10/3/2014 - Ktal Nbc 6 - Interview With Paul Inside The Factory

[goofyone]

Just as an FYI Elio Motors is trying to qualify for the ATVM loan program as an 'ultra efficient vehicle' which is separate from the 'light duty vehicle' segment of the program and the Elio as designed does meet those particular requirements

1) ATV/QUALIFYING COMPONENT ELIGIBILITY [10 CFR 611.2; 611.3]:

ATV Eligibility: In order for a vehicle to be eligible as an “ATV” under the ATVMLP, the vehicle must be one of
the following:
(a) Passenger automobile or light truck (as defined in 49 CFR 523) that satisfies both of the
following standards: (x) the emission standards set forth in clauses (i) and (ii) of the definition
of “advanced technology vehicle” in 10 CFR 611.2, as evidenced by an emissions certification
delivered in accordance with 10 CFR 611.3(a) and (y) the fuel economy standards set forth in
clause (iii) of the definition of “advanced technology vehicle” in 10 CFR 611.2, as evidenced by
a demonstration of the vehicle’s fuel economy performance in accordance with 10 CFR
611.3(b);
or
(b) Ultra efficient vehicle (defined as fully closed compartment vehicle designed to carry at least
two (2) adult passengers that achieves either (x) at least 75 miles per gallon while operating on
gasoline or diesel fuel or (y) at least 75 miles per gallon equivalent while operating as a hybrid
electric-gasoline or electric-diesel vehicle or (z) at least 75 miles per gallon equivalent while
operating as a fully electric vehicle).

Qualifying Component Eligibility: In order for a component to be eligible as a “qualifying component” under
the ATVMLP, the component must be both of the following:
(a) Designed for ATVs; and
(b) Installed in ATVs for the purpose of meeting the emission and fuel economy standards set
forth in clauses (i), (ii) and (iii) of the definition of “advanced technology vehicles” in 10 CFR
611.2.

http://energy.gov/sites/prod/files/...r-Applicants-Final-Version-October-5-2012.pdf

 

[goofyone]

I just looked this up as I had not really studied it in depth just yet. The 'financially viable' part of the ATVM program is really quite interesting and was different from what I had expected. It would appear that the 'financial violability' standard is not what many of us had assumed it was.

3) APPLICANT FINANCIAL ELIGIBILITY [10 CFR 611.100(A)(2)]:

In order to be financially eligible under the ATVMLP, the applicant “must be financially viable without the
receipt of additional federal funding for the proposed project”.

a) “Financially Viable”: The applicant will be deemed “financially viable” for purposes of 10 CFR
611.100(a)(2) if (i) there is a reasonable prospect that the applicant will be able to pay principal and
interest as and when due under the ATVM loan and (ii) the applicant has a net present value that is
positive, taking all costs, existing and future, into account. (See definition of “financially viable” in 10
CFR 611.2.) 10 CFR 611.100(c) sets forth a non-exhaustive list of the factors considered by the
ATVMLP in determining whether the applicant is financially viable.

b) “Additional Federal Funding”: 10 CFR 611.100(d) lists forms of direct and indirect assistance from the
federal government which would be considered “additional federal funding” for purposes of 10 CFR
611.100(a)(2).

http://energy.gov/sites/prod/files/...r-Applicants-Final-Version-October-5-2012.pdf

§ 611.2 Definitions.
Financially viable means a reasonable prospect that the Applicant will be able to make payments of principal and interest on the loan as and when such payments become due under the terms of the loan documents, and that the applicant has a net present value that is positive, taking all costs, existing and future, into account.

http://www.law.cornell.edu/cfr/text/10/611.2

§ 611.100 Eligible applicant.
(a)In order to be eligible to receive a loan under this part, an applicant
(2) Must be financially viable without receipt of additional Federal funding associated with the proposed eligible project.
(c) In determining under paragraph (a)(2) of this section whether an applicant is financially viable, the Department will consider a number of factors, including, but not limited to:
(1) The applicant's debt-to-equity ratio as of the date of the loan application;
(2) The applicant's earnings before interest, taxes, depreciation, and amortization (EBITDA) for the applicant's most recent fiscal year prior to the date of the loan application;
(3) The applicant's debt to EBITDA ratio as of the date of the loan application;
(4) The applicant's interest coverage ratio (calculated as EBITDA divided by interest expenses) for the applicant's most recent fiscal year prior to the date of the loan application;
(5) The applicant's fixed charge coverage ratio (calculated as EBITDA plus fixed charges divided by fixed charges plus interest expenses) for the applicant's most recent fiscal year prior to the date of the loan application;
(6) The applicant's liquidity as of the date of the loan application;
(7) Statements from applicant's lenders that the applicant is current with all payments due under loans made by those lenders at the time of the loan application; and
(8) Financial projections demonstrating the applicant's solvency through the period of time that the loan is outstanding.
(d). For purposes of making a determination under paragraph (a)(2) of this section, additional Federal funding includes any loan, grant, guarantee, insurance, payment, rebate, subsidy, credit, tax benefit, or any other form of direct or indirect assistance from the Federal government, or any agency or instrumentality thereof, other than the proceeds of a loan approved under this Part, that is, or is expected to be made available with respect to, the project for which the loan is sought under this Part.

http://www.law.cornell.edu/cfr/text/10/611.100

To me these are most important parts of all that legalize:

“Financially Viable”: The applicant will be deemed “financially viable” for purposes of 10 CFR611.100(a)(2) if
(i) there is a reasonable prospect that the applicant will be able to pay principal and interest as and when due under the ATVM loan
and
(ii) the applicant has a net present value that is positive, taking all costs, existing and future, into account.

(8) Financial projections demonstrating the applicant's solvency through the period of time that the loan is outstanding.

So it appears that when the law says that the applicant “must be financially viable without the receipt of additional federal funding for the proposed project” what this means is not that Elio Motors needs to be viable without the funds but instead that Elio Motors needs to show that they are viable whether the funds come from the ATVM loan program or another funding source.

 

[ks6c]

I believe you are correct. We know Elio Motors has, or is, exploring alternatives however it does appear that for now they are waiting to hear the results of the loan application before moving forward along other paths. My guess is that this is likely what the EM board and EM investors have decided is most prudent as they likely do not wish to dilute their current investments via additional funding, or put further investment at risk, until they hear what the results of the loan applications are.

I agree completely, but I'm going to spin it a little differently.

I believe this to be an issue of control, rather than money. Where you say "EM investors...do not wish to dilute their current investments", I would say instead "their current control." So, his current "money men" want what is essentially free money - to them - because they gain leverage without relinquishing ANY control.

So, how do they do that? Well, head games get played at even the highest of levels. They tell Paul they're not willing to fund production so he's got a greater incentive to be successful securing the DOE loan. But I don't believe for a moment that production will NEVER go forward if the DOE loan app is rejected, only that the original investors are not willing to declare their hand, yet. Keeps the pressure on. They might even have attached financial incentives to the success, incentives we will never know about.

Paul's personal incentive is to secure government funding because, as Tony points out, additional outside investment will put his very position at risk. Powerful motivator, if the alternative causes you to sell your baby.

IF - IF - the DOE loan is rejected, no doubt in my mind the original investors will move quickly to protect their investment and their control by securing additional funding that won't dilute their interests. They have a similar risk to Paul's - a secondary private equity investment could very well be larger, but a late infusion also gives the secondary investor leverage to demand additional concessions. Those who've invested in and built the dream to this point will do everything in their powers to ensure this doesn't happen.

So, don't mistake what we're hearing for being behind the scenes of the real negotiations. I imagine a lot of what we hear is calculated posturing, and I don't say that in any negative sense, whatsoever - that's just the nature of the money games. Too many people already have too much invested to delay production when all that stands in the way is a little money. The payoff is too huge.....

 

[goofyone]

I agree completely, but I'm going to spin it a little differently.

I believe this to be an issue of control, rather than money. Where you say "EM investors...do not wish to dilute their current investments", I would say instead "their current control." So, his current "money men" want what is essentially free money - to them - because they gain leverage without relinquishing ANY control.

So, how do they do that? Well, head games get played at even the highest of levels. They tell Paul they're not willing to fund production so he's got a greater incentive to be successful securing the DOE loan. But I don't believe for a moment that production will NEVER go forward if the DOE loan app is rejected, only that the original investors are not willing to declare their hand, yet. Keeps the pressure on. They might even have attached financial incentives to the success, incentives we will never know about.

Paul's personal incentive is to secure government funding because, as Tony points out, additional outside investment will put his very position at risk. Powerful motivator, if the alternative causes you to sell your baby.

IF - IF - the DOE loan is rejected, no doubt in my mind the original investors will move quickly to protect their investment and their control by securing additional funding that won't dilute their interests. They have a similar risk to Paul's - a secondary private equity investment could very well be larger, but a late infusion also gives the secondary investor leverage to demand additional concessions. Those who've invested in and built the dream to this point will do everything in their powers to ensure this doesn't happen.

So, don't mistake what we're hearing for being behind the scenes of the real negotiations. I imagine a lot of what we hear is calculated posturing, and I don't say that in any negative sense, whatsoever - that's just the nature of the money games. Too many people already have too much invested to delay production when all that stands in the way is a little money. The payoff is too huge.....

I actually completely agree I just did not want to explain it by writing all that.

 

[Jay3wheel]

But body panels? Why is it so hard to bolt or weld them on? When the glue is old, what will prevent the panel from falling off?

The panels are not made of metal you can't weld them.

 

[Jay3wheel]

I don't have the concerns over money that are often expressed on the forum, because there are so many sources, with caveats for each one.

First choice might be government subsidies/loans - cheap(er) and few(er) strings attached.
Second might be bank funding, but certainly wouldn't be cheap - likely usurial rates for a start-up, if they'd loan at all.
Third, think private equity/venture capital, but they want control of your venture, and if you already have a venture capitalist on board, they might guide you to all other possible funding sources first so as not to dilute their control.
Fourth, with 34 world-class companies already invested in this venture, I wouldn't rule out a consortium of sorts if the project was teetering and that was what was necessary to rescue it.
Fifth, if all else fails, it's back to #3 - the original VC wouldn't let his stake evaporate for ego's sake, they'd be the ones sourcing another VC.

So no, I'm not worried about funding at all. This project will fly or fail on it's own merits, not funding - $185mio is chump change, after all. IMHO

There is also, the possibility of a public stock offering.

 

[Smitty901]

There is also, the possibility of a public stock offering.

Going public could be a death blow to ELIO. In todays world they want return on investment quick and that may take some time. Also the costs in going public are very high. If they went public a large auto company could take a controlling interest with pocket change and run the place in the ground write off the loss .
I hope ELIO can stays private at least until they have built a market.

 

[Jay3wheel]

Going public could be a death blow to ELIO. In todays world they want return on investment quick and that may take some time. Also the costs in going public are very high. If they went public a large auto company could take a controlling interest with pocket change and run the place in the ground write off the loss .
I hope ELIO can stays private at least until they have built a market.

I'm sure that is the reason they haven't done it before. But, if he were pushed to the wall....

 

[Smitty901]

Many things are held together with different forms of glue (adhesive). Like DuPont used to say better living through chemistry.

Few years back I put some extensions on my saddle bags (Motorcycle) to my surprise when they you did not screw them on as I had though. They were put on with an automotive body adhesive. I trade the bike off at 75K it is still running around and those extensions are still on. They have some amazing stuff now.
They do weld some plastic. A friend of mine that retired as a Rail Road welder has a small shop he welds plastic door handles like on your refrigerator that get broken. He makes a lot of cash doing it. He says the replacement are so expensive it worth it to repair them.

 

[creekstone]

There is also, the possibility of a public stock offering.

I think it's a probability. But not now. And not before production.

If Elio Motors wants to realize the scale of production envisioned (and key to their long-term pricing strategy), a public offering is a real probability. And if the timing was right for an IPO, all the pre-production investors would probably do very well. Deservedly so!