Is your car plugged? or do you have a dinosaur?

The Toyota Prius is, without a doubt, the current standard for the future of the automobile industry.

The following video is from one of my favorite TV shows "Top Gear". In the clip from this BBC show they demonstrate the disadvantages of the Toyota Prius . The video only takes 2min and 40sec, and in that time they completely debunk the Prius from its high throne. (the only disadvantage they fail to mention is one that claims that hybrids are too quiet!)

Say what you will, the Prius is the starting point. The important question is "where do we go from here?"

If the Prius is the starting point, then let's see what the future Prius will look like:

On January 2008 Toyota announced that the 2010 Prius will be a Plug-in Hybrid version of the current model (this makes a lot of sense!). Suddenly a year goes by and in January 2009 Toyota previews the 2010 Prius. SURPRISE! This Prius is NOT a plug-in hybrid, its a regular Prius with a bit more room and 4 more MPG of efficiency. Wait, there is more! On the same January 2010 Toyota announces the introduction of a plug-in vehicle by late 2009 (go figure!)

Well, it seems Toyota is unsure if it wants to let others take the lead. Let's see who will launch electric or hybrid cars on 2009 and 2010.

- Ford (clumsy and late as always) is announcing a new Fusion Hybrid. This vehicle will be less efficient than the Prius, but it will be roomier (it will do 3 more MPG than the Camry)

- Honda is going in the opposite direction. It will launch the Insight Hybrid. This vehicle will be LESS efficient than the Prius (7 MPG as compared to the 2010 Prius - 3 MPG compared to the current one), but it will cost about $4,000 LESS than the Prius too!

- Chevrolet's Volt is not expected until late 2010. Given Detroit's history on new design and reliability, and with a price tag of $40k I doubt it will create any wave in the market.

- BMW through its Mini brand will launch a fully electric car. This will happen in the upcoming months, but it will only entail 500 customers in California (at $800 lease price per month)

- Something similar is happening with Mercedes and it's Smart brand

- Nissan-Renault is entering the race with an entirely electric car by 2010

- There are rumors of a totally electric car from Ford (project M). This car will appear in the market in 2011

- There are many smaller competitors with cars already in the market or ready to launch: Tesla, Aptera, ZAP, ZENN, Th!nk, and Fisker

If we look further than 2010 we start seeing plans to introduce Hydrogen cars from Toyota and Honda.

At the end of the day, the consumer will have the last word. As explained by Andrew Revkin "consumers are the biggest threat to the rise of electric vehicles"

If you want to enjoy a bit more from "Top Gear" here is the link to the full review of the Prius. Otherwise, until next week: SHALOM!

My perspective on Obama's Green Economy

Well, here we are in 2009! Will this be the year the "Green economy" gets a jump start?

The US is in bad financial shape. Globalized as we are nowadays, everybody is affected. Let’s follow the money to see what the options in this economy are. Keep in mind I am NOT an economist, this is just my personal view of things.

Who has cash?

Cash is the king of economic downturns, whoever holds cash is able to buy assets at a discounted price and will benefit from the eventual up-turn of the economy (if we ever get there!).

China is loaded with cash; it has accumulated cash by becoming the manufacturing center of the world and maintaining their consumption per capita at low levels.

The Oil producing countries have cash. They have been benefited by the absurd surge in oil prices.

Lets assume for one moment that Obama takes on the task of building the "Green Economy" he has promised head-on (I believe he will, because this is his answer to the economic downturn). Obama (or the US) will need MONEY (Obama: "Strategically invest $150 billion over 10 years in green initiatives") to get this "Green Economy" up and running. So, who will fund this endeavor?

There are two options:

A- Get funds directly from the Chinese or the Saudis into "Green Economy" initiatives (very unlikely). The US will not allow these countries to become the direct engine of the new economy. Therefore we are left with only one option:

B- Print more US dollars and sell the T-bills to the Chinese and the Saudis.

Clarification 1: If a country prints more money it either has to create more wealth or find buyers to support the "fresh" money, otherwise it would trigger an hyper-inflation

Clarification 2: I use T-bills as a general term, there may be other financial instruments used by the government to raise money, I am not sure

Now that we have some idea of where the money will come from, let's take some time and run a simulation of how will the "Green Economy" will be developed.

As an example we will use Obama's initiative of pushing for 10% renewable energy by 1012. Let's say that wind farms will help US energy get to that 10% (most probably they will).

Company XYZWind is going to build a 200 Mega Watt wind farm. They are going to purchase land (good for the US). Then, they will have to buy wind turbines. If they buy from a US supplier is beneficial to the US, if they buy foreign technology is not so good. Either way, the components will be most likely manufactured (where else?) in China!

Company XYZWind will require $350 Million to develop this project. Where will the money come from (again, same question)? Here are some options:

1- From government funds: either by way of subsidy or by way of loan. As we mentioned before, the "fresh" money from the US government will have to come from whoever holds cash to buy T-Bills (China and the Saudis)

2- From private funds: most US investors as well as big corporations got hurt in the recent economic downturn, it will be interesting to see if they have the guts to undertake this type of ventures.

Finally, the wind is blowing and the turbines start rotating. Electricity is sent to the grid. But as we all know, the cost of generating a Kilo Watt with wind turbines is more expensive than the price we currently pay per Kilo Watt from the utility (or in the best case is too close to generate enough profit). The government has to provide an incentive. Where is the money from the incentive coming from? You guessed right! China and the Saudis through Treasury Notes!

CONCLUSION: We can have a new Green Economy that will help improve the current financial crisis. If the US (and the rest of the countries that wish to jump into this strategy) follow the Green Economy development plan there will be a big debt to pay. But if these countries play the cards correctly, eventually the debt will be paid and the benefits will remain at home. Otherwise, we will be in the hands of the Chinese and the Saudis.

What do you think?

I would like to send a special SHALOM to my friend in Israel who are going through rough times. In war there are no winners, I hope this conflict gets resolved as soon as possible with the least amounts of deaths (from either side!).

Who can figure Oil out?

First of all I would like to apologize to my readers for missing last week's post. I was out of the country in a business trip. I would also like to inform you this will be the last post of the year, since I will be, again, out of the country for the next week. So, to all of my (millions and millions of!) readers I would like to wish a happy new year, happy Hanukah, merry Christmas, happy Kwanzaa, and all the good stuff!

Now, let’s get down to business: Oil is Greentech’s biggest allied and its biggest enemy too!

On one hand its price becomes an incentive or disincentive to new alternative energy technology development. If the price goes up it’s an incentive for greentech.

On the other, it shapes the world economic outlook in a way that it frees or strangles resources flowing into greentech. If the price goes down more resources are available for greentech development (notwithstanding the global crisis).

Are you confused yet? Wait there is more:

What drives the price of Oil? Well this is also a complex answer.

Any traditional product follows the supply-demand curve. As the amounts of supplied product increase and demand diminishes, the price drops. On the opposite end, if supply is low and demand is high the price escalates.

Oil has a couple of added ingredients that make the supply-demand curve bend in different directions.

HIGHER PRICE, HIGHER SUPPLY: Oil has a very particular characteristic. Its supply sources become more abundant as the price goes up. Many heavy oil production fields, as well as other, less profitable sources, become feasible only after oil hits certain price targets. That is the case of the Athabasca Oil Sands a large deposit of heavy crude in northeastern Canada, where “despite the large reserves, the cost of extracting the oil from bituminous sands has historically made production of the oil sands unprofitable” (additional info can be found here)

LIMITED SUPPLY: Oil, as we al very well know, is a non-renewable natural resource. Therefore, its Supply quantity is a finite number. Many different estimates exist as to “how finite” oil is (i.e. when will it run out?), but there is a general consensus that IT WILL in fact run out some day.

As we get closer to the day Oil runs out, the price will skyrocket to levels never seen before. As any other scarce resource it will become a luxury.

SPECULATION AND CRISIS: This is a factor that has altered oil prices recently, it relates to the “market perception” of the above mentioned factors.

When the economy was booming and oil prices escalated, investors started getting into oil to make big profits, pushing the price further up.

Now, the economy has slowed down and demand has decreased and oil is at 30% the price that it was 6 months ago, investors have shun away from oil.

I will not attempt to include this factor into the supply-demand graph, as it is a very volatile and subjective variable.

The reality is that we are facing uncertain times, and as such people are going back and reconsidering their strategies. Will this affect Greentech?

In one sense it will, because the people that were unconvinced will tend to tilt more towards non-green as the price of oil gets lower and resources for greentech gets scarcer.

On the other hand this will be the big trial for greentech because it will test weather the critical mass of believers in a greentech future exists. And, if this critical mass will be able to propel Greentech to the next level (the mass market or mass implementation of green technologies).

I personally believe that people are aware that whereas oil goes up or down we need to do something to get off the “Oil rollercoaster”. Furthermore, people have also realized that oil dependency has very serious political consequences and they are more willing to do something about it. And, last but not least, oil has an environmental impact that many people are aware should be changed before we destroy our planet, and with it: ourselves.

Again, HAPPY HOLLIDAYS and SHALOM! See you in 2009!

Are we there yet?

Depends who you ask.

According to the Saudis, Oil will be the primary source of energy for many years to come (see the interview with Ali Al-Naimi, the Saudi oil minister, in CBS "60 minutes"). In the segment, the reporter shows the new petroleum facilities being developed in Saudi Arabia. They claim they will find DOUBLE the amount of oil they already have in the near future. It makes you wonder weather we are overreacting to the "end of times" for the oil sources.

In addition to the oil conundrum we are facing a challenge in the renewable energy front, and according to the NY Times here in the US we are not doing too good (read "Energy Goals a Moving Target for States").

A mere 10 to 15% goal of renewable sources of energy is an uphill battle for many states to achieve. According to the article: "Nationwide, the hard numbers provide a sobering counterpoint to the green-energy enthusiasm sweeping Washington".

On the other hand

The US will soon have a new president. The general expectation (based on his own words) is that the "Green Economy" will be a priority. This effort towards renewable energy and clean technologies is one of the tools Mr. Obama proposed as a strategy to overcome the current financial crisis (see Obama’s entire plan at Elections and Greentech, are they related?)

Additionally, the same NY Times, did a whole section on the "Business of Green" in September (featured in one of our entries "NY Times Week-in-review"). I believe they were responding to a trend, therefore being optimistic about the growth of the Green Business.

So which one is it? Are we reading too far into the energy and pollution crisis, or are we in the verge of major changes towards the "Green Wave".

Until next week, SHALOM!

This will make it happen!... will it?

I was listening to the radio and they were talking about a controversial law in Norway that mandates all companies to have at least 40% women in their executive board. Then I realized this could be the solution to better legislation for a green world.

If you have read my past entries you would have noticed that I am for free market and against too much regulation. Well, this simple law they introduced in Norway has accomplished what many other laws in other countries have failed to do. It has given women equal rights in the workplace. Whereas you are pro or against women's equal rights, you would have to acknowledge that implementing a single law to modify a trend as strong as that is remarkable.

The key element of this law (and what I think is applicable to greentech legislation) is that it modifies only the ultimate consequence of a desired trend, leaving the process to sort itself out. In other words, the law only regulates percentage of women in executive boards, the law forces companies to create their own process to groom women into the board room and to ensure that 40% of their employees that will be eligible for board positions are women. The law does not bother with employment or compensation factors.

If we translate this type of legislation into greentech we may start thinking about the ultimate consequence of living in harmony with our environment. Then we may suggest the following legislation to be applied:

• All companies and all households should become progressively carbon neutral every year until reaching 100% neutral by 2020.
• Water recycling should have a similar goal. 75% recycled water usage by 2020.

Then we should start talking about the consequences of non-compliance.

What if the company or the individual does not comply? Then we shall be as drastic as the Norwegians: they shut down the company. We may want to say: "pay us for the cost and installation of the best technology available, plus a penalty and we will install it for you"

What do you think? Will this work? Will it create the mindset to have a greener world? Will it promote the right technologies to the consumers? Intriguing questions!

Until next week, SHALOM!

An Ideal Greentech Portfolio - Part II

Following last week's post (An Ideal Greentech Portfolio - Part I), we will continue to explore the basis for an Ideal Greentech Investment Portfolio.

Last week we mentioned three criteria to ensure a balanced portfolio: Technological innovation, Business maturity and Market. What now?

First of all, let’s talk about dollar amount of investment. It is always preferable to be either a strong investor (owning substantial equity and voting rights) or to be in good company (i.e. follow the big investors). The saying: "money attracts money" is very applicable in this kind of investments, if investors start joining in a particular technology; then results are bound to improve.

By now we have taken a holistic approach to our portfolio. We know we need to look into diverse enough opportunities. We need to have a money strategy. We should have diverse stages of maturity in our companies. Now, let’s assume we are face to face with the CEO of one of our investment targets. What are the things we should look into?

First of all we need to understand the product. What is it for? How does it work? For this step it would be wise to freshen up on basic physics and chemistry knowledge (mostly in thermodynamics principles). Many companies out there are offering the "perpetual motion" machine. Be aware of false promises and the pot of gold at the end of the rainbow.

Next, we need to understand the Competitive Advantage:

(a) Is the product competitive? What is the advantage of this technology? Who would be interested in this product and why? What are the potential savings for end users?

(b) Are there barriers to entry for competitors? What is the cost of production? How complex is the technology to produce? How difficult is it to imitate? Are there any bigger players that may become our competitor?

(c) How does the product fit within the Green spectrum? Is it a technology that is ready for the public? Do we need to wait for further advancements in a specific field to have a market? Is this product an application for the short term or for the long run?

Finally, and certainly not of least importance we need to asses if the company has Strong Management. When you are seating at the table with any member of this company, do they know the basic numbers up and down? Are they well organized? Do they have a positive attitude? Are they open to your questions? Do they seem too enamored with their product to take criticism?

It is important to have “the gut feeling” for the company and for their product. If you feel the product is not good enough, but the management gives you a “good vibe”, then perhaps you should go for it. I always refer to the example of a company in Silicon Valley that set up with a weak product, but their attitude was “we are here to succeed”. They ended up becoming a great success with a different product (I believe it was Hotmail)

I know there are several books out there that talk about investment strategy and about VC investment. I am sure in these couple of entries I have only scratched the surface of this subject. The idea is to keep me and whoever reads this Blog on our toes and to be able to generate a conversation. Its always good to keep these concepts fresh. Feel free to add or comment on the available space.

Until next week, SHALOM!

An Ideal Greentech Portfolio - Part I

If you believe the Greentech wave is being formed; then you would agree that whoever invests in the future of Greentech should do well.

Following this train of thought I would like to propose, what I think, is an ideal portfolio for Greentech investments.

Greentech is a very wide term. To be more specific we will break it down into three areas: (a) Alternative energy; (b) Water;and (c) Waste Management. But, before we dig deeper into these three areas we need to define the investment criteria.

Criteria I - Technological innovation

It would be wise to invest in both, radical innovations, as well as in existing, proven technologies. The key for the success of greentech is based on "change". We need to change our power sources; change the way we use water; change the way we create and dispose of waste. This change will not come fast, it will be gradual. Therefore we need to bet on existing technologies for the short and mid term and radical, new technologies for the future. Be aware that betting on new technology is riskier than placing your money in proven technology, but the returns are inversely proportional.

Criteria II - Business maturity

Many people say that, when you invest in a business you really invest in the people that manage that business. Since we want to have a balanced portfolio, we should look into both companies that have a well established commercialization plan and an organizational structure to manage it, as well as in companies that are basically "newborn" (probably just a scientist and an idea).

Criteria III - Market

Last, but not least, we want to be as diversified as possible in the areas that (we believe) have an opportunity, within greentech to grow. This criteria has many levels of depth. Not only do we want to invest in the aforementioned three main areas of greentech (alternative energy, water and waste management), we also want to invest in different technologies within each one (i.e. within alternative energy: solar, wind, geothermal, etc). If the size of the investment allows for further diversification I suggest to take it one step deeper and invest, within each area in different technologies (i.e. within solar: PV and thermal; silicon cells and alternative light absorbing material cells; thin film and concentrated solar, etc)

Now we are able to place any greentech investment into our "diversified criteria map".

Let’s take two investments as examples:

Investment A - Capital injection to set up a new wind farm in Europe.

Investment B - Seed money for a new technology to create Hydrogen from water that requires less energy than current methods.

According to our criteria I - Technological Innovation: Investment A is a proven technology (as long as the turbines proposed for this new wind farm are already in use somewhere else). Investment B is a new technology. The ability to forecast the return on the investment (ROI) is much easier for Investment A than for B, but Investment B has a potential for higher ROI than A. As mentioned before this criterion is closely related to risk and return levels.

Criteria II: Obviously the wind farm has a more mature business model, it probably also has a management team in place. Depending on the stage the wind farm is in, it should also have permits and a thorough study of power generation forecasts and an appealing deal with the power company to sell the power injected back into the grid. On the other side, Investment B is only a concept from a highly regarded scientist in a recognized university. Investment B needs to go through many stages and overcome different obstacles to become a profitable business, but if it ever gets there... just imagine! This criterion is closely related to the required amount of investment. Investment B requires probably 100 times less investment than investment A for 50% ownership of the business (something like $100k versus $10MM).

Note that, when you analyze business A and B under the criteria of maturity, a different analysis is required for each one. For the wind farm is important to trust the team and the business numbers that are already in place. For investment B the questions are a lot harder, who is the scientist?, has he any proof of the concept?, what are his previous experiences launching a product?, who has seen this technology before?, do any competing technologies exist?.

Finally, under criteria III, we have looked at two investments in two different areas of greentech. Although both are under "alternative energy", one is related to power generation and the other one is related to power storage with multiple application possibilities.

Next week well continue building our portfolio. Until then, SHALOM!