No, Tesla batteries are not a global warming disaster

But, we probably should think about the supply chain.

A new report from the Swedish Environmental Research Institute has attempted to quantify the emissions tied to EV battery manufacturing. The study aims to better understand where emissions accrue in the supply chain and to shed some light on where we can do better.

In an early piece on the Swedish website NyTeknik, another researcher from the Swedish Environmental Research Institute, not involved with the original study, did some rough calculations and came to the conclusion that you would need to drive your new Tesla for 8 years (or drive a Nissan Leaf for nearly 3 years) just to break even on CO2 emissions. This later got picked up by English-language outlets eager to publish more “EVs are actually bad for the environment” takes.

But, of course, the devil is in the details. The payback conclusion gets complicated depending on where you live, how you charge the EV, and what your alternatives would be. This means some big differences depending on whether you live in the U.S. or Sweden. For example:

  1. Swedes drive less than we do,
  2. Swedes buy more efficient conventional cars than we do, and
  3. Swedish gasoline/diesel is cleaner than ours.

(On the other hand, charging from the grid is likely to be much cleaner in Sweden. More on that in a moment.)

The payback period assumes someone drives 7,650 miles/year, fuel is 18% bio-based, and that the average tailpipe emissions of new cars is 208 g/mile.

By contrast, in the U.S. we drive around 11,000 miles/year, our passenger fuel is mostly gasoline with 10% ethanol, and average tailpipe emissions are about 350 g/mile.

Of course, we also need to think about the emissions related to charging the EV during use. The Tesla driver in Sweden can top up with very low-emission power: Sweden’s energy mix is nearly 50% Nuclear and 50% Hydro. The average U.S. energy mix is more like 65% fossil, giving us emissions per EV-mile of something like 176 g CO2.

Once we account for higher-emission conventional cars one the one hand and charging from a higher-emission grid power on the other, it seems like the CO2 payback period is about the same in both countries.

Tesla’s Gigafactory is Carbon Neutral

The report assumes that the energy used in manufacturing the battery is 50% fossil-based. Tesla has long committed to making its Gigafactory carbon-neutral, and appears to be working towards that goal. The original research states that about half of the CO2 impact of battery manufacturing occurs at the battery plant, while only 10–20% comes from mining and the rest comes from materials production. That means, for the Tesla batteries at least, the CO2 emissions payback is halved.

A Cleaner Grid Matters Here

We saw the same debate play out a few years ago when researchers showed that if you charge a car from a coal-fired grid, your emissions reductions are limited. While that’s certainly true, the grid is getting cleaner over time. Today you could charge your Tesla from your home solar system, or — soon — from Tesla’s all-solar Supercharger stations.

The Bottom Line

Under the assumptions above, the CO2 payback for a 100 kWh Tesla battery comes out to about just under 3 years in the best case and 6 years in the worst case.

The average car in the US lasts for about 8 years, but many don’t expect EV batteries to last that long. On the other hand, lots of people are trying to figure out how (or whether) to give the batteries a second life, for things like stationary storage.

This research is a great step towards understanding the climate impact of a long supply chain, and it highlights the need to think about responsible sourcing and energy-efficient manufacturing. It should also highlight, yet again, that as transportation becomes increasingly electrified, a clean and reliable grid is more important than ever.

But, it doesn’t give you an excuse not to buy a Tesla.

Cleantech 2.0

Cleantech just can’t escape it’s reputation. Bradford Cross, in his rundown of AI predictions for 2017, said AI would be “cleantech 2.0”: a trendy area where VCs are likely to lose a lot of money. Bradford is an investor at DCVC and has been working in AI for decades. There’s a lot of great stuff in the post and I encourage you to read the whole thing, but here’s the section on cleantech:

“Cleantech isn’t a market, it’s a cross cutting concern. … [C]leantech for cleantech’s sake doesn’t work because it doesn’t start from the premise of a customer need. Great businesses start with customer need. Great missionary businesses start with a vision defined by customer need, and incorporate a mission that aligns to satiating the need. An organization with a societal mission but without a customer-centered vision is at best a moderately effective philanthropic organization. Great business put customer needs first, not a cross-cutting technology trend, even if it’s a missionary one.”

– Bradford Cross. Emphasis added.

Bradford is absolutely right that businesses don’t succeed unless they focus on customer needs. It’s also fair to say that some of the cleantech failures didn’t start from customer needs. In other cases, they were addressing needs that didn’t exist. Plenty of biofuels companies bet that customers would have certain needs when oil prices went to $300 a barrel.

A different cleantech 2.0

The time to buy is when there’s blood in the streets.

– attributed to Baron Rothschild

During the panel I moderated last week at the ARPA-E Summit, I asked Ira Ehrenpreis (DBL Partners) and Mike Biddle (Evok Innovations) about the bad rap Cleantech got with VCs, the subsequent flight of venture funding from the sector, and what’s different now. After all, DBL recently closed a $400m fund and Evok raised $100m to invest in early stage cleantech startups. Ira pointed out that Facebook and Google rose out of the ashes of the dot-com bust. In his view, “cleantech is a widening prism.” That is, there’s more than just solar, batteries, and biofuels. Now they’re seeing better and more diverse companies. Companies that focus on real customer needs, not just pushing innovations to an unreceptive market. Investors are practicing better discipline—no more $100m equity rounds to build factories before R&D is done. As they see it, founders and investors learned some tough lessons. In their view, Cleantech 2.0 is here and they’re betting on it.


ARPA-E: Commercializing Energy Innovation

Commercializing Energy Innovation








On Markets and Market Adoption



On Team



On the Sector and Investment Theses


On Long Technology Development Cycles



On Exits



Software ate cleantech. Now what?

Software ate cleantech.

Now what?

Today, my colleagues Varun Sivaram and Frank O’Sullivan and I released a report through the MIT Energy Initiative on the past, present, and future of cleantech venture capital.

As we wrote this morning in an op/ed in the Financial Times:

In 2006, Silicon Valley began to bet big on clean energy technology. Seduced by grand visions of making a fortune while saving the planet, venture capitalists invested a then-record $123m in the first round of fundraising for 16 new companies that year. In 2008, they would sink nearly $1bn in over 100 new companies.

But when these investments began to flop, the cleantech bubble abruptly popped. Since 2009, VCs have barely funded 25 new cleantech companies a year, slowing new investment to a trickle.

What went wrong? And where should cleantech go from here? To answer these questions, we compared the performance of every medical technology, software technology and cleantech company that received its first round of VC funding between 2006 and 2011. We found that betting on cleantech start-ups just did not make sense for VCs, because cleantech could not deliver the outsized returns found in other sectors.

This conclusion is alarming because new technologies are desperately needed to confront climate change. Still, guided by the lessons learnt from the cleantech VC boom and bust, new private and public funding sources may be able to better support revolutionary technologies.

Challenging the conventional wisdom: Cleantech just needs more money and more time

We hope that our findings will dispel the notion that the climate change can be solved by simply replacing VC money with patient capital. While it is true that the R&D needed to bring breakthrough innovations to market often takes decades and that building factories and manufacturing products requires substantial capital, there are further lessons to be learned from the first cleantech bubble.

What went wrong?

In short, investments in cleantech — especially those in companies commercializing breakthrough energy technologies — simply couldn’t deliver the outsized returns required by the venture capital model. We found five basic reasons that these companies failed:

  1. Long development cycles. Developing breakthrough materials, such as those for next generation solar panels, can take 20-30 years.
  2. Significant capital requirements. To reach scale, venture capital money was used to build factories, in some cases before R&D was done.
  3. Business model failures. Many companies faced expensive customer acquisition and long sales cycles.
  4. No sales premium. Energy companies were selling into established commodity markets where price (of electricity or of the solar panel itself) was the main driver.
  5. Few exit opportunities. Acquirers in the utility and industrial sectors were not eager to take risks or place a premium on a startup’s growth.

Software ate cleantech.

The result was an overall retrenchment of venture capital in cleantech companies. Total funding for startups in the sector fell from $5 billion in 2008 to $2 billion in 2012. More importantly, funding for new companies took an even harder hit. In 2008, nearly 120 companies received their first major round of funding. In 2009, fewer than 30 companies could say the same — a number that has remained approximately constant every year since.

What about the deals that are still getting done?

VCs all but stopped funding “deep technology” companies and shifted their focus largely towards software.

A-round VC financing for cleantech companies shifted from breakthrough materials, chemicals, and hardware to “capital light” innovations and business models.

Who will fund the breakthroughs?

In order to avoid the worst effects of climate change through the year 2050 and beyond, we absolutely must both deploy as much existing technology as we can, as quickly as we can manage, and with clever new business models — but the magnitude of the problem will require new breakthroughs. There has been a substantial evolution of the ecosystem since the boom and bust, but the battle is not won yet.

First, public-sector support of energy R&D has been buoyed by ARPA-E, the Department of Energy’s advanced research projects arm. More recently, in committing to Mission Innovation at the Paris climate talks last year, President Obama pledged to double the nation’s energy R&D budget over the next several years. Other commercialization and technology transfer efforts within the Department of Energy have provided increased access to our National Laboratories and infused an entrepreneurial culture inside the Lab system. In just the past few years, DOE has launched Cyclotron Road and Chain Reaction Innovations, Small Business Vouchers, and LabCorps, and has established the new Office of Technology Transitions.

New sources of capital are also available. A number of foundations, family wealth management offices, and high net-worth individuals have begun pledging to support these breakthrough technologies. Keep in mind that these are largely not new actors: these investors were the source of capital originally deployed by the VCs in the first wave of cleantech. Now, however, some feel that by investing directly or through syndicates, they may avoid the short term horizon imposed by the typical venture structure. Last Fall, Bill Gates and 27 other billionaires announced the Breakthrough Energy Coalition, pledging to put billions of dollars to work over the long term to support emerging technologies. Meanwhile, the PRIME coalition is helping foundations and philanthropists invest directly in game-changing technology companies, often before other institutional investors would be willing to take such risks.

But capital is only part of the equation. Cleantech companies require much of the same support as other types startups: help with developing sales strategies, hiring the right key employees, marketing, and fundraising. But they also require some things a SaaS company doesn’t: lab space, manufacturing expertise, and — particularly important when selling to risk-averse adopters — opportunities to test and demonstrate their technology. In the decade since the cleantech boom started, a number of incubators and accelerators have stepped in to fill these gaps. My organization, Clean Energy Trust, invests in and works directly with startups to help them through this early scale-up process. Others, such as the Los Angeles Cleantech Incubator and Greentown Labs in Somerville, MA provide physical incubation space for new companies. Cleantech companies now have improved access to first-of-a-kind demonstration and pilot projects through programs like the Wells Fargo/NREL Innovation Incubator, the Energy Excelerator demonstration track, and CET’s Campus Cleantech Pilots. Large industrial corporations and utilities are also increasingly becoming aware of the need to work with innovative companies. For example, through our Cleantech Innovation Bridge we match startups with corporate partners in need of emerging technologies.

No Exit: Funding the slow-growth company

There is no doubt that the support structures for new emerging technology companies has gotten stronger and we hope that this will fuel increased interest in solving climate change through innovation. Before 2012, some cleantech companies were able to raise over $500 million in venture capital before turning a profit. That is simply not likely to happen again.

The model for success in the current funding environment has not yet been proven, though there are a few predictions we can make. To succeed, cleantech founders will have to run lean. First, they will have to take advantage of incubators and accelerators and will need to fund R&D through public grant funding. Later, they will need to rely on debt for projects (such as Black Coral and Generate Capital) and manufacturing (including private working capital revolving funds and public sources such as OPIC) as an alternative to equity financing. Throughout the process, cleantech founders should be in close contact with corporate and strategic partners who will not only be the likely customer for the product, but also potential acquirers of the company.

Finally, cleantech companies will need to build a business on the assumption that they will be valued based on their profits, not their growth.

Closing thoughts

Venture capital didn’t work for cleantech because there were better places to invest. That doesn’t mean it’s not a sector worth investing in. As many others have put it: climate change is the greatest challenge we have faced in a generation and the transition to a low-carbon energy system will be the single greatest economic opportunity in our lifetimes.

Further reading:

Op/Ed in the Financial Times

Working paper at the MIT Energy Initiative

Full article at SSRN

The end of the cleantech leasing model?

Will your clever cleantech business model bankrupt your company?








Problems with the No Money Down Model



Problem 1: Growth



Problem 2: Cashflow




Making the Model Work


