Stalled For Cash
Green Vehicles screeches to halt; city points finger at California Energy Commission.
Thursday, July 21, 2011
A s electric vehicle charging stations go up around Monterey County, a would-be manufacturer of cars that could use them closed the doors of its Salinas-area headquarters—before ever getting its assembly line running.
Eco-conscious redevelopment darling Green Vehicles Inc. had grand plans to make 2,000 electric cars next year and more than 11,000 by 2015, creating upwards of 50 local jobs and opening a showroom in Salinas to complement its manufacturing facility in the Salinas Valley Enterprise Zone at the old Firestone Business Park.
But on July 12, founder and president Mike Ryan announced (on Facebook, the company blog and in an email to the city of Salinas) that the company was closing down.
“Green Vehicles has been unsuccessful in bringing in the resources necessary to continue as an organization,” Ryan wrote.
Salinas funneled $300,000 in federal Community Development Block Grant funds toward creating nine local jobs, and later paid an additional $235,000 to help Green Vehicles meet its matching fund obligations toward a $2.1 million grant from the California Energy Commission, which had ranked the company as the top applicant among 23 start-up competitors in 2010.
Hints of trouble first arose in April, when the Weekly broke the news that the company hadn’t paid its rent in three months—and that landlord STG Group of Santa Rosa told city officials Green Vehicles tried to barter a car in exchange for the past-due rent.
STG did not return calls to answer the Weekly’s questions on whether Green Vehicles paid rent for the second quarter.
The city increased oversight and took a closer look at Green Vehicles’ finances based on the Weekly’s report, Salinas Mayor Dennis Donohue says.
But now, city officials are blaming the prestigious CEC award for helping drive Green Vehicles into the ground. “I absolutely believe they [the CEC] have culpability in this, but that and $2.10 will get me a venti coffee,” Donohue says.
He’s critical of the Energy Commission’s payment structure—incremental payments made only after grantees show they’ve raised matching funds, and submitted invoices for bills already paid.
“We pay invoices that are submitted to us; we don’t just cut a company one big check,” says Commission spokesperson Adam Gottlieb. “We take very seriously being stewards of the state’s dollars.” Green Vehicles had so far received $187,205.
“[Startups] have one high-priority need, and that’s cash,” says Jeff Weir, Salinas’ community and economic development director. “To ask them to spend money so you can reimburse them really seems kind of silly. There will be more companies like Green Vehicles that will fail because of that.”
Weir says the mechanics of the CEC grant took the city by surprise. “For us to find out later the award was only going to be on a reimbursement basis, that startled us.”
Donohue adds: “My understanding is, Green Vehicles is not the only company that was negatively impacted.”
Gottlieb says the notion that grants should infuse cash is misguided. “What it does is help raise other dollars,” he says. “An Energy Commission grant is really a badge of honor.”
The CEC grant came through the state’s Alternative and Renewable Fuel & Vehicle Technology Program (AB 118), which has awarded a total of more than $152 million to 68 startup recipients.
Gottlieb says one other CEC grantee has faltered financially: ISE Corp., a Poway-based maker of hybrid engines, filed for bankruptcy protection while the CEC was disputing its first invoice. He adds that it’s too early to say whether the CEC would seek to recoup payments to Green Vehicles.
Others who have received CEC grants say the commission is easy to work with.
Fremont-based battery maker Leyden Energy, which entered into an agreement with Green Vehicles to become its battery supplier, was awarded almost $3 million in CEC grants; $23,000 has been paid so far and another $10,000 invoice is pending. Leyden, formerly known as Mobius Power Inc., also has $4.5 million in venture capital funding.
“Our overall experience with the grant process has been very positive and has helped us reach commercialization of our product suite,” Nick Cataldo, Leyden’s vice president of business development, said in an email. The company is no worse for wear after its prospective Salinas customer went under, Cataldo says, thanks to a diversified customer base.
Leyden backed out of its informal vendor agreement with Green Vehicles after reading the Weekly’s story on Green Vehicles’ failure to pay rent.
An electric motorcycle manufacturer in Santa Cruz and Scotts Valley is expanding its research and development, thanks to a $1 million CEC grant. “We feel like the program is phenomenal. It’s doing exactly what it’s supposed to do,” Jay Friedland, vice president of Zero Motorcycles, says.
The company has 76 employees, the newest half dozen added as a result of the grant. By dedicating grant funds to non-essential overhead expenses and expanding R&D, Friedland says, they made the most of the funds. “The way to think of CEC funding is, it’s really a public-private partnership,” he adds.
Weir says the city will look at all remedies, including litigation, to get back its $234,000 contribution. Ryan hasn’t decided if he’ll file for bankruptcy.
Weir still hopes an electric car maker can thrive here. Based on a recent market analysis he hired a consultant to conduct, he says, “This is a true, honest-to-goodness opportunity. Someone can be successful.”
Sharon Sarris, who helped General Motors launch its Electric Vehicle 1 in 1996 and now heads the Monterey Bay Electric Vehicle Alliance, remembers a time when Green Vehicles’ founders were optimistic, and came to MBEVA for help in finding a location to call home.
“It’s disappointing, but I don’t think it’s a setback to the industry,” Sarris says of Green Vehicles’ closure. “Nor do I think it’s a setback to government being involved.”