A venture capitalist’s perspective on the evolution of green transportation

Transcript

[00:00:00] James Lawler: I’m James Lawler and you’re listening to Climate Now. Today’s episode is a part of our decarbonizing road transport series and I’m joined once again by our co-host Darren Hau, who is a former applications engineer at Tesla and currently a charging manager at Cruise.

[00:00:18] Darren Hau: Thanks James. In 2016, only $6.6 billion of venture capital flowed towards climate tech startups.

But in 2021, that number was more than $32 billion globally. With us today is one of those venture capitalists who has invested in transportation startups among other ones, and has been in this space for more than 10 years.

[00:00:38] James Lawler: Today’s guest is Brook Porter. Brook is a partner and founder at G2 venture partners a venture capital and growth investing firm focused on emerging technologies driving sustainable transformation. Brook, thank you so much for making the time to join us today.

[00:00:52] Brook Porter: Yeah! Thanks James. It’s great to be here, excited for the conversation.

[00:00:55] James Lawler: Well, let’s start by learning a bit about how you got to where you are today in your career. Your education is in chemical engineering. What was the path that brought you to venture investing?

[00:01:04] Brook Porter: Yeah, so I think my passion for sustainability came from my childhood. I grew up in Colorado, had meaningful influences from my grandfathers on both sides. One was a wildlife biologist focused on saving the Brown Pelican and getting pesticides like DDT banned. So I learned a lot about climate and human impact on the environment from spending time with him, I’d go to Mexico and count Pelican nests, and Baja and cool things like that.

So really being a part of nature is pretty enlightening. And so that sort of set the course. And then my other grandfather was an engineer, sort of an entrepreneur. He built a construction company in [00:01:40] Denver. And so I ended up wanting to go down the engineering route, chose chemical engineering, because I thought I could have an influence on the environment.

I ended up writing a paper on electric vehicles in high school, and I’ve been thinking about electrification of transportation for a long time. But at the time battery technology didn’t really seem like it was going to get us there. And so I ended up joining a company working on fuel cells and then starting a company, myself, working on hydrogen fuel cells and thought that would be a way to address transportation related emissions.

Ultimately it went public. It was a company called intelligent energy. So we worked on drive trains for all kinds of applications of transportation, but it was far ahead of its time, I think. And that business was a little bit challenged as evidenced by, I think none of us probably own a fuel cell device today, but I think we’ll get into that in a bit.

I got into biofuels after that. I saw what Brazil had done in biofuels and decarbonized half their liquid transportation infrastructure, and thought that’d be pretty interesting if we could do that in the US. Built a company there that was ultimately sold to a portfolio company of Kleiner Perkins. And that was in 2010.

So I spent about 10 years from 2000-2010 building companies. And in 2010, joined Kleiner Perkins at a time where they were really investing in the first wave of Cleantech. And so I got exposed to a whole bunch of amazing companies and technologies and big, bold bets on how to transform the global economy around a lower carbon future.

So we got to see deployment of a couple of billion dollars across a couple of hundred companies at Kleiner, and we had a number of really important lessons learned about what works investing in this space and what doesn’t work. And we coalesced around the strategy that ultimately led to the spin-out of our team.

[00:03:20] It was myself and three other partners. We were managing a billion dollar fund called the green growth fund inside of Kleiner at the time. And that was early in the cycle, 2015-2016, where it wasn’t exactly clear to the world whether investments in this space were working or not, but because we are close to the companies, we had some insight into some of these early wins coming.

So we spun out in 2017 to form G2 behind that investment thesis and all the learnings that we accumulated at Kleiner. And over the next few years, we were able to see some of those investments come to fruition and deliver outsized returns. We had investments in companies like OSIsoft and Enphase and ChargePoint, Nest, Beyond Meat, QuantumScape, several of which returned entire funds. So, long-winded answer to your question of how did I get here, but at the core of it, it’s following a passion for trying to solve big problems around sustainability. And that led me through sort of technical work and then entrepreneurial work and now mostly investment work.

[00:04:19] James Lawler: So, Brook I’d love to follow up with one question there. You mentioned that in circa 2015, or so your mind sort of coalesced around a thesis for what works in the sustainable investment space and sort of where to place your bets broadly speaking. And I’m really curious to hear you reflect on what was that thesis and what did you feel like you saw that maybe others didn’t at the time, and then how has that developed the way in which you invest today?

[00:04:44] Brook Porter: Yeah. I think what we really learned was when you’re inventing technologies in new industries, I think there’s been a lot of attention placed on the time it takes to remove technical risks. So to try to get a new chemical process or synthetic [00:05:00] biology process to work and removing that risk is hard and can take time and capital.

But I think the piece that much of the industry, at least in the first wave, underestimated was the time it takes to commercialize those technologies. And so it’s not just capital intensity from building plants, which is, I think what people think about or hardware generally, but just the time it takes to adopt technology in commercial environments in certain industries can be very long and it’s just, some industries are slow to adopt technology.

And so what we zeroed in on is trying to reduce technical risk. So only invest in things that are already working, and reduce commercialization risks. So invest in things that have customers, customers are buying and they want to buy more of it. And that still defines a pretty broad spectrum of how you define those terms.

And we spend a lot of time understanding exactly when those inflection points are happening so we can deliver outsized returns to our LPs, but that’s sort of the core of the lessons. We did place some bets on bold technologies during that time. And some of those still have yet to play out. I think maybe QuantumScape would be a great example of that.

Those are really hard bets to make, but you can make outsized returns on them, but there’s a lot of technology risk in that, certainly in that early iteration. And in fact, the company has pivoted away from that original technical thesis into an entirely different approach. And the technology is still not commercial, right? The batteries are still in development, even though it’s a public company worth many billions of dollars. And I think the reason why that thesis has worked on some of these technology bets, which is different than what we do, is that the markets are just so massive that there’s now I think capital, and even in the public markets there’s more capital that’s [00:06:40] available, and interested in betting on some of these companies and these technologies, because the prize is so large.

And so I think the one thing that’s very different now than when we invested is there’s evidence of success. There’s a number of companies that have made it through the valley of death, the gauntlet, and come out the other side. Tesla would be like the most noteworthy example, you know, the trillion dollar company focused on really hard problems. That suddenly enables investors to see what’s possible and drives a lot more capital flow.

[00:07:09] James Lawler: One more question, then I’ll turn it over to Darren. You mentioned that in high school you wrote a paper about electric vehicles and then you really didn’t come around to work on electric vehicles for some time after that. Right? And meanwhile, you watched a particular arc transpire in the EV space. I’m wondering what exactly happened in your view from the time you graduated from high school to the time where you’re investing money in companies, what were the critical moments for that particular technology that went from making it something that everybody said will never happen to something that obviously is happening at a huge scale to.

[00:07:45] Brook Porter: Love talking about this topic. So I wrote this paper in, I think it was 1993. And so this was at the time where GM had a prototype vehicle they called the GM Impact and it was that crazy looking vehicle it had a lead acid battery in it that could go 40 miles. And I wrote a paper and you had to go do research.

And I was reading new papers on battery technology. And I found one by this researcher named Stan Ovshinsky had developed a new battery called nickel metal hydride. And it had all these great attributes. It would give you more energy density and it was supposed to be a green battery. And I thought, oh, this is pretty cool.

And I ran the math really at a [00:08:20] super high level and said, if you put this battery into the GM Impact, you get a hundred mile range instead of 40 miles, and that would solve most people’s commute issues. And I said that, we could solve electric vehicles. And that was the conclusion of my paper. And then three years later, GM actually acquired that technology and launched the EV1 which was the documentary the “Who killed the electric car” was about that car.

But I noticed that, and I – sort of subtle sign, I probably should have paid more attention – but I was like, oh yeah, I wrote a paper about that. So it’s sort of like, a little sign that like you can do some research and figure out on a first principles basis, what should happen. And sometimes that stuff happens.

Now, the problem was that 100 miles wasn’t sufficient and that cycle life wasn’t great, and a bunch of other challenges, but that car almost made it. The documentary’s kind of interesting to watch if you haven’t watched it before, but at the time this is late 90s, I sort of thought you had to have a perfect answer. And like refueling time was really critical. So that’s why I got into hydrogen. I thought if we could just solve the hydrogen storage problem. It could all work and I also thought that oil, the oil industry wasn’t going to just roll over and let this happen. And hydrogen sort of provided a bridge. So I just thought it was more practical that oil companies would embrace hydrogen. They’d have something to sell and let the industry transition in a more smooth way.

But the hydrogen problem turned out to be really hard to solve. And the key insight that coalesced around the Tesla strategy is really understanding I think one very important principle in this whole space, which is the concept of Wright’s Law, which is if you can get a manufacturing learning curve going, you make a product, you sell it, you make a little more. Wright’s Law is basically every time you double production, you can reduce [00:10:00] costs by 20 to 40%, depending on whether you’re talking about airplanes or lithium-ion batteries or solar cells. It matters a lot over time. And so the advent of the iPod, portable devices, and then ultimately the iPhone and mobile computing and laptops, all compounded.

All of those factories were built, first they were nickel metal hydride, and then they transitioned to lithium-ion and that started this learning curve that every year batteries are getting cheaper and better. And instead of inventing a new technology that has to compete with that curve Elon had the great insight of I’m just going to ride that curve. I’m going to be a buyer of that curve instead of a seller into that curve. And it’s one of the most important lessons that we learned during that timeframe, the at-scale technology wins, and there’s a lot of parallels to those lessons that we apply in all of our investing.

[00:10:49] Darren Hau: And I feel like I personally caught the tail end of some of the things that you saw. I actually did some research in organic solar cells before realizing yeah, silicon’s just going to dominate this thing.

[00:10:59] Brook Porter: Yep.

[00:11:00] Darren Hau: So actually, based on your experience, both as an operator and now for many years as an investor, I wanted to ask a question about your investment philosophy. As you know, VCs often have a template for certain industries like SAS businesses. You know what multiples they should trade at etc. Do you feel like there’s a template that’s forming around climate tech? Or do you feel like each company still needs to have significant rigorous first principles analysis?

[00:11:23] Brook Porter: I mean, so that’s our entire mission at G2 is to build a machine that can identify the companies that can deliver outsized returns investing in this space.

And so that’s the project we’ve been working on for 10 years is building that machine and [00:11:40] specifically, you know, the way that we reduce risk by investing a little bit later, the way we identify technology, mega trends that are enabling rapid growth and rapid adoption and understanding some of those curves like lithium-ion and crystalline silicon that we can invest behind.

And then all the assessments that we do around those specific opportunities. I think we’ve built a machine that can deliver consistent, best-in-class returns. And if you look at our historical returns, even though we’re later, so you could call us sort of growth stage, I think we describe ourselves as late venture, early growth.

The actual returns we’ve delivered are best-in-class, top quartile of all venture categories. So I think the answer is yes, you can make outsize returns here. But it is very tricky and it requires, I think, a more robust methodology to avoid the pitfalls. I just think there are more pitfalls where you can get into companies that require enormous amounts of capital, or are much further away from commercialization than you might think.

And we’ve managed to avoid those sectors so far. There’s some spaces that get really hot and we’re very tempted, but it doesn’t quite pass our bar and we sort of decide not to invest. And we scrutinize unit economics probably more than anything, and the best capital to fund your business on is gross margin rather than expensive venture dollars.

So anyway, those are some of the tiny examples of things that we think about. I think as more and more investors come into the space, there will be more models that work than just ours. Ours is one that works for a particular risk appetite, but we can still deliver outsized returns.

[00:13:12] Darren Hau: I’d love to double-click on some numbers. If you don’t mind sharing, maybe you can give some benchmarks on what percentage of companies typically fail in [00:13:20] VC writ large. And what is a track record of G2VP?

[00:13:23] Brook Porter: Yeah. I mean, so, you know, I think the typical model is sort of, you have 20% of the companies succeed and 80% of them don’t succeed to some measure. Maybe they don’t all fail. Maybe you recover capital on some of those. But you have at least a third of the fund that sort of goes into things that just basically return $0. We’re kind of inverted. So we would say that 80% of our companies are going to deliver a return of capital or more, and only 20% will maybe not return capital.

So it’s actually pretty rare that we have any failures, any zeros. We invest a little later stage. So we may have more in the sort of 2x-5x as a kind of a range, but then we also have a handful of those, you know, 20 to 40% that’ll break out. And so it’s a little bit different of a distribution, but ultimately, you know, we get to the same kind of venture returns just with lower risk and lower failure rate.

[00:14:18] Darren Hau: It’s really interesting to hear about that portfolio construction. And speaking of which, what industries do you find interesting today?

[00:14:25] Brook Porter: Yeah, it’s sort of hard, cause I don’t necessarily think like, oh, transportation’s hot, let’s go invest in transportation. I mean, we’ve kind of mapped out a whole bunch of industries and we know a whole bunch of problems.

And so generally we’re pretty patient waiting for technologies to get to a point where they can suddenly be applied in a unique way with a great entrepreneur and team to start to demonstrate, you know, business metrics that we get excited about. And so, you know, a good example would be nitrogen cycle fertilizer in agriculture.

So broadly speaking, agriculture – an industry that [00:15:00] contributes a ton to climate, you know, maybe up to 15 to 20% of emissions – very tough to solve this problem, and it’s multifaceted, but one of the key slices of emissions come from synthetic fertilizer. 5% of all methane in the world goes to producing ammonia, maybe up to 8% of greenhouse gas emissions, because nitrous oxides are so potent greenhouse gases, and it’s incredibly inefficient. Half of it gets wasted. Half of it either volatilizes or gets washed off. But this problem, frankly, I’ve been thinking about for 15 years, back to when I was working in biofuels and visiting corn farms in Iowa, I saw that this was a major problem with corn and corn ethanol and the demonization of biofuels largely stemmed from this particular attribute of corn. And so I thought, well, what if we could fix that? But no technology, I’ve seen a bunch of different attempts, but nothing really worked, until synthetic biology as a mega-trend has now gotten to a point where you can do gene editing of microorganisms. In nature certain microorganisms fix nitrogen and a company called pivot bio identified that you can edit some genes of some particular microorganisms to continue to produce and fix nitrogen and produce ammonia sort of right at the place and time that the plant needs it most. And ,great idea, but we wanted to track it and see, you know, does the technology work across different applications? Does the customer actually want it? Does it solve the customer’s problems? And we saw, as soon as we got to the second year of a farmer buying the product, we got to see that repeat behavior, that was the critical thing we wanted to see, because we really know that farmers are super sophisticated in how they think about these [00:16:40] problems. And you can make a big mistake thinking, oh, this works in the lab, farmers will buy it. And so once we saw that repeat behavior, we invested. And you know, this is one of the things I’m most excited about. I think we’ve cracked the code, they’ve cracked the code on how to solve synthetic nitrogen in, you know, at scale real crop farming.

That’s an example where it wasn’t like we said, nitrogen fertilizers are hot let’s go do a deep dive. It’s sort of something that builds up over time. I think the thing that we track more consistently are technology trends.

[00:17:09] So, where are we at on, you know, automation and robotics, really interesting trends. Whether it’s demonstrated by autopilot of Tesla, you know, showing a certain state of the technology and machine vision or other automation examples coming into industry. It just feels like that coupled with labor shortages, supply chain crunches, onshoring of manufacturing are all sort of market forces around an opportunity to apply technology in a new way to new industries. So that sort of gets us excited and we really pay attention to where technologies are being applied in unique ways. And automation, robotaxis are sort of this holy grail. We may not get there for 5 or 10 years, but on the pursuit of that path, there’s going to be a bunch of really interesting applications that emerge.

So again, that’s kind of the Wright’s Law analogy of technology, just getting better and better every year. And while the ultimate solution may be still be far away, early applications are gonna come off of that curve where you can automate simpler environments, simpler automation challenges in ways that deliver real material value to businesses across different industries.

[00:18:17] Darren Hau: Really interesting. So the tagline is basically: track technological trends, but then be opportunistic about what comes across your table.

[00:18:25] Brook Porter: Yep, absolutely. And those intersection points, usually they spark what we call a deep dive. So, you know, we’ll see some intersection between a technology and a sector, and then we want to make sure that we’re not investing in the first thing we see.

So we scour the space. We look at all the companies, we assess, make sure we actually are picking the winner. So that’s sort of another layer that we do. A good example there would be our investment in Luminar. So this is a long range LIDAR company. Broadly speaking, we have this thesis around autonomy: of course in 50 years, cars are all going to be autonomous and we’ll never believe we drove cars, we let people drive cars. But somewhere along that path, there’s going to be some early applications. And we said, actually, the software problem of robotaxis is so hard that we think it’s going to take a really long time. But, if you constrain the ODD, the operating domain of that problem to not include humans, so how do you get the humans out of the equation? Well, if you just constrained to highways, there’s generally not humans on highways, so it gets a lot simpler. You don’t have to worry about dogs and bouncing balls and tricycles and all these other problems of the robotaxi software problem.

[00:19:33] But when you’re on a highway, you have to think about being able to sense a perception at long distances. So you need actually a hardware solution to solve that problem. And, that can best be solved today by LIDAR. And you need a particular wavelength of LIDAR to be able to see 250 meters. To be able to stop in time for things like trucks and passenger cars that have autopilot-like features.

And so there were 70 different LIDAR companies at the time. We were able to boil [00:20:00] that down through our network and conversations with OEMs and tier ones and autonomous trucking companies to identify what the specs needed to be on a LIDAR solution to actually work for the first commercial applications.

We thought those would be long haul trucking and level four passengers autopilot-like features where customers will pay $10,000 today for that feature. That’s a huge motivation for OEMs, and Volvo was one of those early customers of Luminar that said, you know, if this works, we’re going to buy a ton of it and roll it out across our platform.

And we were able to get some insight directly from Volvo about that level of interest and that gave us the conviction to pick Luminar out of 70 different companies. So, it’s getting the trend right, understanding the early applications that make economic sense, and then being able to pick the winner.

[00:20:51] James Lawler: So take the Tesla example. Elon Musk had the understanding that, you know, battery technology was at a place where if he started the manufacturing cycle and put a certain sort of threshold amount of capital and energy behind that cycle, he could then own compounding efficiency that he drove by, like putting that capital to work. Right? That’s the idea essentially?

[00:21:21] Brook Porter: Yeah. I think, yeah, not just for himself. I think he did have a broader view that it would sort of incentivize others to follow and sort of demonstrate a path that the industry could follow, which I think has happened as well.

[00:21:34] James Lawler: Yeah. And I mean, do you think that advantage then is, is the implication there then that that [00:21:40] advantage is unassailable. Like you couldn’t, you can’t now imagine another electric vehicle company competing because of that or, is it just that, is it not as strong a statement as that?

[00:21:56] Brook Porter: If the question is will anyone be able to compete with the Tesla? I think the answer is yes. I think the thing that becomes more difficult is Elon set out to solve not just the demonstration of the vehicle being a viable product, which is basically where I think the rest of the industry is at now trying to demonstrate a viable product, but he’s thought through three or four steps further than that. He reinvented the whole distribution strategy. He doesn’t have to depend on dealers to tell the story of the product. That’s probably maybe his best single innovation, because he was able to apply a software model of deploy fast, listen to your customer and iterate. And he designed the car specifically with, you know, ethernet instead of CAN bus, like the whole over-the-air updates. No one else can do over air updates like 10 years later. I mean, that’s amazing, right? Like that’s just an example of how structurally something simple, like know your customer. I mean, no OEM has ever spoken to. I think they don’t talk to customers, they talk to dealers.

Right. So, and I remember just experiencing this as a customer, as new technologies came out, I was just shocked at how ignorant the dealers were. They didn’t care about the new technology. And I just was, it was an awful experience buying early electric cars. I bought early diesel cars too. So he reinvented that, you know, the sales process.

[00:23:25] He decided to solve the energy and the charging problem by building out a charging network. Today still, nobody really has a viable alternative to the supercharger network, right? I mean, Volkswagen got the gift of a $10 billion lawsuit that forced them to build out, you know, a charger network. But it wasn’t because it was necessarily strategic. It was sort of a settlement. Right? And then you look and if you’re buying and you’re in the market for a high-end EV, you know, if you can’t take it on a road trip, it’s, it’s just not quite the same. I think great entrepreneurs, right, have that founder mentality of solving big problems and then continuing to solve the next problem.

And then, you know, I don’t think he had autonomy in mind at all when he started Tesla, but he’s like, okay, I’ve got this digital platform and I’m going to put cameras in it and what can I do? And then saw Mobileye and that evolved into, wow. We can do autonomous vehicles. And saw that it was happening other places and quickly adopted it.

So I just think it’s very hard for incumbents to have that mentality, but we’re seeing some of it. I mean, look at Ford launching the Ford F-150 Lightening, and you know, they’re able to launch features like vehicle-to-home, which Tesla doesn’t have today. So like, those are really good examples of incumbents, making interesting product decisions and even beating Tesla to the punch on certain things that makes me suggest that you can certainly compete.

And they’re, it’s nice to see an OEM actually pushing Tesla on product, which doesn’t happen very often.

[00:24:54] Darren Hau: Yeah, it’s kind of interesting. It is hard to know what the answer is, but it’s probably not as black and white as hey, Tesla’s going to win the entire auto and energy industry versus, oh, the legacy OEM’s will win.

I think it really comes down to whether we think the legacy infrastructure in place is an advantage or not. Right? For instance, you could say the dealer network is an advantage, or you could say there’s already all these manufacturing facilities that OEMs can take advantage of. But on the other hand, if you are a pure play EV maker and you can design a vehicle from a blank sheet of paper, maybe that is actually the advantage.

So hard to know what will end up happening, but that seems to be the framework you should approach it from.

[00:25:35] Brook Porter: Yeah. And the infrastructure of the next generation products is going to be different, you know. Battery manufacturing, that’s going to be pretty core. Do you have access to cells? Right?

Darren Hau: Very different from engine development.

Brook Porter: Very different. Or at the charging network, you know. I think that’s one incredible strategic decision that Rivian made was to have an actual strategy around charging. They said, we’ll make commercial vehicles, we’ll sell them the Amazon, and then we’ll provide charging services to Amazon so that we can get some base load utilization on our charging network. That will help us roll out chargers to help us sell more cars.

Because otherwise, if you just run the math on what it costs to rollout chargers just on the margin of EVs, that’s why all the car companies can’t do it. Cause they’re like, I’m not making margin on these cars yet. So I’m just going to lose money. I’m not selling my high-margin cars, in exchange I’m cannibalizing my margin, and I have to spend more on infrastructure.

It’s really hard to sell that at the board level, right? Like these executives are struggling. But if you’re a new company and you’ve got a new model and you’ve come up with a new strategy, hey I’m gonna partner with these guys called Amazon and that’ll get me to scale or at [00:26:40] least some critical density of chargers. Rivian’s got a decent chance with that strategy.

[00:26:45] Darren Hau: It’s very cool to see what they’re doing. Having worked on the Tesla supercharging system and now being part of the third party charging ecosystem, I feel like there’s a huge advantage to having that charging network and vehicle sales coupled in that way.

[00:26:57] Brook Porter: Huge. Yeah.

[00:26:59] James Lawler: So, question for you about policy. So policy obviously has a major role to play in some spaces, you know, in particular, when it comes to speeding the energy transition. And I’m wondering about how you think about policy risk and opportunity when you are thinking about your investment strategy. It sounds like you try to steer clear of it, but how would you answer that?

[00:27:21] Brook Porter: Yeah. At the highest level, it’s really hard to predict regulatory timelines. So the high level answer is we don’t take regulatory risk. But that being said, we do model potential upside scenarios where, this solution works today, and there’s a decent chance that regulatory oversight could happen that would just completely changed the game for the trajectory of this business. I’ll mention the Pivot Bio one, I think is a good example. In every industry, the manufacturers are responsible for their waste, right? It’s just sort of logical. If you have a factory, if you have a tailpipe, you’re responsible for your waste.

A farmer is really just a manufacturer, right? It’s turning sunlight and soil and water into food. Today there’s an enormous amount of waste in the form of fertilizer. It turns into, you know, a nitrate runoff that pollutes waterways, kills lots of fish, destroys ecosystems downstream. But no one’s really responsible for it because frankly it’s hard to regulate [00:28:20] and it’s hard to sort of tax farmers with that burden. And I get it, and it’s hard, you know, I wouldn’t necessarily say we should advocate for that, but it sure does suggest that if there was a low cost solution for solving that problem, then you could regulate it. Look, if there is a solution that could reduce. greenhouse gas emissions and nitrate runoff and didn’t cost you any more money, in fact, saved you money, we should probably regulate and say everyone should do that. Or at least if you don’t want to do that, you should find another way to be responsible for your emissions. So anyway, you know, those are the kinds of examples of, I think the EPA should, you know, regulate and manage water quality coming off of farms. But it’s politically very tenuous to do that until technology is available to actually solve the problem. That’s now available, so it seems like a solution that would make sense.

[00:29:12] Darren Hau: Electrification of transportation versus using hydrogen, which you had alluded to before.

Why do you think we still see some automakers, particularly the Japanese ones focusing on fuel cell technologies for passenger vehicles? And what do you think about fuel cells for another segment of transportation, say long haul, heavy duty trucking?

[00:29:29] Brook Porter: Yeah, it’s been interesting to watch Toyota. I think the beauty of many of these Japanese big businesses is they have a very long-term mindset. So they set long-term goals and they sort of are willing to sort of chart the course over long periods of time. But I think this is one case where it probably hasn’t served them very well. It’s amazing to me that Honda and Toyota were the first two companies to roll out hybrids. Right. They actually beat, there was a program in the 90s called the Partnership for Next Generation of Vehicles. I think it was like a billion dollar subsidy program for all US automakers to develop [00:30:00] hybrids, and Toyota and Honda beat them all, right. It’s kind of amazing, we had the subsidies at work, and yet Toyota and Honda commercialized it.

And yet they don’t have basically any EVs today, right? They’re kind of out of the game. It’s just amazing to me they missed 20 years. They had a 20 year head start and now they lost it. You’ve seen some of that recently change. Toyota’s changed their tune recently on EVs, but they’re still not giving up fuel cells entirely.

I just think it’s a fool’s errand. I think the reality of the customer experience of charging at home is so much better than going to a fueling station that, you just don’t need it. And the best way, I don’t know if you all drive EVs or not, maybe you do, but, for people that don’t, you know, imagine plugging in your phone every night, the way you do today.

Instead of that, what if I said, I’ve got a pitch for you? You would not have to plug in for five days, but you have to go to an ACE hardware. Right. Some random, not too densely distributed infrastructure. And you’ll pick up this special little fuel pod that’ll go into your phone. It’d be a disaster, right? You’d have to carry around extra fuel pods, and if you run out you’re like, what do you do? It’s just not a big deal to charge your phone. Right. And you never, how long does it take to charge your phone? Well, it takes like a couple of hours. Right. But no one ever thinks about it. When you charge, how long does it take to charge your car at home? It takes like 30 seconds: how long does it take to get out of your car, plug it in, and then you go to sleep and you wake up and it’s charged. So I just think that model is very difficult to overcome. And, you know, going to a gas station is not a great experience or good use of time.

And I think that trade off ends up being worth it. [00:31:40] For long haul applications, right? Batteries have a lower energy density than liquid fuels. So, and they’re getting better, but they still have a ways to go. So I think there is an argument to make around the timeline of improvement in batteries, relative to the timeline of improvement of fuel cells and cost of hydrogen, where depending on your assumptions, you can sort of imagine that there will be some applications of long haul trucking where fuel cells make sense. Particularly if they’re automated and refuel time becomes a really important factor. Because you know, fast charging a truck does require a meaningful amount of electrical infrastructure. So, but it also requires a meaningful investment to be able to put in a hydrogen refueling station.

So those things end up being kind of neck and neck races in some cases. And I think a lot of that will depend on how policy ends up affecting that. If there’s subsidies for hydrogen, I think in the Build Back Better plan, there’s a $3 per kilogram hydrogen subsidy. That’s a big deal, that that’s a huge subsidy.

So, you know, those things can move the needle on some of these  battles, but generally speaking, I think Wright’s Law, all things else being equal Wright’s Law is going to win, and you may maybe do battery swapping in trucks. That’s another way to solve the problem. So I’m generally fairly bearish on hydrogen in all transportation applications.

Maybe aviation and I, you know, maybe we’ll talk about that, but I just think, you know, I’m also on the board of Proterra, you know, we made a bet on commercial vehicles being the first to electrify and I can see the curves. Right. I can see [00:33:20] what’s happening. They’re all going electric.

Right. And so if you’re going, okay, passenger, then class three, then class four, then class five, class six. So, you know, class seven and eight, you know, like, yeah it’s a little harder to imagine, but these models are going to shift with other technologies like autonomy. And so you might just end up breaking up these individual truck rides into sort of long haul segments and short haul.

So yeah, I, I’m pretty, pretty bearish on, on fuel cells for those applications.

[00:33:48] James Lawler: So Brook, one more question for you. You mentioned aviation and I’m curious just to go a little bit deeper there. What do you think the most promising technologies are to decarbonize aviation?

[00:33:59] Brook Porter: So aviation’s super tricky. I think this is one of the biggest problems that has the least amount of shots on goal currently.

You know, the size of the problem relative to the solutions right now is totally out of whack. And so we need a lot more shots on goal here. It’s also very hard because the turnover rate of the fleet, you know, if you think about passenger cars, maybe it’s 10 to 15 years and long haul trucks are maybe 20, 25 years.

Planes is they’re like 30 to 50 years. So, you know, the technology adoption cycle is just much, much lower there. So I think you actually need multi-pronged solutions to solve aviation. I think in the immediate term, we just have to decarbonize the liquid fuel and we can do that multiple ways. Right. We know we need lower carbon intensity fuels to be blended into the supply of aviation fuel.

That is possible. It’s expensive. But it’s something that should be mandated and there should be a national low carbon fuel standard for aviation and try to get to 10 or 20% reduction. [00:35:00] Ultimately I think you can get to maybe 50% reduction or maybe greater over time. But the cost gets pretty high as you start doing things like electro-fuels and try and turn photons into long chain hydrocarbons. The costs are just really pretty high. So there’ll be a debate as to what makes the most sense to fully decarbonize. You know, we need to reduce as much as we can practically, and then we need to remove the carbon emissions either directly or indirectly somehow. And so I think that’s going to be an interesting debate as to how much can you reduce and then whatever becomes insurmountable, maybe it’s cheaper to do direct air capture and pull CO2 right out of the air somewhere than to actually decarbonize the rest of that fuel. That’s a, that’s an interesting debate. I think over time though, there’s also new models. So that’s just applying it to our current paradigm of transportation, which is the way airports work today. Because of that Wright’s Law curve and batteries getting cheaper, you see all these new modes, new modalities of transportation emerging. The one wheel, right? Like, you know, electric scooters, electric bikes. There’s lots of new modes that we never thought about being viable that are emerging. VTOL is a very interesting one. Right? So are there ways that you can electrify point to point transportation over short distances that could take pressure off of road based transportation?

And there are other sort of short haul opportunities where there’s a lot of unutilized infrastructure at smaller airports. So you could imagine more frequent electric, shorter distance trips, [00:36:40] think like 100 to 300 mile trips, either with electric planes or with VTOL starting to become more prevalent. And you think, you know, in the Bay Area, it’s, it’s how do I get to Napa? How do I get to Tahoe? How do I get, you know, to different nearby destinations and that could drive adoption in aviation to electrify. And then you could start to see slowly over time, we get electric viability at first 150 miles and then 200 and 300, and over time, and fuel cells could play a role in that where suddenly the plane is electrified, but that’s going to take a while, right? That’s just to certify those planes. It’s a, it’s a long slog, but that’s generally my thought is you need a two-pronged approach: solve the infrastructure we have now, so we’re burning fuel, we’ve got to decarbonize the field we burn, but we also need to take more shots on electrifying.

[00:37:34] Darren Hau: That was Brook Porter, partner at G2 Venture Partners.

[00:37:39] James Lawler: Climate Now is made possible, in part, by science partners like the Livermore Lab Foundation. The Livermore Lab Foundation supports climate research and carbon cleanup initiatives underway at Lawrence Livermore National Lab, which is a Department of Energy applied science and research facility. More information on the Foundation’s climate work can be found at livermorelabfoundation.org.

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