THE GREEN CAR REPORT Investment Analysis of the Hybrid & Electric Vehicle Industry: Outlook for 2009 - 2012 Peter J. Conley Jon Hickman November 10, 2008 “There is nothing more powerful than change whose time has come” MDB CAPITAL GROUP 401 Wilshire Boulevard Santa Monica, California 90401 U.S.A. 310-526-5000 www.mdb.com MDB Capital Group The Green Car Report November 10, 2008 ______________________________________________________________________________________ Green Car At A Glance “We’re borrowing money from China Research Conclusions to buy oil from the Persian Gulf to burn it in ways that destroys the planet. • Green Cars no longer an option, rather a global Every bit of that’s got to change” game-changer whose future is “when”, not - Al Gore, July 2008 “if”. Inflection point on the horizon. • There is a high stakes race underway for the “After 100 years of evolution, the automobile lead in Green Cars. The winners will lead the industry is on the verge of a revolution.” automotive industry and take the pole position - William Clay Ford Jr. in the global economy. Ford Blueprint for Sustainability, 2008 • “Confluence Effect” driving Green Cars resembles “Network Effect” driving Internet. • Specifically, within the next 12-24 months, 30 Companies Covered In This Report Green Car technology will reach the “tipping point” for price-performance. Large Cap Public (9) • Within the next 24-36 months, Green Car economies of scale will reach the “tipping BYD (1211 HK: $13.00) Not Rated point” for mass adoption. Daimler AG (DAI: $30.84) Not Rated • Within the next 24-36 months, mid-point of Ford (F: $1.98) Not Rated most “peak oil” forecasts will be exceeded General Motors (GM: $4.80) Not Rated with implications for oil price stability; Honda (HMC: $22.40) Not Rated accelerating mandate for green energy. Johnson Controls (JCI: $17.06) Not Rated • Within the next 48-60 months, the “point of no Mitsubishi (7211 JP: 159 ¥) Not Rated return” will be reached if sovereign CO2 Nissan (7201 JP: 455 ¥) Not Rated abatement measures are not implemented, with Toyota (TM: $67.09) Not Rated irreparable implications for climate change and the global economy. Small Cap / Micro Cap Public (13) • The increasing need for energy independence will be the primary growth driver for Green Advanced Battery (ABAT: $2.61) Buy Cars in the U.S., with implications for the U.S. Altair (ALTI: $1.43) Buy economy and national security. Azure Dynamic (AZD CN: $0.065) Neutral • The increasing need for environmental China Ritar Power (CRTP: $1.69) Buy sustainability will be the secondary growth China Sun (CSGH: $0.42) Buy driver for Green Cars, with implications for the Ecotality (ETLY: $0.05) Buy global environment and competitiveness. Ener1 (HEV: $6.87) Neutral • Government policy/funding, in conjunction Enova (ENA: $1.45) Neutral with private sector investment and consumer Hybrid Tech (HYBR: $0.71) Neutral awareness, will significantly impact rate of Quantum Fuel (QTWW: $0.79) Buy Green Car development and adoption. Satcon Tech (SATC: $1.79) Buy • Mass adoption of Green Cars will substantially UQM Tech (UQM: $2.19) Neutral reduce oil consumption to reduce deficit and Zap (ZAAP: $0.41) Buy CO2; leading to economic growth and environmental sustainability. Private Venture / Private Equity (8) • Winners include early adopter global OEMs, select niche OEMs and key supply chain A123 Systems players like batteries, drive trains. Aptera Motors • Losers include global OEMs “behind the Chrysler curve”; as well as much of legacy oil related Coulomb Technologies value chain. Miles Automotive • Intellectual property, strategic materials will be Phoenix Motorcars key success factors; management team, REVA balance sheet, market access and business Tesla Motors model will also be critical determinants. • Still in 2nd to 3rd inning of emerging $100 billion global market; better valuations in public, versus private, companies. Market volatility has created attractive entry point for long-term fundamental investors. PLEASE READ THE DISCLOSURES ON PAGES 230-233 FOR IMPORTANT REQUIRED _____________________________________________________________________INFORMATION INCLUDING RISKS AND ANALYSTS CERTIFICATION. 1 MDB Capital Group The Green Car Report November 10, 2008 ______________________________________________________________________________________ Table of Contents 1. The Green Car Report a. The Authors……………………………………………………. page 4 b. Acknowledgements……………………………………………. page 4 c. About MDB Capital…………………………………………… page 4 2. The Investment Case a. Introduction…………………………………………………….. page 5 b. The Problem………...………………………………………….. page 5 c. The Solution………….………………...………………………. page 11 d. Green Car Index……………..…………………………………. page 12 3. The Green Car Market Opportunity a. Global Overview……………………………………………….. page 13 b. Market Size…………………………………………………….. page 13 c. Market Trends………………………………………………….. page 15 4. Green Car Market Drivers a. Economic……………………………………………………….. page 16 b. Environment……………………………………………………. page 17 c. Government…………………………………………………….. page 17 d. Social…………………………………………………………… page 18 5. Green Car Ecosystem a. OEMs…………………………………………………………… page 20 b. Supply Chain: Batteries, Electric Motors, Components……….. page 21 c. Distribution Channel: Dealers, Direct, JV/Partners…………… page 23 d. Infrastructure…………………………………………………… page 24 6. Green Car Economic Analysis a. Cost vs. Internal Combustion…………………………………… page 26 b. Running Costs & Maintenance………………………………… page 26 c. Cost Drivers & Sensitivity Analysis…………………………… page 27 7. Green Car Environmental Impact Analysis a. Energy Efficiency……………………………………………… page 28 b. CO2 Emissions………………………………………………… page 28 c. Implications for the Environment……………………………… page 29 2 MDB Capital Group The Green Car Report November 10, 2008 ______________________________________________________________________________________ 8. Green Car Companies (30 companies) a. Large Cap Public (9 companies): 1. BYD………………………………………………….. page 31 2. Daimler………………………………………………. page 33 3. Ford…………………………………………………... page 36 4. GM…………………………………………………… page 39 5. Honda………………………………………………… page 42 6. Johnson Controls/Saft ……………………………...... page 44 7. Mitsubishi…………………………………………….. page 46 8. Nissan………………………………………………… page 48 9. Toyota………………………………………………… page 52 b. Small Cap / Micro Cap Public (13 companies): 1. Advanced Battery Technologies ……………………..... page 56 2. Altair Nanotechnologies ..……………………………... page 65 3. Azure Dynamics …..…………………………………… page 78 4. China Ritar Power ..……………………………………. page 91 5. China Sun … …………………………………………... page 101 6. Ecotality …...………………………………………….... page 110 7. Ener1 …………………………………………………… page 121 8. Enova ……...…………………………………………… page 135 9. Hybrid Technologies ………………………………….... page 146 10. Quantum Fuel Systems ………………………………… page 155 11. SatCon ..………………………………………………… page 167 12. UQM Technologies ……….……………………………. page 178 13. ZAP ..…………………………………………………… page 189 c. Private Venture / Private Equity (8 companies): 1. A123 Systems…………………………………………... page 204 2. Aptera Motors...………………………………………… page 208 3. Chrysler…………………………………………………. page 211 4. Coulomb Technologies…………………………………. page 214 5. Miles Automotive………………………………………. page 216 6. Phoenix Motorcars……………………………………… page 218 7. REVA…………………………………………………… page 220 8. Tesla Motors…………………………………………….. page 222 9. Notes & References …………………………………………………….. page 224 10. Disclosures………………………………………………………………. page 230 3 MDB Capital Group The Green Car Report November 10, 2008 ______________________________________________________________________________________ 1. The Green Car Report He authored AutoVision, the first ecommerce program copyrighted in the Library of Congress. AutoVision About The Authors launched on CompuServe in 1985 and was later implemented by IBM in their roll-out of Prodigy’s Peter Conley Managing Director, Equity Research on-line service in 1987. Featured in CIO, 310-526-5025 [email protected] BusinessWeek, Forbes and WSJ, AutoVision enabled consumers to research, shop and buy any car entirely Peter Conley has over 20 years of experience in equity online. In recognition of AutoVision’s pre-Internet research and equity capital markets focused on the success, Mr. Conley was invited by JD Powers & early identification of important, “game-changing” Associates to address the 1991 International trends. Since joining MDB in 2003, Mr. Conley has Roundtable of Automobile Dealers to make the case been credited with being among the first analysts to for consumers shopping on-line for cars and discuss identify emerging growth opportunities in China and the implications for the automotive industry. the first to uncover accounting irregularities at Fannie Mae. He has been a regular guest on CNBC, Jon Hickman Vice President, Equity Research Bloomberg TV and frequently featured in the media 310-526-5024 [email protected] including Pension & Investments, The Wall Street Jon Hickman joined MDB Capital in 2005 to cover Journal, Barrons, Forbes, Investors Business Daily, emerging growth companies in the technology, media, Reuters, BusinessWeek, Institutional Investor, New and health care sectors. Mr. Hickman has over 28 York Times, South China Morning Post, Washington years of investment experience as both a sell-side and Post, San Francisco Chronicle, Boston Globe, NEDO buy-side analyst and senior portfolio manager of small in Japan and Financial Times in London. cap growth equities. In addition, Mr. Conley is regarded as a thought leader At MDB, Mr. Hickman has consistently earned in the emerging field