In recent weeks, I have either received questions or read articles about how gas prices impacts the fortunes of plug-in electric vehicles and PEV manufacturers. As gas prices stretch to $4 per gallon, many are trying to figure out if that’s the trigger to make PEVs mainstream, and with it, bring PEV companies like Tesla, CODA Automotive, Fisker Automotive, and Wheego into the mainstream as well. There is a lot that goes into the equation for trying to figure out how gas prices impact startup vehicle manufacturers, so I was surprised when Morgan Stanley came out with the bold declaration that a $1 increase in gas prices equates to about a 13 percent gain in Tesla’s stock price.

The explanation of the math behind Morgan Stanley’s calculation is a not exactly linear. They claim a $1 increase in gas prices results in a $3,500 additional cost (present value) in fuel for a 25 mpg vehicle over the life of the vehicle. This increase is about 25 percent-30 percent the cost of the battery in a BEV with a $12,000 pack cost. Now the non-linear thinking comes when they determine that this results in a 13 percent increase in the stock price because buying Tesla stock is a hedge against rising oil prices.

I find it very difficult to boil down the company’s products and market strategy into the assumption that gas prices have a direct link to the company’s value. Particularly since Tesla’s main products are all playing in a market segment where gas prices carry significantly less importance – those buying $100,000 sports cars or $60,000 luxury cars are not likely to be overly concerned with fuel costs. Add to this the fact that Tesla’s next generation products are still years away, their dealer strategy is progressing at a snail’s pace, and they are years from profitability. While I do appreciate that Tesla has made tremendous strides with their powertrain business and the Model S looks to be a low-volume winner, I find it difficult to subscribe to the theory that the value of a luxury automaker is going to be that closely tied to fuel costs – even an electric automaker.

If you compare the correlations of Tesla’s stock price to that of other traditional automobile manufacturers like Ford, Toyota, Nissan, BMW, and Honda, they are much higher than the correlation with the price of fuel. Not surprisingly (to me anyway), Tesla’s stock price since its IPO is most highly correlated to BMW’s stock price, another luxury automaker. And BMW is not particularly well known for their fuel economy. Tesla may argue that they are the antithesis of the traditional automotive industry, but based solely on stock values, it’s pretty clear that their fate is very closely tied to the luxury car market.

Instead, the industry as a whole will see an impact from gasoline prices in their sales over the longer haul. Companies like Ford, Toyota, and Honda that have successful small cars, hybrids, and burgeoning plug-in vehicles will see their successful vehicle strategy reflected in their stock price. Companies like GM and Chrysler, whose sales are truck and large car heavy, will see their stock price struggle a bit more as demand falls for larger vehicles. I do recognize that both of these companies have small car programs and plug-in vehicles in GM’s case, but they are not yet as successful as others.

Tesla will likely land in the middle somewhere. They will benefit from lower fuel costs, but suffer from the marketing and business challenges enumerated above.

So, how do fuel prices impact Tesla? My opinion is that in the near term, they don’t, and they certainly won’t impact them in a neat little equation of $1 to 13 percent. Morgan Stanley’s prediction of a $70 stock price is based on a long-term (15 year) forecast with revenues jumping 150 times current revenue by 2025. This type of growth is not out of the realm of possibility, if they can manage their costs, continue to grow their drivetrain business, and keep new, competitive, products coming. However, higher fuel prices just open the door for Tesla, and I’m skeptical it will ultimately drive the stock price.

Article by Dave Hurst, appearing courtesy the Matter Network.

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Shai Agassi (left) and the team at Better Place have done it again: almost two years to the day after announcing its first car partnership and its first country deployment in Israel, Better Place today announced that it has signed an agreement with an HSBC-led investor consortium for new equity financing of $350 million. The deal marks one of the largest clean-tech investments in history and values Better Place at $1.25 billion.

This Series B equity financing round features participation from new investors including HSBC, Morgan Stanley Investment Management, and Lazard Asset Management. These investors will join existing Series A investors including Israel Corp., VantagePoint Venture Partners, Ofer Hi-Tech Holdings, Morgan Stanley Principal Investments, Maniv Energy Capital, and Israel Cleantech Ventures, among others, as shareholders of Better Place. For HSBC, which led the round with an investment of $125 million, the deal represents one of the largest financial investments of its kind by HSBC.

As part of the deal, Kevin Adeson, HSBC Head of Global Capital Financing, will join the Better Place Board of Directors, and HSBC will own approximately 10% of the company’s shares.

“Today marks the end of an extensive process with the outcome being a decision by one of the world’s largest, most conservative banks, HSBC, to take the validating step of investing in a private company intent on bringing innovation to the trillion-dollar automotive and energy industries,” said Shai Agassi, Better Place Founder and Chief Executive Officer. “The strong investment commitment and global relationships that HSBC, Morgan Stanley Investment Management and Lazard Asset Management bring to the table combined with the continuing confidence from our original investors enables us to scale up globally and execute against our plan.”

In welcoming Adeson to the Board, Idan Ofer, Chairman of Better Place and Israel Corp., remarked, “Kevin and the entire HSBC team will bring more than just capital to the table. We expect that HSBC will help us to scale in Europe, China and beyond, and we’re already seeing the value that they are bringing to the company and the Board.”

Stuart Gulliver, Executive Director, HSBC Holdings and Chief Executive of Global Banking and Markets, said, “We believe the switch from internal combustion engine vehicles to electric vehicles will create future growth opportunities in the auto and utility industries, and we are delighted to take the opportunity of investing in Better Place to put HSBC at the heart of these developments. Better Place is a private-sector solution to the issue of infrastructure provision for electric cars and can succeed without government subsidy and without sacrificing consumer expectations for personal mobility.”

Better Place’s new board member, Kevin Adeson of HSBC, commented: “We are confident that Better Place has the technical and commercial solutions to allow for the mass adoption of electric cars in the near term. The Better Place switchable battery solution, which addresses the range limitation of fixed battery electric cars, will offer the consumer an affordable and attractive alternative to current combustion engine and hybrid vehicles. We expect the Better Place model to be widely adopted across many countries and cities, particularly in those markets with policies strongly favoring electric vehicle adoption.”

The financing allows Better Place to expand its geographic footprint while continuing to execute against its committed R&D and deployment milestones. The company intends to expand into markets where the business model economics and investor returns are optimized, notably in Europe and Asia.

Better Place says that it continues to meet its timetable for Israel and Denmark launch plans for the end of 2011 when the first Renault switchable battery electric cars hit the road. Better Place also will continue to execute against its strategy of early deployment projects in Australia and select North American markets a few months after the Israel and Denmark launches as planned.

Additionally, the company’s R&D team is currently testing each element of the Better Place solution in real-life scenarios around the world in a multi-phase cycle, beginning with the company’s managed EV network in Denmark, which began last December, and a Tokyo electric taxi project with battery switch station, which kicks off in April this year. These and other development milestones lead up to full-scale trials in the second half of 2010 and commercial launch in 2011.

Agassi added: “Our technology and solutions, together with our strong partnership with Renault, provide us at least a two-year time advantage over all other alternative energy vehicle approaches. Our solution is the only one that can scale to decrease countries’ oil consumption and significantly reduce emissions, while providing consumers with electric cars that are more convenient and affordable than internal combustion engine cars.”

“Better Place is a huge experiment in how you sell and fuel vehicles, and these investors are becoming convinced this will make money,” Rod Lache, an analyst at Deutsche Bank told the New York Times. “It is a financial validation. Now we need to see technical validation and consumer validation.”

The transaction is subject to approval by antitrust regulators and other customary closing conditions and is expected to close in the first quarter of 2010.

Article by Jonathan Shapira, appearing courtesy of Cleantech Investing in Israel.

photo: btrplc

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BrightSource announced a huge deal today (and last month they announced an even bigger one for 1,300 MW with Southern California Edison) but before jumping up and down too much, lets take a wait and see approach to how this will unfold.

Remember, BrightSource is led by a man that I quote often for having said “this is an industry of billions and decades, not millions and years.” While it is enormous, and it is great news for solar, let us not forget how just over a week ago Optisolar sold its pipeline of deals to FirstSolar.

That said, BrightSource has a strong debt partner in Morgan Stanley and VC backing with very deep pockets (are any financial partners really that strong though?).

You can read their latest press release here.

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