Turbulent takeoff: Lessons from past crashes for today's green transport innovators
Current challenges, parallels to past failures, and lessons for those navigating the complex world of sustainable transportation and climate tech.
The recent collapse of Fulcrum Bioenergy's ambitious "Trash-to-SAF" facility in Nevada and the shutdown of Universal Hydrogen are stark reminders that the path to sustainable transportation is fraught with challenges.
Fulcrum's high-profile project aimed to transform municipal waste into jet fuel, and it was even featured in a United Airlines ad campaign fronted by Oscar the Grouch. Universal Hydrogen, backed by major investors like JetBlue Ventures, Toyota Ventures, and Airbus, promised Nespresso-style hydrogen solutions for aircraft.
Both companies faced similar fates: a need for substantially more capital than initially anticipated and struggled with early-stage technologies.
These are just two of several recent projects that have encountered significant hurdles. But we’ve been here before. 15 years ago, investors lost fortunes on promising green technologies in the clean tech bubble of 2009-2010.
With aviation requiring around $5 trillion for decarbonisation, up from the $4 trillion figure cited in our book "Sustainability in the Air", this article will examine current challenges, draw parallels to past failures, and offer crucial lessons for those navigating the complex world of sustainable transportation and climate tech.
The state of climate tech investment in 2024
Despite recent setbacks, the climate tech sector continues to attract significant investment. In Q1 2024, climate tech startups raised a near-record $8.1 billion, suggesting that investor confidence remains strong.
Looking specifically at the sustainable aviation sector, only a handful of companies, such as Heart Aerospace, ZeroAvia, and Flying Whales, have secured over $100 million in funding, according to Dealroom.co. Universal Hydrogen was close to joining this group before its collapse.
Somewhat controversially, given questions about whether they really can be categorised under “sustainable aviation”, the eVTOL (electric Vertical Takeoff and Landing) sector has seen even greater success.
Companies like Joby, Archer, Eve, Lilium, and Vertical Aerospace have all attracted substantial investments, with three times as many eVTOL companies receiving $100+ million in investments compared to other sustainable aviation startups.
Outside aviation, investors are also focusing on materials, including green steel, battery materials, and minerals, as evidenced by H2 Green Steel's $4.5 billion debt and $215 million equity raise and Ascend Elements' $704 million Series D round for battery recycling.
However, this influx of capital raises an important question: Can all these funded projects achieve commercial viability?
Recent turbulence in sustainable transport
Universal Hydrogen and Fulcrum Bioenergy aren't alone in facing headwinds. Over the past two years, we've seen a pattern of financial difficulties among promising startups:
Red Rock Biofuels: Faced foreclosure on its $300 million plant in 2023 before its assets were acquired by Next Renewables. As far back as 2014, Southwest Airlines announced that it would acquire fuel from Red Rock for use in San Francisco. Made from woody biomass, these fuels were meant not only to help decarbonise aviation but with the plant located in Oregon, the feedstock used was meant to help combat forest fires, which has been a recurring and increasing problem on the US West Coast.
Velocys: This UK-listed SAF company that aims to turn municipal waste into fuel narrowly avoided insolvency in 2023. The company struggled to secure sufficient funding to support its capital-intensive projects, which involved developing and scaling up new technologies. Delays in project timelines and regulatory approvals further strained its finances. A consortium of investors saved the company from going under, taking it private and delisting it.
Proterra: Proterra, an electric bus and battery technology company, filed for Chapter 11 bankruptcy in August 2023 after facing prolonged financial difficulties.
The company struggled with mounting losses, production scaling issues, and challenges in raising capital. Supply chain problems, rising material costs, and increased market competition exacerbated its financial woes. Despite innovative technology and high-profile contracts with transit agencies, Proterra couldn't achieve profitability and accumulated significant debt. The bankruptcy led to plans for selling its transit bus and battery businesses separately, and its stock was delisted from Nasdaq.
Plug Power: One of the largest green hydrogen producers, and a Universal Hydrogen partner, Plug Power has faced ongoing questions about its financial viability. In March 2024, the company assured investors and shareholders that it was a going concern and that it had resolved a number of issues, but even so, some analysts remain unconvinced about the company's long-term future.
Britishvolt: The UK electric battery company Britishvolt collapsed into administration in 2023. Britishvolt struggled to secure adequate funding, and potential investors pulled out due to concerns about the company's long-term viability. Despite last-minute rescue attempts, including a potential deal with a consortium led by Tata Steel, Britishvolt failed to raise sufficient capital. The site has now been acquired by a company that is using it for a data centre. Given their voracious energy requirements, big tech and AI will prove to be major competitors for renewable energy.
These failures highlight persistent challenges in the sector: high production costs, infrastructure gaps, and fierce competition from traditional players and new entrants.
The Universal Hydrogen story
Given its innovative approach and promising start, Universal Hydrogen's collapse is particularly noteworthy. The company took an innovative approach to retrofitting regional aircraft, comparing its solution to a Nespresso-style system for delivering hydrogen to aircraft where hydrogen capsules would be delivered to fit retrofitted aircraft.
Despite having a credible management team, demonstrating tangible progress with the largest hydrogen-electric aircraft to fly to date, and backing from prominent investors, Universal Hydrogen couldn't secure the necessary funds to continue innovating.
Some factors that added to its downfall were:
Political uncertainty: The possibility of a Trump re-election and his scepticism towards green policies may have made some investors cautious.
Economic climate: The overall economic conditions made raising capital more challenging.
Enormous capital requirements: The sheer amount of money needed to bring new aviation technologies to market proved insurmountable.
Read the full analysis of the Universal Hydrogen story and aviation's funding dilemma here.
Echoes of the past: The 2010-2011 cleantech bubble
The current situation bears a striking resemblance to the cleantech bubble of 2010-2011. High-profile failures from that era include:
Solyndra: A solar panel manufacturer filed for bankruptcy in 2011 after receiving a $535 million government loan guarantee.
Fisker Automotive: An electric vehicle company that raised over $1 billion but filed for bankruptcy in 2013 due to production delays and quality issues.
Better Place: An EV infrastructure company that proposed a network of battery-swapping stations but filed for bankruptcy in 2013 after failing to gain market traction.
These past failures offer valuable lessons for today's sustainable transportation companies, which face similar challenges:
Regulatory hurdles: Developing new aircraft categories or SAF facilities requires extensive collaboration with authorities.
Technological complexity: Balancing range, payload, and safety while pioneering new propulsion systems is challenging.
Infrastructure requirements: Electric and hydrogen aircraft need new fueling and charging facilities.
Capital intensity: When we wrote Sustainability in the Air, the rule of thumb was that developing a clean-sheet aircraft can cost $1 billion. If anything, that’s an underestimate; some now talk about $5 billion+.
Market acceptance: The public needs to accept new technologies such as hydrogen.
Given these challenges, many startups will likely fail to reach commercialisation. Success will favour those who secure substantial funding, form strategic partnerships, and navigate the complex regulatory landscape.
Keeping the green machine rolling: A survival guide
To avoid the pitfalls of the past and navigate future challenges, companies should:
Diversify funding: Mix venture capital with corporate investments and government support.
Ride the policy wave: Leverage government initiatives like the U.S. Inflation Reduction Act and the EU's Green Deal.
Partner with established players: Encourage involvement from established automakers and aerospace companies. The eVTOL space does provide good examples – for example, the partnerships between Stellantis and Archer and Toyota and Joby, with each car giant bringing its manufacturing muscle to the table.
Strengthen supply chains: Build robust and diverse supply networks, especially for critical components, and don’t reinvent what needs to be reinvented.
Invest in talent: Ensure a skilled workforce is ready to power the sustainable transport revolution. This comes as sustainable aviation and transportation startups are not like normal startups. You need seasoned executives and engineers who can create products that will pass the stringent safety standards the regulators demand.
Allow for more time and money: It will easily take 5+ years to get your new aircraft or SAF project off the ground. Looking at Fulcrum Bioenergy, United first invested in 2015, with the Nevada plant only opening seven years later. More time also means more money.
Focus on impactful areas: Question whether available funds are being directed to the most impactful areas. While eVTOLs attract significant investment, other crucial technologies for decarbonising aviation may be underfunded.
Consider 'Polluter Pays' principles: Implement strategies like ticket surcharges based on flight frequency to generate funds for decarbonisation efforts.
Pool resources: Improve resource pooling for maximum impact. Individual airline funds might be more effective if combined into larger, collaborative efforts. One example is United’s SAF fund, where it works with competitor airlines
Secure corporate backing: Where possible, bring in large corporates to help secure funding, following examples like the collaboration between e-fuels company Infinium, American Airlines, and Citi.
Navigating through turbulences on the road ahead
The key to success lies in learning from past mistakes, doubling down on what works, and staying adaptable. The sustainable transport journey is bound to have its share of turbulence, but it's crucial if we want the next generation to enjoy the same mobility benefits that we've had.
Success, however, will demand more than just groundbreaking technology. It will require smart business strategies, regulatory savvy, and the ability to learn from triumphs and setbacks, including lessons from the past.
The aviation industry stands at a crossroads. Continuing business as usual risks more Universal Hydrogens failing. But embracing change could unlock what veteran climate tech investor Sean O'Sullivan terms the investment opportunity of the century, potentially leading to the emergence of 500+ unicorns as entire industries, including aviation, transform.