Vehizero

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Investment Brief Vehizero S.A.: 

Investment Brief Vehizero S.A. Final Report March 19, 2002 Prepared for Mr. Sean O’Hea by the Fuqua Team Fuqua Faculty Advisor: Campbell Harvey Fuqua Team: Carlos Montalvan Jill Naughton Brian O’Connor Oleg Osipenko Jeremy Rogers

Outline of the Material: 

Outline of the Material The project team undertook several material research activities to understand the attractiveness of Vehizero for potential investors Overall Hybrid Vehicle Market does not look attractive, however the small delivery truck segment looks promising Our valuation of Vehizero sets a range between $ –3.3 million to $ 10.2 million, while the project’s IRR is estimated to be 14% Based on the characteristics of the project, Vehizero is more likely to attract socially-oriented investors than strictly financial investors Thus, we recommend that Vehizero launch an exploratory effort in the U.S. and other countries internationally, first targeting international development agencies and socially-oriented VC firms, then approach wealthy individuals as project reaches the next development stage

Outline of the Material: 

Outline of the Material The project team undertook several material research activities to understand the attractiveness of Vehizero for potential investors Overview of the work done Overall Hybrid Vehicle Market does not look attractive, however the small delivery truck segment looks promising Our valuation of Vehizero sets a range between $ –3.3 million and $ 10.2 million, while the project’s IRR is estimated to be 14% Based on the characteristics of the project, Vehizero is more likely to attract socially-oriented investors than strictly financial investors Thus, we recommend that Vehizero launch an exploratory effort in the U.S. and other countries internationally, first targeting international development agencies and socially-oriented VC firms, then approach wealthy individuals as project reaches the next development stage 

Overview of the Work Done: 

Overview of the Work Done The project team undertook several material research activities to understand the attractiveness of Vehizero for potential investors Researched web and literature to: Understand overall trends in global hybrid vehicle market Understand Mexico automotive market Evaluated project Vehizero: company valuation Identified key variables to be analyzed as key variables (Tornado Simulation) Looked at different scenarios and their probabilities Estimated the cash flows Calculated the cost of capital Evaluated the imbedded options of the project Analyzed the attractiveness of different types of investors to Vehizero Research of investment policies and objectives Interviewed VC specialists and academics Discussed the future of carbon trading with Chicago Exchange

Outline of the Material: 

Outline of the Material The project team undertook several material research activities to understand the attractiveness of Vehizero for potential investors Overall Hybrid Vehicle Market does not look attractive, however the small delivery truck segment looks promising Overall Automotive trends point toward intensifying competition, however, the truck segment appears to be attractive Moreover, the hybrid vehicle segment offers niche opportunity for small players like Vehizero Although Mexican labor costs are rising sharply, the country will continue to have cost advantage in foreseeable future Our valuation of Vehizero sets a range between $ –3.3 million and $ 10.2 million, while the project’s IRR is estimated to be 14% Based on the characteristics of the project, Vehizero is more likely to attract socially-oriented investors than strictly financial investors Thus, we recommend that Vehizero launch an exploratory effort in the U.S. and other countries internationally, first targeting international development agencies and socially-oriented VC firms, then approach wealthy individuals as project reaches the next development stage 

Overall automotive trends suggest intensifying competition: 

Overall automotive trends suggest intensifying competition Automotive Trends in Mexico and worldwide point toward increased competition Increased competition. In 2004, local content rules within NAFTA will be eliminated. Experts believe competition will intensify as a result, and margins of domestic producers will decrease Toyota enters the market. Toyota will start production of the light trucks in Mexico in year 2004 with full production taking effect in 2006 Contraband. There are about 2 million illegal vehicles – or auto chocolates – of the total 14 million cars in Mexico. Trucks assembled from the used parts cost legitimate truck producers 1/3 of their sales Hybrids for Emerging Markets. Big Automakers start focusing on producing simplified models for emerging markets. In 2003, the world will see 9 models specifically developed for emerging markets Source: Automotive News International /Mexican Truck Producer Association/Automotive News Europe These trends indicate that taxi market will be much more difficult to penetrate than delivery truck market MARKET OVERVIEW

However trucking industry appears to be attractive segment : 

However trucking industry appears to be attractive segment The Mexican truck fleet is large. Estimated to be 450,000 units Growing. At approximately 3% p.a. Old. Average fleet age is 16.3 years Not concentrated. There are some 5,000 trucking firms in Mexico city, plus large number of owners who own only a truck or two And partially illegal. Approximately 20,000 trucks enter Mexico illegally Source: U.S. Commercial Service. International Market Insight, 1999 Truck segment appears to offer some niche opportunities to Vehizero MARKET OVERVIEW

Hybrid vehicle offers opportunity: 

Hybrid vehicle offers opportunity Several trends in the global hybrid vehicle market indicate that this segment will remain an attractive niche for small players like Vehizero Different strategies. Different countries are pursuing different strategies in the search of a cleaner car. Japan is focusing on hybrid compact cars, Europe on fuel cell technology (i.e. pure electric vehicles), and US is focusing on hybrid trucks Top priority in the US. President Bush recently requested that Congress approve tax breaks of up to $ 4,000 per hybrid car and up to $ 8,000 per fuel cell car Its everybody’s game. Large numbers of small firms are involved production around the world Emerging markets have local players. India and Brazil are known to have domestic electric/hybrid vehicle manufacturers Big guns move in. Every automaker is either already engaged in production of electric/hybrid vehicles or announced a program to introduce the first models in 2003-2004. As a result, the US hybrid market alone is estimated to reach 500,000 in 5 years. Hybrid cars are still expensive. Hybrid compact cars are sold by Honda and Toyota in the range of $ 20,000 and hybrid trucks are priced at a $5,000 premium to their gasoline equivalent Hybrid vehicles segment offers opportunity for small players but the window of opportunity is closing rapidly. MARKET OVERVIEW

Competition is coming from Big Automakers, but not in trucks segment: 

Competition is coming from Big Automakers, but not in trucks segment Honda Insight The Insight is the first gasoline-electric hybrid vehicle to be sold in the United States. This two-seat coupe gets 70 miles per gallon (mpg), and meets California’s stringent ultra low emission vehicle (ULEV) standards. It was endorsed by the Sierra Club and heralded in the ACEEE's Green Book. Priced under $20,000, it is available through Honda dealers nationwide. The 2002 model is available with continuously variable transmission. www.honda.com The Toyota Prius is a five-seat hybrid-electric sedan that combines the range and performance of a gasoline engine with the silence, efficiency, and clean running of an electric motor. The vehicle never requires external source recharging. It meets California's Super-Ultra-Low Emission Vehicle (SULEV standards. It is sold nation-wide through Toyota dealers for $20,000. www.prius.toyota.com Even though every global automotive player has at least one “cleaner” model, no company has yet developed a light truck model

… And Hybrid Vehicle Market Newcomers : 

… And Hybrid Vehicle Market Newcomers Electric Postal Vehicle by Baker Electromotive, Inc and Ford are producing 5,000 electric postal service vehicles for the US Postal Service. The vehicles are battery powered and can be driven between 50 and 80 miles before recharging. They accelerate from 0 to 50 mph in 12.5 seconds and produce virtually no tailpipe emissions. Email Baker Electromotive, Inc, sales@vaenergy.com. The Solectria CitiVan: a walk-in delivery van, comes in an all-electric or a hybrid-electric model. Rugged construction assures long vehicle life and low maintenance costs. Powered by the same state-of-the-art Solectria technology found in over 1000 EVs on the road worldwide, the Solectria CitiVan is in service in Massachusetts, California, New York, Canada, and Chile. www.solectria.com The delivery truck niche is being quickly filled up by relatively unknown newcomers MARKET OVERVIEW

… Heavy/Medium Truck Companies in Mexico : 

… Heavy/Medium Truck Companies in Mexico Navistar International, world leader in the manufacture of trucks and buses, is on the vanguard of corporate environmental reform…The company has its own Escobedo Plant in Nuevo Leon... Company has more than 1,100 dealers worldwide, and 9 parts distribution centers Source: Business Mexico, December 1999 The company is also working with Lockheed Martin to produce Hybrid Electric Vehicles (HEV), which run from a combination of traditional diesel engines and electric battery power. The two are currently test driving a HEV medium truck and are developing HEV school buses and delivery trucks. www.navistar.com Sources: American Chamber of Commerce of Mexico, A.C. , 1999 Small delivery truck niche could potentially be attacked by the large/medium truck manufacturers MARKET OVERVIEW

Still Mexican companies will retain labor cost advantage over US rivals…: 

Still Mexican companies will retain labor cost advantage over US rivals… The 19-day strike earned VW employees a 14.7% increase in wages, from $ 25.50/day to $28.50/day plus food coupons… …Yet the cost of one union worker in US is $ 120 to $ 190 per day Source: Guillermo Valdes, Economists Associates Group, Mexico City MARKET OVERVIEW

… despite quickly rising labor costs: 

… despite quickly rising labor costs “Real wages in [the Mexican automotive] industry will increase 33% while productivity will increase by 9% for the period of 2000-2004.” Armando Soto, Ciemex-Wefa economic consultancy "It's no longer an easy answer to produce cars in Mexico… labor costs in the industry have risen 50% in dollar terms since the end of 1998” Economist Rogelio Ramirez de la O “Output per head is about a quarter of what is achieved in the United States … given cooked and tested technology and fairly simple production lines, Mexico can match U.S. productivity rates for some vehicles," Sean McAlinden, analyst, University of Michigan Labor Unions are quite strong. Recent strike at Volkswagen plant in Pueblo, ended with 14.7% wages increase MARKET OVERVIEW Labor costs are rising sharply …but still much lower than US level

Outline of the Material: 

Outline of the Material The project team undertook several material research activities to understand the attractiveness of Vehizero for potential investors Overall Hybrid Vehicle Market does not look attractive, however the small delivery truck segment looks promising Our valuation of Vehizero sets a range between $ –3.3 million and $ 10.2 million, while the project’s IRR is estimated to be 14% Valuation Risk assessment Imbedded options Based on the characteristics of the project, Vehizero is more likely to attract socially-oriented investors than strictly financial investors Thus, we recommend that Vehizero launch an exploratory effort in the U.S. and other countries internationally, first targeting international development agencies and socially-oriented VC firms, then approach wealthy individuals as project reaches the next development stage 

Funding Requirements appear to be higher than initially estimated: 

Funding Requirements appear to be higher than initially estimated Funding requirements range from $4.1M to 6.9M Recommended funding: $5.5M capital outlay of $3.4M $300K for prototypes $3.1M to build plant and WC $2.1M to sustain losses for 3 years expected accumulative accounting losses for three years is $2.1M VALUATION

Approach to valuation: 

Approach to valuation Key variables Tornado chart identifies key variables to analyze and monitor Probabilities and ranges Crystal Ball simulation Trucks Only Price, COGS, sales in full production Taxi Cab option Market size, price of taxis (assumed margin), 1st year penetration, growth during following years, cost of expansion VALUATION

Key Variables used in the valuation: 

Key Variables used in the valuation Tornado chart to identify impact of variables 9,500 VALUATION

Simulated Key variables: 

Simulated Key variables VALUATION HYBRID TRUCKS DATA Price Post Plant Truck COGS Terminal Quarterly Sales Rate TAXI OPTION DATA Price Penetration (i.e. Market Share) – 1st Year of Taxi Sales Penetration Growth Rate (from 1st Year Market Share) Quarterly Market Size for Taxis – 1st Year of Taxi Sales Plant Expansion Costs

Cost of Capital: 

Cost of Capital Cost of Capital: 17.9% ICCRC (International Cost of Capital Risk Calculator): 18.9% Based on a risk free rate of 5% Risk premium of 5% Anchored to the US Adjustments: -1% Vehizero has mitigated some risks because you are aligned with government and environmental initiatives Company exposed to most standard risks in Mexico ICCRC calculates the cost of capital for 135 international capital markets. It provides an alternative calculation to the CAPM and other traditional approaches that are less accurate for emerging markets. The ICCRC return reflects countries’ risk premiums based on a comprehensive methodology with strong economic foundations. The ICCRC accounts for risks such as a country’s economic and political stability. It is also anchored to the U.S. rate, so that the country rates are calibrated from that of the US. The intent is to adjust the denominator for countrywide affects. VALUATION

Internal Rate of Return of the Project is around 14%: 

Internal Rate of Return of the Project is around 14% We have performed 25 runs of the model to determine the IRR for both taxi and truck markets. The results are summarized below: VALUATION

NPV of the trucks only ranges from $ –3.3 million to $ 9.6 million: 

NPV of the trucks only ranges from $ –3.3 million to $ 9.6 million VALUATION Mean $1.02 M Entire Range -$3.3 M to $9.6 M

NPV of the project ranges from $ –3.3 million to $ 10.2 million: 

NPV of the project ranges from $ –3.3 million to $ 10.2 million VALUATION Mean $1.30 M Entire Range -$3.3 M to $10.2 M

Cost of Capital: 

Cost of Capital Review financial model VALUATION

Taxi option increases the upside but does not mitigate the downside: 

Taxi option increases the upside but does not mitigate the downside Taxi option is attractive only if truck market is a success. Thus, taxi option does nothing to mitigate the downside risk for the investor

Each variable is affected by variety of economic factors: 

Each variable is affected by variety of economic factors Price fluctuations Competition Increased cost of labor Ability to shift all supply purchases to Mexico Economic crisis / recession / inflation Sales On time production development Ability to produce and sell at full capacity Dependence on price fluctuations Competition Taxi option Execute option to expand into taxi market Ability to penetrate market RISK ASSESSMENT

Sovereign risk is low: 

Sovereign risk is low RISK ASSESSMENT

Pre-completion risk is low with certain ability to mitigate it further: 

Pre-completion risk is low with certain ability to mitigate it further RISK ASSESSMENT

Operation risk is moderate with little ability for Vehizero to mitigate: 

Operation risk is moderate with little ability for Vehizero to mitigate RISK ASSESSMENT

High financial risk with no clear opportunity to mitigate: 

High financial risk with no clear opportunity to mitigate RISK ASSESSMENT

Carbon trading option is not viable: 

Carbon trading option is not viable The possibility to trade carbon emissions quotas is extremely unlikely: Although Mexico ratified the Kyoto Protocol no clear carbon bond valuation has been established Although alternatives to the Kyoto Protocol are being discussed in various sectors of the world community, they face the same challenges as Kyoto Protocol. Given Vehizero’s size, value of the carbon bond would be minimal “CREATION OF THE CARBON BONDS TRADING MARKET IN THE IMMEDIATE FUTURE IS UNLIKELY” Source in the Chicago Carbon Emissions Exchange The creation of the carbon emission market seems will not be viable for the next few years IMBEDDED OPTIONS

Latin America expansion option is difficult: 

Latin America expansion option is difficult Other Latin American Cities are much less polluted than Mexico City Of all Latin American Cities, only Mexico City made it top # 10 most polluted world cities Mexico City pollution level is 2 times higher than any other Latin American City Some Latin American Countries already have local competition Solectria already operates in Chile Brazil has its own electric vehicle manufacturer that specializes in buses Public transportation systems in Latin America are at different stages of development Different per capita incomes as well as different gasoline vehicle prices will influence the possibility of expanding into other Latin American Cities The possibility of success of Latin American expansion option seems less likely than possibility of success in the Mexico City, as some cities in Latin America have already established players. IMBEDDED OPTIONS

Mexico City remains among the world’s dirtiest cities: 

Mexico City remains among the world’s dirtiest cities Source: World Bank, World Development Indicators, 1998; Air pollution Mexico City has a highest air pollution level among Latin American Cities. As a result, the government effort to clean the environment is one of the strongest in Latin America IMBEDDED OPTIONS

Outline of the Material: 

Outline of the Material The project team undertook several material research activities to understand the attractiveness of Vehizero for potential investors Overall Hybrid Vehicle Market does not look attractive, however the small delivery truck segment looks promising Our valuation of Vehizero sets a range between $ –3.3 million and $ 10.2 million, while the project’s IRR is estimated to be 14% Based on the characteristics of the project, Vehizero is more likely to attract socially-oriented investors than strictly financial investors Identified 5 groups of potential investor Developed a rating system to evaluate the capital opportunities Evaluated the probability of securing funds from each group Thus, we recommend that Vehizero launch an exploratory effort in the U.S. and internationally, first targeting international development agencies and socially-oriented VC firms, then approach wealthy individuals as project reaches the next development stage 

Identified 5 groups of potential investors: 

Identified 5 groups of potential investors Development Agencies International organizations such as World Bank, International Finance Corporation, USAID, and others Social Venture Capital Private Capital pursuing dual objectives of financial return and social benefit Publicly traded mutual funds that invest in socially responsible enterprises Wealth Individuals Wealthy Individuals that donate money to various social causes Bank debt Traditional bank loans Traditional Venture Capital Private capital seeking financial returns POTENTIAL INVESTORS

Developed Rating System to Evaluate Capital Opportunities: 

Developed Rating System to Evaluate Capital Opportunities Does the current Vehizero management retain control over strategic decisions? Is there financial flexibility regarding the timing of the payout to investors? Will investor stick with Vehizero in the long-term Attractiveness to Vehizero Does Vehizero offer attractive returns to this particular type of investor? Are the risks inherent to Vehizero project acceptable to investor? Is there strategic fit between Vehizero project and investor’s objectives? Ability to secure funds CRITERIA RATED AS LOW, FAIR, GOOD OR HIGH POTENTIAL INVESTORS

Developed Matrix to Compare Sources of Financing: 

Attractive return Low risk Strategic fit Low Developed Matrix to Compare Sources of Financing Attractiveness To Vehizero Ability to obtain funds High Low Fair Good High Fair Good Ability to secure Funds Excellent Sources Unattractive Sources Strategic Control Financial Flexibility Risk of abandonment Attractiveness to Vehizero The matrix evaluates the attractiveness of the different sources of financing from the prospective of the potential investor and Vehizero using the criteria above POTENTIAL INVESTORS

Development Agencies are a likely group to provide capital to Vehizero: 

Development Agencies are a likely group to provide capital to Vehizero Accept lower returns. Development Agencies accept lower returns than strictly financial lenders Tolerate higher financial risk but very cautious towards social risks. Although Development Agencies may tolerate high financial risks, they are quite cautious of the risk of negative publicity, such as misused funds, negative social or environmental impact. To secure funds, Vehizero must demonstrate the positive environmental effect of the project Strategic fit. Development Agencies have very good strategic fit with Vehizero, as both entities are trying to improve the environment Strategic control. Although Development Agencies strictly monitor the use of their funds, they usually do not interfere into daily operations of the enterprise Financial Flexibility. Most financing from Development Agencies comes in the form of debt, which limits the financial flexibility for Vehizero Risk of abandonment. Development Agencies are usually more tolerant towards downside in operational performance and rarely abandon their projects POTENTIAL INVESTORS

Development Agencies are a very likely group to provide capital to Vehizero: 

Development Agencies are a very likely group to provide capital to Vehizero WORLD BANK – International Finance Corporation Mexico accounts for the second largest in the Bank's disbursed and outstanding portfolio, totaling US$ 11.1 billion or 9.4 percent of the Bank's total portfolio Bank’s Strategy in Mexico involves expansion of the “Air Quality Program” to a second phase in Mexico City Currently, the World Bank studies the granting of a US$ 11.8 million loan for the Santiago (Chile) plan, whose main objective is to reduce the emissions of polluting gases in the city. Some money will go the the local producer of the electric buses. Our initial contact with the Bank’s private investment arm – International Finance Corporation – indicated the possibility of funding POTENTIAL INVESTORS

A related business in Mexico City has already secured funding from IFC: 

A related business in Mexico City has already secured funding from IFC INTERNATIONAL FINANCE CORPORATION In year 2001, IFC approved $ 10 million investment to Combustibles Ecologicos Mexicanos (Ecomex), the only supplier of the compressed natural gas for vehicles in Mexico City. The investment is split between $ 1.5 million quasi-equity and $ 8.5 million debt Ecomex has proved to IFC the strong positive environmental effect of the venture. POTENTIAL INVESTORS

Vehizero may qualify for funding from IFC: 

Vehizero may qualify for funding from IFC INTERNATIONAL FINANCE CORPORATION IFC funds different type of projects based on their expected financial performance and the economic sector in which they are developed. IFC invests in either equity or debt. The minimum amount of investment is US$10M, which can’t exceed 25% of the equity of the company. Also, the investment can’t exceed 50% of the project value. However, exceptions can be made on a case-by-case basis. POTENTIAL INVESTORS Source: Country Officer IFC Mexico

We recommend Vehizero to contact the IFC representative in Mexico: 

We recommend Vehizero to contact the IFC representative in Mexico INTERNATIONAL FINANCE CORPORATION Mr. Manuel Núñez, Resident Manager Email: Mnunez@ifc.org Prado Sur 240, Suite 402 Lomas de Chapultepec Delegación Miguel Hidalgo Mexico D.F. 11000, Mexico Phone: (52-5) 520-6191 Fax: (52-5) 520-5659 POTENTIAL INVESTORS Ing. Gabriel España Carbajal Investment Officer/Country Officer gespana@ifc.org

Other Development and Government Agencies: 

Other Development and Government Agencies Development Agencies USAID Provides Grants and Other Financial Aid to Promote the Environment U.S. Agency for International Development Information Center Ronald Reagan Building Washington, D.C. 20523-1000 Telephone: 202-712-4810 FAX: 202-216-3524 US Environmental Protection Agency (EPA) Works with Private Sector to promote the use of energy-efficient equipment U.S. Environmental Protection Agency Office of the Comptroller Environmental Finance Program (Mail Code) 2731R Ariel Rios Building 1200 Pennsylvania Ave., NW Washington, D.C 20460 Government Agencies México City’s Department of the Environment POTENTIAL INVESTORS

Development Agency, and IFC specifically, are attractive option for Vehizero: 

Development Agency, and IFC specifically, are attractive option for Vehizero Good strategic fit indicates the opportunity for Vehizero to attract funds from Development Agencies. However, the small size of the project might be an issue to overcome POTENTIAL INVESTORS

Securing Bank debt is highly unlikely: 

Securing Bank debt is highly unlikely Project returns are acceptable. Vehizero’s projected return of 14% will probably be sufficient to guarantee the repayment of the bank’s loan. However, the risk is totally unacceptable. There are 2 issues that make risk of Vehizero project to high for the traditional lending institution Collateral. Lack of tangible, marketable assets that could be pledged as a collateral increases the risk of negative returns. Credit History. Vehizero has not built up a credit history, as a result is considered a highly risky investment Poor Strategic fit. Commercial Banks rarely invest in the start-up entities, such as Vehizero. Strategic control. Banks rarely interfere in a day-to-day operations of the borrower. Financial Flexibility. Strict interest payment, principle repayment schedule, and debt covenants make the bank debt the least flexible category of capital. Risk of abandonment. High risk of abandonment as bank can pull out the capital at the first minor violation. POTENTIAL INVESTORS

Securing bank loan seems unlikely: 

Securing bank loan seems unlikely Lack of collateral and credit history, as well as early stage of the development of Vehizero makes obtaining bank loan unlikely POTENTIAL INVESTORS

Traditional Venture Capital Firms are not a good option to pursue: 

Traditional Venture Capital Firms are not a good option to pursue Vehizero returns are inadequate. Even in the United States VC do not invest in projects that offer less than 25% returns Tolerate risk. VC accept the fact that 7-8 of the ventures will eventually fail. Strategic fit. Good strategic fit due to the interesting product concept, however, traditional VC do not value the social/environmental impact. In addition, this group will be most concerned with Vehizero exit strategy, which at this point is not clear. Strategic control. Depends on the style, could be very hands-on Financial Flexibility. Relatively flexible Risk of abandonment. Venture Capital firms will sell the investment at first available opportunity POTENTIAL INVESTORS

Venture Capital in Mexico: 

Venture Capital in Mexico Total investment by international private equity funds in Mexico is $ 250 million Private equity investors in Latin America will increase Mexico weight from 27% to 37% of the total Latin America portfolio The hurdle rate on the Venture Capital investment is 30%-40% Investments are made in variety of different sectors POTENTIAL INVESTORS Mexican Private Equity Investment by Sector Source: Venture Capital Journal March 1, 2001;

The supply of foreign venture capital is almost exclusively foreign: 

The supply of foreign venture capital is almost exclusively foreign As the local institutional investor base is still underdeveloped, the supply of venture capital is almost exclusively foreign Source: Venture Capital Journal March 1, 2001; The Economist Intelligence Unit, Country Finance Report, April 2001 In most cases, Vehizero size will too small for large international players

Securing capital from traditional VC firms seems unlikely: 

Securing capital from traditional VC firms seems unlikely Lack of strategic industry fit, small size, and low return make Vehizero extremely unattractive to traditional Venture Capital Firms POTENTIAL INVESTORS

Social Investment Funds offer the opportunity of raising some capital: 

Social Investment Funds offer the opportunity of raising some capital Accept lower returns. Social Investment Funds accept lower returns than strictly financial lenders Tolerate higher financial risk but very cautious towards social risks. Just like Development Agencies, Social Investment Funds may tolerate high financial risks, they are quite cautious of the risk of negative publicity, such as misused funds, negative social or environmental impact. To secure funds, Vehizero must demonstrate the positive environmental effect of the project Strategic fit. Social Investment Fund have very good strategic fit with Vehizero, although they prefer to fund expansion phase, not seed/start-up phase. Strategic control. Usually exercise laissez-faire approach to investment Financial Flexibility. Very flexible Risk of abandonment. Rarely abandon their projects, however, the financial viability of the funds themselves is sometimes a question. POTENTIAL INVESTORS

Social Funds Universe: 

Social Funds Universe POTENTIAL INVESTORS Socially oriented VC firms Calvert Social Venture Partners Publicly traded mutual funds that invest in socially-oriented enterprises UBS Warburg (Lux) Equity Fund – Eco Performance The Calvert Social Investment Fund Green Century Pax World Funds in Latin America NAEF (Ventana) Corporación Financiera Ambiental, S.A.-CFA E&Co. EcoEnterprises Fund

Publicly traded mutual funds: 

Publicly traded mutual funds POTENTIAL INVESTORS UBS Warburg (Lux) Equity Fund – Eco Performance Eco Performance is an environmental fund which fulfils the requirements of a broadly diversified global investment fund. It also represents an alternative to global investment funds, bringing an additional ecological benefit. http://www.ubs.com/e/investmentfunds/ecoperformance.html Tel: +41-1-235 36 36 Fax: +41-1-234 93 20 The Calvert Social Investment Fund Calvert has been in the mutual fund business for 25 years and manages approximately $7.8 billion in assets in 27 screened and non-screened portfolios for over 220,000 shareholders. http://www.calvertgroup.com/sri_654.html David Mallery or Stephen Moody Venture Principals E-mail: ventures@calvert.com Telephone: 301/961-4786

Calvert Social Investing: 

Calvert Social Investing POTENTIAL INVESTORS Portfolio at a Glance (9/30/01) Active Investments: 30 unique, direct investments, one of which is common to both funds; 25 unique, intermediated investments in other private equity funds and financial institutions, two of which are common to both funds Areas of Investment: environment, education, health, energy, minority enterprise, community/economic development Investment Size: $100,000 - $750,000 (direct investments), $100,000 - $1,000,000 (other funds) Types of Investment: equity, convertible debt, limited partnership interests Preferred Investment Role: prefer participation with other institutions; generally not a lead investor Stage of Investment: early-to-expansion stage; generally not a seed or start-up investor

Publicly traded mutual funds: 

Publicly traded mutual funds POTENTIAL INVESTORS Green Century The Green Century Equity Fund's objective is to achieve long-term total return which matches the performance of an index composed of the stocks of 400 companies selected based on social and environmental criteria. http://www.greencentury.com/GCEF.htm 29 Temple Place Boston, Massachusetts 02111 1-800-93-GREEN info@greencentury.com Pax World Another socially responsible fund http://www.paxfund.com/index.htm Pax World Funds 222 State Street Portsmouth, NH 03801 1-800-767-1729

Latin American Funds: 

Latin American Funds POTENTIAL INVESTORS E&Co E&Co was established in 1994 as an independent non-profit organization with the strategy of providing enterprise development services and modest amounts of money ($50,000 or less to $250,000)—in the form of loans and equity investments—to economically, socially and environmentally sustainable energy enterprises in developing countries. http://www.energyhouse.com/ http://www.iadb.org/mif/investment_page/english/eandco.html 383 Franklin Street Bloomfield, New Jersey 07003 USA Ph: (973) 680 9100 Fax: (973) 680 8066 E-mail: eco@energyhouse.com

Latin American Funds: 

Latin American Funds POTENTIAL INVESTORS The EcoEnterprises Fund The $10 million EcoEnterprises Fund offers venture capital to environmentally and socially responsible businesses in Latin America and the Caribbean. The Fund invests in ventures at all stages of development with sales revenues up to $3 million. Investment size ranges from $50,000 to $800,000, with an average investment of $225,000. The Fund will finance up to 50 percent of project costs, using a variety of equity or debt instruments. The Fund is able to provide flexible financing to promote long-term success. http://www.iadb.org/mif/investment_page/english/eandco.html The Nature Conservancy 4245 North Fairfax Drive, Arlington, VA 22203 Tel: 703-841-8176 Fax: 703-841-4880 Fax: 506-220-2551 Email: ecoenterprisesfund.com

Latin American Funds: 

Latin American Funds POTENTIAL INVESTORS Corporación Financiera Ambiental, S.A.-CFA Corporación Financiera Ambiental provides long-term investment capital for businesses with solid growth potential. These enterprises involve the sustainable or environmentally friendly use of natural resources. CFA is managed by Empresas Ambientales de CentroAmerica and its parent company, Environmental Enterprises Assistance Fund. Company invests in the Energy Efficiency Sector http://www.eeaf.org http://www.iadb.org/mif/investment_page/english/cfa-engl.html Environmental Enterprises Assistance Fund 1901 North Moore Street, Suite 1004 Arlington, VA 22209, EE.UU. Tel: (703) 522-5928 Fax: (703) 522-6450 Web: http://www.eeaf.org E-mail: jdd@eeaf.org

Another Social Fund to contact may be the NAEF: 

Another Social Fund to contact may be the NAEF NAEF: North America Environmental Fund NAEF is a US$36M private fund that promotes the environmentally friendly industries in US, Canada and Mexico. NAEF was created by Nacional Financiera –Mexican bank, OECF –Japanese entity, and Ventana –private firm. NAEF mainly invests in projects that reduce air pollution, recycling, energy production. POTENTIAL INVESTORS Source: Multilateral Investment Fund / www.iadb.org/mif/

We suggest Vehizero to contact the NAEF (VENTANA) representative: 

We suggest Vehizero to contact the NAEF (VENTANA) representative NAEF: North America Environmental Fund Carlos de Rivas Oest Phone: (5) 258-0175 Fax: (5) 258-0186 E-mail: cderivas@ventanaglobal.com POTENTIAL INVESTORS

Securing capital from Social Funds firms is a good opportunity: 

Securing capital from Social Funds firms is a good opportunity Great strategic fit, financial and strategic flexibility point toward Social Funds as a viable option to obtain funds POTENTIAL INVESTORS

Obtaining capital from wealthy individuals might be possible: 

Obtaining capital from wealthy individuals might be possible Project returns might be almost irrelevant. Wealthy individuals might view the project as financial aid not as a profit-seeking enterprise Social risks are important. Wealthy individuals are the most cautious category when it comes to the risks of bad publicity Strategic fit. Depends on the individual and his charitable goals. The small size and far-away location might be a concern. This category could be hit or miss. Strategic control. These individuals will not engage into the operations of such a small enterprise. Financial Flexibility. Capital is likely to be viewed as a donation, however, this donation is unlikely to be sufficient. Risk of abandonment. Individuals are likely to give one-off donation, and are unlikely to engage in several rounds of financing. POTENTIAL INVESTORS

Wealthy Individuals are known to donate money to environmental causes: 

Wealthy Individuals are known to donate money to environmental causes CURRENT DONORS Ted Turner Granted $ 1 billion to United Nations for various social and environmental causes Potential Donors David Rockefeller Carlos Slim George Soros POTENTIAL INVESTORS

Securing capital from might be a distant third option for Vehizero: 

Securing capital from might be a distant third option for Vehizero Low demands for financial return and laissez-faire attitude make wealthy individuals marginally attractive POTENTIAL INVESTORS

Any investor is likely to inquire Vehizero about the following: 

Any investor is likely to inquire Vehizero about the following Exit strategy With IPO not being a viable selling to strategic investor (I.e. large automaker) remains the only option Selling expertise Vehizero currently lacks selling expertise, as its human talent is concentrated in the engineering aspect. As the company moves forward from being R&D stage to commercial enterprise stage, how does Vehizero plan to overcome this lack of expertise? Servicing expertise Vehizero currently does not highlight the area of servicing and repairing its vehicles. Future investors would need to be convinced that this is not a risk area Environmental impact Battery recyclable? Ratio of vehicle gasoline consumption vs. power plant gasoline consumption to produce electricity? Parts recyclable?

Outline of the Material: 

Outline of the Material The project team undertook several material research activities to understand the attractiveness of Vehizero for potential investors Overall Hybrid Vehicle Market does not look attractive, however the small delivery truck segment looks promising Our valuation of Vehizero sets a range between $ –3.3 million and $ 10.2 million, while project’s IRR estimated to be 14% Based on the characteristics of the project, Vehizero is more likely to attract socially-oriented investors than strictly financial investors Thus, we recommend that Vehizero launch an exploratory effort in the U.S. and other countries internationally, first targeting international development agencies and socially-oriented VC firms, then approach wealthy individuals as project reaches the next development stage 

Summary of the investor evaluation: 

Summary of the investor evaluation RECOMMENDATION Social Funds and Development Agencies are the most likely sources of financing

Results of the investor analysis: 

Attractive return Low risk Strategic fit Low Results of the investor analysis Attractiveness To Vehizero Ability to obtain funds High Low Fair Good High Fair Good Ability to secure Funds Excellent Sources Unattractive Sources Strategic Control Financial Flexibility Risk of abandonment Attractiveness to Vehizero Social Funds and Development Agencies are the most likely sources of financing, with wealthy individuals being a distant third option Development Agencies Wealthy Individuals Bank Debt Traditional VC Social Funds RECOMMENDATION

Final conclusions and recommendations: 

Final conclusions and recommendations CONCLUSIONS Funding requirements to sustain operations for up to 3 years are estimated to be $5.5M. This includes capital expenditures and accounting losses Vehizero valuation ranges from $ –3.3 million to $ 10.2 million with average IRR estimated to be 14%. There is a great deal of volatility within the range, and the mean valuation is around $ 1 million. While entering the delivery vehicle segment is possible, the options of entering the taxi segment, expansion to other cities in Latin America, and trading carbon bonds are much less viable. RECOMMENDATIONS Vehizero should launch an exploratory effort in the U.S. and other countries internationally, first targeting international development agencies and socially-oriented VC firms, then approach wealthy individuals as project reaches the next development stage RECOMMENDATION

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