The road hasn’t been easy for Next Autoworks (formerly V-Vehicle). The company, which is backed by Google’s investment arm Google Ventures, former oil baron T. Boone Pickens, and venture firm Kleiner Perkins, aims to build a gas-sipping plastic four-seater in Louisiana at an uncommonly low cost. But the way forward has grown even rockier in recent weeks as legislators consider a proposal to shuffle around funds set aside for Next Autoworks’ project.
Louisiana pledged back in 2009 to provide up to $67 million in grants under a “mega fund” for economic development — on the condition that, among other things, Next Autoworks wins low-cost federal loans requested under the Department of Energy’s Advanced Technology Vehicles Manufacturing program.
But now state lawmakers are considering a proposal to take $82 million from the mega fund to fill gaps in Governor Bobby Jindal’s spending plan for the fiscal year beginning July 1. If the proposed amendment passes, Jindal economic development chief Stephen Moret told the local Monroe News Star, “It would definitely kill the Next Autoworks project.”
Importance of the Mega Fund
The state funds are an important piece of Next Autoworks’ case, when it comes to winning the funds from the ATVM program. The ATVM program already rejected the company once, partly due to insufficient private capital and the lack of solid distribution plans. The promise of state funds is evidence of both local support and the startup’s ability to come up with its share of financing if the loan comes through (ATVM loans can cover only 80 percent of project costs).
But the clock is ticking, and Louisiana has a budget to balance. “I’ve fought this for three years, but I just can’t hold it any longer while we wait on Washington,” Louisiana House Appropriations Committee Chairman Jim Fannin told the Star last month. “We don’t normally hold unencumbered money that long.”
While the Energy Department’s Loan Programs Office declined to comment on a specific application, a representative did confirm with us this week that the agency considers financial support from state and local governments as part of its overall evaluation of a project and its financial viability.
David Hitchcock, Vice President of Louisiana Operations for Next Autoworks, said in an interview that local and state officials still support the Next Autoworks plan to set up manufacturing at a shuttered plant in northeastern Louisiana. “We’re extremely honored by their confidence and patience,” he said, emphasizing that the budget proposal has not been signed into law. “The money’s still there,” he said. After the final vote, expected June 23, “that’s when we’ll know for sure.”
But some damage may already be done. Moret was quoted in the News Star saying just the committee vote sends a message that lawmakers may not support economic development. “If it’s not reversed, it’s a crushing blow to northeastern Louisiana, and even if it’s reversed, it undermines our efforts,” he said.
Still Banking on DOE, After All These Years
According to Hitchcock, the two years that Next Autoworks has spent pursuing federal funds have not gone to waste or forced the company into catch-up mode. “What doesn’t kill you makes you stronger. This time has been well spent,” he said. Although he declined to provide specifics, Hitchcock said the company has made progress in refining its business model, brand, and the design of the car itself to make it “more fun and modern.”
Next Autoworks has “several” prototypes now, including “one all dressed up as a demo vehicle.” It also has a new CEO, Kathleen Ligocki, who came on board last fall after the DOE rejection triggered Frank Varasano’s departure.
Since then, the company has “reexamined everything we’ve been doing,” said Hitchcock. One thing it has not seemed to have done is concentrate on a backup plan in case Uncle Sam says no. It’s not uncommon for companies vying for government funds to be mum on alternatives, but they’ll sometimes note the possibility of manufacturing overseas (A123 Systems, Boston-Power, Coda Automotive), for example, or raising private capital (Aptera, Bright Automotive).
Others simply go about their business developing sources of revenue that don’t require a big factory (again, Bright). That’s not Next Autoworks’ style. Hitchcock said he “wouldn’t want to speculate on Plan B,” as the company is tightly focused on the DOE loan and being able to act quickly if it comes through.
Struggle to Keep Up With the Fords
The Next Autoworks team has been working hard to “keep track of where the market’s trending,” especially in terms of fuel economy and connectivity. After all, the American market for high-MPG small cars has become considerably more crowded since Next Autoworks first unveiled plans for a “high quality, environmentally friendly and fuel-efficient” vehicle two years ago.
Add to this the fact that plug-in hybrid and electric vehicles are now commercially available, and one has to wonder if the window of opportunity has closed for a startup with no large-scale manufacturing experience, little brand recognition, and a plan to use the old internal combustion engine for supposedly advanced vehicles.
Yet Next Autoworks has always said its competitive strength will lie in the whole package — in offering “the best value, not the best,” as Hitchcock put it. For an unnamed affordable price, the company says it will sell a car with not the best fuel economy, but better than average, and connectivity tools that are “not earth shattering,” but “intuitive, easy.” Hitchcock calls the strategy “intelligently frugal.” That’s a tough spot for a startup years away from achieving the economies of scale enjoyed by legacy automakers. Yet Next Autoworks remains confident.
“If our car was in the marketplace now, we’d be doing very well,” Hitchcock said. If and when the car rolls out, “I think the market will still be there,” and it will be big enough for Next Autoworks to carve out a slice. “I think there’s room.”
Image courtesy of Kevin Briody.