01. December 2022

A Conversation with Dynamo Ventures and Energize Ventures

In this segment of the FEV Blog series, we provide some insight into the world of sustainable infrastructure and applications that were discussed during a recent Future of Mobility LIVE event featuring Santosh Sankar and Tyler Lancaster.

In addition to actively supporting many of the companies bringing this technology to life, we’re keeping a finger on the pulse through a regular exchange with thought leaders in this space and we’re bringing our readers the latest updates and developments.

Santosh Sankar is a Founding Partner at Dynamo Ventures, a supply chain and mobility investor focused on pre-seed and seed-stage opportunities. He has been an early investor in several distinguished supply chain technology startups including Stord, Gatik AI, and SVT Robotics. Prior to his career in venture capital, Santosh was a public equities analyst. He started his first company, an IT support business, when he was 13 years old and was named to the Forbes 30 Under 30 List in 2017.

Tyler Lancaster is a partner at Energize Ventures, a leading global alternative investment manager focused on the digitization of energy and sustainable industries, where he drives investment activity and portfolio management. Prior to joining the Fund, Tyler worked at Accenture Strategy, where he shaped new business models and investment plans for Fortune 500 electric utilities and private equity. His work focused on distributed energy resources, regulatory innovation, grid modernization, and transportation electrification. Tyler began his career building commercial solar PV and energy efficiency projects for an energy services company. 

In our conversation, Santosh and Tyler share their thoughts on the role of software innovation in mobility and look at the EV charging infrastructure – the role of soft costs, application in commercial vehicle logistics, the role of renewable energy and more. 

Here’s our conversation with Santosh and Tyler. 

A few months ago, FEV launched a new brand, FEV.io, with a strong focus on the role of software in the mobility and energy industry. What do you see as the most promising areas for software innovation?

Santosh: As a venture investor, we love things that are pure software, because it ends up just scaling a lot cleaner. But part of the reality as to the industry we play in is that very few things are purely software driven. And we do need to have an appreciation for the physicality of what we're engaged in. 

In some cases, pure software makes a lot of sense. In other cases, there's enough complexity, where you might not be able to just purely rely on software, and you tend to see service models that are built, and the role of the software is to actually provide operating leverage. And by operating leverage, I mean, a single individual can do disproportionately more and have greater productivity than perhaps the competition or the conventional means of solving or addressing this issue. 

Tyler: Ultimately, for the infrastructure, whether we're talking about energy or transportation, we're talking about our physical things and equipment. To date, there's other great forms of capital, like project finance and grants that can be really powerful accelerators of venture capital, whether that venture capital is used for pure software companies, or infrastructure related plays, where we have been investors in the past as well, such as our investment in Volta charging, which is ad supported. While we are focused on software, we have a healthy respect for the diverse capital ecosystem, which is required to make a lot of these companies successful over the long term.

What is exciting to you about what specific companies are bringing to the EV charging infrastructure space?

Tyler: EV charging has been a very difficult business. It has been a place where you go to pour a lot of money in and don’t get a whole lot out in terms of profits or cash flow. And the big reason why is that, in the early days when EV charging infrastructure was built, there weren't enough EVs on the road to support a model where someone builds an EV charging station and then sells the electricity to generate revenue. 

One of the reasons we decided to invest in Volta was they put giant digital screens on their EV chargers. They monetize the eyeballs of folks that are walking by the EV chargers in order to subsidize the electricity and generate orders of magnitude greater revenue than they could from electricity sales alone. They use this as a way to build out a network that is located where people are throughout the world and how they would prefer to charge up their vehicles. This gives them the ability to generate orders of magnitude greater profits per charging station than anything that we had seen in the past.

Let’s look at the commercial vehicle sector, where FEV does a lot of work in this space with traditional and evolving systems and technologies. How do you see the role of electrification impacting commercial vehicle logistics and charging infrastructure?

Santosh: There’s a lot of chat around electrification, and rightfully so. We believe it’s important for the broader causes around sustainability and being environmentally conscious. Equally, stakeholders are pressuring companies to hold themselves to that bar, not just for economic profits but also more broadly. That’s where we think applications for electrification around supply chain make the most sense, such as first mile and last mile, where you’re talking about relatively short distances, likely in urban environments, and you tend to have payloads that don’t quite rival that of over the road vehicles. That’s where this a mixed sentiment here at Dynamo.

When you think about over the road, it's just not as efficient to apply electrification for 50-foot trucks hauling freight across the country. That's where there are certain benefits that internal combustion engines provide, along with other alternative sources like hydrogen. 

But in recent months, we have actually seen a shift perhaps happening in long-haul freight where more freight is relayed, which is another way to say taking a 1,000-mile journey and splitting it up into chunks of 200 300 miles. Maybe as electric technologies, specifically battery technology, matures, there could be an interesting application. And obviously, there's a charging infrastructure requirement there but we don't think it's going to look as similar for the commercial side as how truck stops look today. We think a lot of these facilities will be company premises, maybe even operated in part by the carriers, the trucking businesses themselves.

Earlier this year, FEV formed a new business unit, FEV Energy, to apply our expertise in enabling decarbonization in the industrial energy sector. In our work with folks in energy, we have noticed how they speak about charging infrastructure and the role of soft costs (i.e., all aspects outside of hardware or equipment used to install and operate a system). How important is it to overcome these costs to have effective charging infrastructure in the mobility industry? 

Tyler: Let’s look at the cost of solar panels and associated hardware. The cost has declined by almost 90% in the last 10 years, primarily through manufacturing scale up and learning curve dynamics. But what has come to hinder that industry, and we think will play out with all forms of new energy- and mobility-oriented infrastructure, is soft costs. It’s beyond the hardware or equipment associated with getting that solar panel installed and producing energy. It includes things like customer acquisition as well as engineering and design work, which a firm like FEV might be helping with, as well as financing costs such as permitting. In the U.S. in particular, we are not great about limiting these soft costs. There’s a lot of red tape and bureaucracy built up in our country associated with deploying infrastructure and equipment.

However, what we've seen in the past five years is software and data emerging to help remotely conduct a lot of these activities using remote sensing satellite data and machine learning techniques to optimize how solar arrays are designed and maintained. We are now starting to see something very akin to that journey happening in EV charging. In our experience, the timeline for permitting and interconnection to get an EV charging unit set up in a Walgreens parking lot has ballooned from three months to nine months. And all that time means cost and expense, which ultimately is passed through to the consumer. We think software can play a really important role in squashing down those soft costs and continuing to accelerate the deployment of all that equipment and hardware. There’s a tangible real-world impact in terms of delivered cost of electricity from an EV charging unit, or from a solar panel, if you can use software to squash down these soft costs.

Santosh: We have come to come across companies who recognize the burden of soft costs in their internal margin structure, and actually have internal tooling where they're able to streamline parts of the permitting so they're able to almost automate and do things that are very smart operationally, that you would otherwise not see, but still improve their profitability. And I think some of that is going to have to also be solved by public and private coming together.

To Tyler's point that it took three months and now it's taking nine months for EV charging installation, if anything, most of the things in our world go the opposite way. It should be going from nine months to three months. And what are the barriers there to do that? Are there site assessment studies? Is there an understanding load on the underlying grid infrastructure? How are you able to sort through that and identify those issues, solve those issues in an expedited manner? Because there is some level of urgency to this as well. 

Even after we have suitable charging infrastructure in place, the use of a coal-powered grid to charge vehicles isn’t sustainable. So, if we move toward electrified or hydrogen propulsion systems, the generation, transmission, storage and supply of renewable energy are critical. How are you thinking about the growth of renewable energy in the coming years?

Tyler: If we electrify but do not have zero-carbon power generation resources, then electrification for the sake of decarbonization won’t make an impact at all. Right now, transportation accounts for the largest share of greenhouse gas emissions in the U.S. – it’s 30% of the US’s emissions profile. Power generation has been going down for years because of the adoption of solar and wind technology, especially large-scale solar and wind plants. From our perspective, we need to do two things: we need to power the world with renewable electricity, which will primarily be wind and solar complemented by batteries and other forms of flexible zero-carbon clean power. And actually, I’d also bucket geothermal, nuclear and hydro into that group as well. We think the mix will look something like 70% to 80% sun and win, and then a smattering of other things that can be flexible and map to demand.

Then, we need to electrify, and that’s going to take a long time. We’re still very early in the electrification journey and even if we do move to something like hydrogen fuels for longer-haul trucking, producing hydrogen with zero emissions requires a lot of energy, so we need to have abundant solar, wind, or nuclear to provide the energy input to create low-carbon fuels.

Santosh: I think Tyler captured it very succinctly. As much as we want to think that we solve the problem by electrifying and removing diesel and gasoline vehicles, it actually comes to the source. Even something like hydrogen; right now hydrocarbon is used to most efficiently manufacture hydrogen, which is then spent to move a vehicle. So, there’s certainly a lot of work to do.

What do you think will be the main driver to encourage increased renewable energy adoption?

Tyler: This is something we think about a lot. Early adoption of solar and wind was not driven by environmental concerns broadly. It was an economic decision that corporations and power companies began to make because wind and solar simply became cheaper than the other alternatives out there. 

Santosh: Our general adage here is that no one is going to buy purely on environmental reasons. There has to be a fundamental business reason as to why they make a decision to purchase something from our portfolio, or from whomever. So we’ve seen companies around routing who tout that we can make you more sustainable. But you bring it to a trucking fleet, and they ask, “do you hit our operational SLA’s? Can you account for these factors that, right now, our incumbent systems or means of operation accounts for?”

And if it’s a yes, then great, now talk to me about the sustainability benefits and orientation. That could be interesting. But it’s not the other way around. And specifically, around energy right now, we’re in a period because of geopolitical conflict that energy prices are high and, apart from labor cost, fuel costs are the second, if not something the top, cost the fleet grapples with. Large fleets are largely hedged for about 12 months, so we’re not really see the pain until early to mid-next year, but this could be that moment where you see them accelerate certain parts of their network or their assets into some other type of fuel, or being able and willing to make that investment, that commitment, to understand and research better.

So, in periods such as this, where you do build the economic case to consider making the switch, absolutely. But it won’t be, to your point, simply because it is more sustainable. Those pressures are there, but ultimately it has to come down to dollars.

As this discussion shows, while industries still look at conventional fuels, discussions about and application opportunities for alternative and synthetic fuels has been brought to the forefront. With the ongoing advancement and evolution of mobility solutions, FEV offers automotive and fuel industry OEMs and suppliers an impressive portfolio of engineering services and capabilities in alternative and synthentic fuels for everything from small vehicles to large commercial engines. 

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Brian Pospy Brian Pospy
Business Development Manager - Intelligent Mobility
FEV North America, Inc.