at MIT, the alma mater and former employer of EEStor inventor Carl Nelson. The setting was the 2008 Energy Conference and Doerr kept the session interactive by a subtle and unusual technique of soliciting groups of questions which were responded to with individual attention inconsistently, allowing him to sidestep a question about electrification which seemed to provoke an intriguing set of behavioral cues the interpretation of which is best left to experts. Doerr pointed out that over the years, MIT had invested $50Mil in KPCB ventures from which $500Mil had been returned. Additionally, Doerr pointed out that 6 of the 30 green tech ventures they are backing are in the area surrounding MIT, not including A123 Systems which was funded by Kleiner rival Sequoia Capital...among others.

[article continued here]

Even More on ZNN Stock Value: Pt 2

I'm like everyone who reads this blog in the sense that I'd like to see some expedited effort towards getting a new battery technology into my ipod, blackberry, vehicle and a million other aspects of my life especially my pocketbook.  On the one hand, we're waiting on EEStor to turn on the lights and start giving speeches. But on the other, we're to some degree waiting on each other.   That is to say, as EEStor gains further attention around the world, it necessarily gains 

additional prospective investors in ZENN which in turn acts as a gauge for EEStor's value.  This perceived value makes it easier for EEStor to capitalize itself to grow and bring the benefits of the technology to the world faster.   My personal opinion in studying this story is that Zenn Motors and EEStor have far more to gain from receiving attention of this venture whereas Kleiner Perkins CB gains more if it is kept secret.  And to be blunt, I think we win more if KPCB wins less.  

So, it's important to me as someone passionate about this topic, that we do things on this blog to hopefully accelerate the process.  To that end and in light of Massimo's Fiore's recent analysis of ZENN's stock valuation, I am happy Tom Villar has agreed to update his own work on thinking of the value of Zenn stock as a catalyst for further discussion.  So if you find EEStor fascinating, start talking with people about it--start asking for journalists to cover the story and keep the conversations going.  Email a link to a friend and get this on the radar

-------------------

Back on July 2nd, 2008, b was nice enough to allow me to post an analysis on what I thought ZENN Motor Company (ZMC) would be worth which you can read here.  My very amateur analysis put the value of ZMC at US $15 billion in 2012.  Since then a lot has happened and there are even a couple of professional analyst starting to follow the company.  One in particular caught my attention, Massimo Fiore of Versant Partners as he has produced two reports, one from March 2008 and a very recent one published July 18, 2008 which you can purchase here.  Fiore's March 2008 estimate appears to have valued ZMC at roughly US $350 million for 2012 which is considerably less than my estimate of US $15 billion.  At this point I'm thinking I must be way off and this is why I am an amateur and Mr. Fiore is a professional.

 

But then a curious thing happened.  As mentioned above a second report was released just last week with startling different numbers assuming EEStor delivers as promised.  Although the new numbers are still below my original estimates, Fiore is now suggesting a roughly ten fold increase in his valuation.   I will not say anymore about Versant Partners report as they are a business that makes money off selling information and it wouldn't be fair for me to blab all over the web for free what took them considerable effort to produce.  If you are thinking about making a sizable investment in ZMC, you would be an idiot to rely solely on free info like this when professional information is available.

 

For those wanting to convert a company's valuation to a stock price, simply divide the valuation by the number of fully diluted shares.  For ZMC this is roughly 36 million shares.  To give an example using my original estimate of US $15 billion we get a stock price of:

$15,000,000,000 / 36,000,0000 shares = $416 / share.

In the real world and assuming EEStor delivers to spec, the number of shares will be diluted as ZMC issues additional shares to raise working capital.  A number like 45 to 50 million shares is probably more realistic.

 

Now on the surface these valuations seem ridiculous as returns of 6,000% only happen in the movies.  About the only time an average investor has been able to get returns of this size was with a company like Microsoft where stock purchased in the mid 1980s for $0.10 and sold near the peak of $58 would show a return of 5,800% before inflation.  So what is going on here?  I see a couple of possibilities:

 

1. I am clueless and haven't the foggiest idea what I am talking about, a distinct possibility
2. Professional analyst want nothing to do with EEStor as the risk of looking like an idiot if the company doesn't deliver is too high
3. ZMC allows retail investors to get ownership in EEStor under nearly the same terms as the big Venture Capitalist (VC)  firms.

 

If I'm right about the last point it is truly unique and unheard of as far as I know.  As I mentioned above, returns of 6,000% don't happen, but actually they do, just not for retail investors.  Returns of this size are necessary for successful VCs to justify all the risk they take as a lot of start ups flop and don't return a dime.  ZMC's 3.8% stake in EEStor (soon to be 6.2%, see page 13 in the link) is partly what gives ZMC such upside potential.

 

Obviously this is an optimistic vision of what could happen if EEStor is able to deliver Energy Storage Units (EESUs) to ZMC.  Professionals such as Massimo Fiore have to be more conservative as their responsibilities are to factor in all the things that can go wrong instead of focusing on what can go right.  It is my hope the truth lies somewhere in between.

 

Finally since the professionals get to update their analysis, I thought I'd freshen mine up as well with some of the recent news and thoughts from the last two weeks.  Below is an update to what was published in July 2, 2008.

 

 

Although EEStor and its technology are the main focus of this blog, neither EEStor nor its main equity partnerKleiner Perkins Caufield & Byers are publicly traded.  The only equity partner publicly traded is ZENN Motor Company Inc. (ZMC) which paid USD $2.5 million in 2007 for a 3.8% stake in EEStor.  This gave EEStor a theoretical market cap of US $66 million but if EEStor is for real, a true value of the company will need to add more than a few zeros to the end.

 

Since ZMC is the only way for retail investors to invest in EEStor, the question becomes how much will ZMC be worth when EEStor begins delivering product?  To answer this question (or more accurately take a wild guess) I think three items need to be quantified:

 

1. profit margin on EEStor's Electrical Energy Storage Unit
2. EEStor valuation
3. ZMC primary line of business valuation

  

1) EEStor's Electrical Energy Storage Unit (EESU)

 

Assuming EEStor's original business plan from 2002 is still relevant we come up with two specifications that differ based on production volumes:

 

EESU Specifications:

 

Specifications	Prototype / Low Volume	Mass Production
Energy density (Wh/L)	606	1513
Specific energy (Wh/kg)	273	682
Price ($ US / kWh)	$61	$40

 

Since EEStor has been working on a production factory since 2006 the mass produced specifications should be closer to what ZENN gets in late 2008, but recent information calls this into question as it seems the first production line is more a proving line than a typical production line.  Therefore in this analysis I've decided to go with the Low Volume column and we further assume the cost figures are the EESUs production cost, not the wholesale price.

 

ZMC estimates a 52.2 kWh EESU will cost them C $5,200 which works out to a selling price of US $100 / kWh.  Assuming the C $5,200 price includes the buck boost converter and other misc parts, we put the profit margin for automotive sized EESUs at approximately $20 / kWh.

 

2) EEStor valuation

 

The disruptiveness of EEStor's technology is obvious in so many sectors, the task of valuing this company with any degree of accuracy is limited to providing lower limits.  Trying to forecast best case scenarios would be akin to estimating the impact of the personal computer in 1972, something only a time traveler could have done with any level of accuracy.  Therefore estimates are mostly limited to major sectors with known production volumes and where it is relatively easy to determine the cost of switching to EEStor technology.  The major sectors assumed to be significant are:

a) Transportation - Automotive

b) Military

c) Li-Ion Battery Market

2.a) Transportation - Automotive

 

From Dick Weir's and Carl Nelson's patent filed April 12 2001 is is pretty obvious the initial application was seen as a way to enable Electric Vehicles (EV) to replace Internal Combustion Engines (ICE) vehicles.  With gas prices hovering around US $4.00 / gallon in the United States and much higher in most of Europe the incentive to switch to an electric power source with 1/8 the cost of gasoline is undeniable assuming any additional one-time cost are reasonable.  Since an EESU + electric motor + misc parts are roughly only a few thousand dollars more than all the pieces required for an ICE, there should be no one-time cost impediment to buyers.  Thisworksheet attempts to estimate EEStor's profits over a 5 year period using the above assumptions. 

 

2.b) Military

 

Warfare will be transformed by the new types of weapons EEStor will make possible.  Railguns, lasers and other direct energy weapons will obsolete many of today's aircraft and missile systems causing massive shifts in expenditures within the coming decade.  Of course there is also the mundane existing battery systems that will also be phased out as time permits.  EEStor's unique technology allows EESUs to be built to almost any size and shape so undoubtedly the first uses will be nothing more than plug and play replacements for existing battery systems.

 

No serious attempt is made to qualify the types of systems that will be effected.  Instead this worksheet is a SWAG based on a percentage of total US military expenditures in the areas that could reasonable expect to benefit from EEStor's technology.  Use by militaries other than the US are not included as it is unknowable the degree to which export controls will be imposed on the technology for military purposes.

 

2.c) Li-Ion Market

 

Although Li-Ion batteries have made some in roads into the transportation automotive market, the penetration is very recent and does not account for a significant percentage of existing production although this is changing rapidly.  EEStor's technology will obsolete all Li-Ion batteries within 2 to 3 years although existing manufactures will face sudden and dramatic deterioration of their revenue as customers wait for the new UltraCap EESUs to become widely available.  This market is only about $1 billion per year although the margins will be much higher than the transportation sector.  EEStor can expect and additional $400 million / year profit from this sector by the time all Li-Ion manufactures have ceased operation. 

 

3) ZMC primary line of business valuation

 

ZMC has targeted four main areas of operations:

a) Electric Drive Train (ZENNergy Drive)

b) Highway Capable Vehicle (cityZENN)

c) Low Speed Vehicles (ZENN)

d) EV Conversion Kit

3.a) Electric Drive Train (ZENNergy Drive)

 

The ZENNergy Drive is ZMC primary focus and best hope for becoming a major OEM supplier to the major automotive OEMs.  ZMC has exclusive rights from EEStor as reported in ZMC's 2007 Annual Information page 10: 

FGCI has entered into an agreement with EEStor dated August 24, 2004 (with subsequent amendments dated November 26, 2004, September 30, 2005, August 8, 2006 and January 22, 2007) (collectively, the "EEStor Technology Agreement" or "Agreement" in this section) to acquire in perpetuity the worldwide exclusive rights to use EEStor's EESU in the following markets:

• all-electric 4-wheeled personal transportation uses up to 15 kW (continuous output) drive system
• for vehicles with a curb weight up to 1,400 kilograms, net of the battery weight,
• for golf carts and similar-styled utility vehicles, and
• the aftermarket conversion of any internal combustion passenger vehicle to electric drive.

 

The exclusivity does not include high performance sports cars with a drive system of 100 kW(continuous output) or greater.

This exclusivity granted to ZMC locks up a significant portion of the world wide vehicle market as close to 50 million of the 70 million cars produced in 2007 would fall under the 1,400 kilogram (3086 lbs) limit.  Although significant portion of these cars would be in the US market, EEStor technology will allow a return of much larger and heavier cars which have been a trademark of US automobiles for decades.  Therefore I assume ZMC will not be able to stifle adoption of EEStor technology in the North American Market as manufactures can simply side step ZMC and concentrate on EESUs in larger heavier vehicles.  Of course the world vehicle market is so large this shouldn't be an issue and the following worksheet gives profit estimates for the ZENNergy Drive for the next five years.

 

3.b) Highway Capable Vehicle (cityZENN)

 

In many ways cityZENN is an advertisement for ZMC's ZENNergy Drive as it will demonstrate how the ZENNergy can be combined with the body of a traditional passenger vehicle.  This worksheet assumes ZMC meets sales forecast for the cityZENN over the next five years.

 

3.c) Low Speed Vehicles (ZENN)

 

Although this vehicle concept is near and dear to ZMC's founder Ian Clifford, the vehicle itself is more golf cart than car and simply not suitable to the US market in large volumes.  This Kelly Blue Book review sums up the toy car feel of this vehicle.  Hopefully ZMC is planning to market this outside North America.  I am assuming no significant profit from the ZENN.

 

3.d) EV Conversion Kit

 

Although the concept of converting existing vehicles is sure to warm the hearts of treehuggers as it is always seems better to recycle something than make something new, the complexities on converting existing vehicles is daunting.  Modern vehicles have a web of interconnected devices from dashboard displays, heaters, and power brakes.  Mess with one system and all the other require changes as well.  This will limit conversions to large fleets which makes this operation difficult to manage and time consuming as each vehicle type will need it's own conversion kit.  We hope for no net profit from this operation as it could easily turn negative if mismanaged.

 

Summary

 

A final worksheet summarizes total gross profits for both EEStor and ZMC.  I'm estimating a new valuation of ZMC for 2012 of $36 billion with a stock price of $600 / share.

 

Of course if others see the same numbers I'm seeing, it raises the question of whether one of the majors will try to buy ZMC so they can get the exclusive rights to the EEStor's technology.  Even if EEStor releases excellent test results, it will take time for any of the majors to figure out what the technology is really worth.  But once ZMC can successfully start selling cityZENNs and ZENNergy drive trains, then I expect a bidding war to develop for ZMC.  What ZMC is worth at that point is any one's guess and of course whether Ian wants to sell will have some impact on this but at least some the majors are going to see the potential of getting a lock on a huge percentage of global production for at least the next 5 to 10 years.

 

Now if anyone is thinking they should immediately invest their life's savings in ZMC (ticker symbols ZNN.V andZNNMF.PK) because of the analysis they've just read, then click this link for some very important information you absolutely need to know before making your stock purchase.  If you didn't click the link then keep reading.

 

As a total outsider to everything you've seen discussed here is at best back of the napkin estimates and at worst a misleading stinking pile of poo.  Personally I have invested in ZMC up to my limit for speculative stocks and will not be increasing my holdings for the foreseeable future.

 

Cautions

 

When ZENN made the deal with EEStor it was 2004 and gas was selling for around USD $1.80 a gallon.  At that price using EESUs for EVs is very very marginal and conversion kits make no sense at all.  If prices fall anywhere under $3.00 then things aren't nearly as rosy and anything under USD $2.00 and ZENN is kaput.  This dynamic could also explain why EEStor was willing to give ZENN such a great deal as at that time the compact EV market must not have looked very promising to EEStor.

 

Another caution is the price of electricity.  Unlike gas and diesel, electricity isn't fungible.  There are areas in the US where the price of electricity can be as much as 50% over the national average such as in the North East.  Of course there are also areas that can be 50% below the average such as in parts of the Mid West and Great Plains states.  If EVs prove to be a viable solution for ground freight, it will be interesting to see if there is an increase in migration of manufacturing businesses and jobs to states with low power cost.

 

Final tea leaf reading to consider:

 

ZMC is obligated to make a USD $700,000 payment to EEStor on third-party confirmation of permittivity testing of production units and another USD $500,000 upon delivery by EEStor of a production quality EESU.  Successful permittivity testing also triggers an equity funding round where existing equity partners can purchase additional shares in EEStor.  ZMC can increase its ownership to 6.2% of EEStor for USD $2 million. On May 30th ZENN received gross proceeds of CDN $15,225,000 after issuing and selling 4,060,000 shares.