New emissions rules seen driving "green" success

An electric charging port is seen on the Fisker Karma hybrid electric car during the North American International Auto Show in Detroit, Michigan January 12, 2009.

-- Deborah Cohen covers small business for Reuters.com. She can be reached at smallbusinessbigissues@yahoo.com --

By Deborah L. Cohen

Chrysler is bankrupt, General Motors is on the verge of bankruptcy and the broader auto industry is in a financial mess. But there are winners emerging from the debris of the industry's implosion. Thanks partly to new standards on emissions, those companies are of a familiar hue: green.

Start-up makers of electric car components, lithium batteries, smart technologies and other products designed to help the United States and other developed countries reduce dependence on gasoline are generating a lot of buzz these days.

Last week the Obama administration laid out national emissions standards, which are seen as the latest catalyst for the automotive industry to become more aggressive about exploring new technologies to meet compliance. The standards are seen breathing new life into some companies that had been teetering on the brink of survival due to a slowdown in venture funding.

"By forcing the regulatory part, the government is actually pushing (larger) companies toward more investment, which will hopefully trickle down to companies like ours," says Said Al-Hallaj, co-founder of Chicago-based All Cell Technologies, a maker of lithium-ion batteries with sophisticated temperature controls. The products are designed for use with electric-powered vehicles.

The new U.S. rules, which begin in 2012, impose a national standard calling for vehicles to average 35.5 miles per gallon by 2016. Cars and trucks are expected to be nearly 40 percent cleaner and more fuel-efficient than they are today.

These regulations come on top of some $2 billion in federal economic stimulus grants the Department of Energy will award to battery companies, component providers and other developers of green technology for transportation.

"It does create some interesting opportunities," says David Cole, chairman of the nonprofit Center for Automotive Research, noting that the prospects for companies offering batteries and other parts for plug-in hybrids could likely see the most near-term interest. "The ingenuity of small companies is very important."

But Cole stresses that only those ventures able to fill a gap or provide a complement to products and technologies developed by the big carmakers and longstanding suppliers stand a reasonable chance at success.

"You're in a competitive race with some really fast people," he says, cautioning that new market entrants should have their ideas vetted by an independent third party early on in development. "If you can provide a narrow niche -- that's great. It's very tough to find that."

‘A GREAT OPPORTUNITY'

Competition is fierce. VentureBeat reported that as of late last year more than 30 companies had been founded just to sell electric cars. Good magazine, which covers altruistic trends, in April released a transportation issue entitled "Reinventing Our Wheels" showcasing more than 100 pages dedicated to alternative forms of transportation.

Investors say the new legislation may generate more participation from the venture capital community.

"Any time there is discontinuity or disruption, there's an opportunity for newer companies or startups to enter the marketplace," says Promod Haque, managing partner of Norwest Venture Partners, an investment firm specializing in technology companies. "This is a great opportunity for money to roll in."

And despite the ever-crowded field, enthusiasm is rising among those start-ups that have already established some staying power, such as Chicago-based All Cell, the lithium-ion battery maker.

The company, which began in 2001 with $2.5 million from friends, family and angel investors, recently increased its staff to 14 and is hunting for manufacturing space. Its customers now include a French maker of electric bikes and two Tier One automotive suppliers that have contracted for early stage research and development.

"We're getting tremendous inquiries," says Al-Hallaj. "The fact that this legislation is in place, if it works, means that now the venture investors and the car companies have to start coming up with strategies to be part of these markets."

Israel-based ETV Motors Ltd, a start-up that is developing alternative power-trains for hybrid-electric vehicles, is another with apparent market momentum. Last month the company raised about $12 million in venture funding and is planning for a second capital-raising round.

"Any regulations or laws that support lowered emissions work in our favor because of our focus on REEVs (range-extended electric vehicles)," says Arnold Roth, ETV's chief operating officer, in an email exchange.

Companies focused on alternative transportation are likely to see some benefit from the new emissions standards, even if it's just from increased public awareness on more environmentally friendly choices for getting around, says David Goldschmidt, chief operating officer for Boulder, Colorado-based Intrago Corp. The early-stage startup is developing logistics systems to manage pools of electric vehicles designed for short trips, such as around town or on corporate campuses.

"As gas prices continue to go back up and the fuel economy and emissions regulations move forward, we think it's great for showing there's still a need to address the economics," Goldschmidt says.