DWP’s $4-Million Electric Car Venture in Fiscal Stall : Environment: Contractor is unable to raise capital needed to start building the clean-air vehicles.

After investing more than $4 million in a venture to produce a commercially viable electric car, the Los Angeles Department of Water and Power finds itself teamed with a financially struggling partner which may be unable to begin production and meet its contract.

CleanAir Transport, the Swedish-owned company developing the automobile under an award from the DWP, has so far been unable to raise the additional $30 million to $40 million needed to start building cars. The firm has committed itself to produce and deliver for sale in Los Angeles 1,000 of the two-door, hatchback vehicles in 1993 and as many as 30,000 a year by 1995.

Just six months ago, City Councilman Marvin Braude, who spearheaded the effort, declared, “We stand on the brink of a new age--the age of the electric vehicle.” And CleanAir billed itself as the only maker of an electric car “that has a firm production date.”

But now, it appears increasingly doubtful the company can meet its deadlines: It has no manufacturing facility, no equipment and no money to acquire the space and materials necessary, DWP and and company officials said.

“They’ve spent most of the ($4 million),” said Tom Doughty, engineer in charge of electric transportation at the DWP.

The company also raised about $8 million from various private sources in Europe, but that money is nearly gone, too, the company said. “Their fiscal status is moving toward running out of money,” Doughty said. “ . . . The schedule is slipping each day.”

The DWP is now funneling money to the company for rent and other basic necessities while CleanAir officials make a last-ditch attempt to find another financial backer, according to company and DWP officials.

If CleanAir cannot raise the funds needed by June 30, it will be unable to meet the 1993 production deadline, company and DWP officials said. At that point, the DWP will have to decide whether to invest additional funds or end the contract, said Dan Waters, DWP general manager.

“Right now, we are holding our own,” said E. J. Constantine, chairman of CleanAir’s U.S. subsidiary. But, he added, “we will have a problem” if no backer is found by the end of June. Constantine, who had been a consultant to the DWP under a $350,000 contract before joining CleanAir as chairman in February, said there is just a “fifty-fifty” chance that the money can be raised by then.

Southern California Edison, which was to be the DWP’s partner in the venture and share in a total planned investment of $7 million, initially gave the company $500,000. But Edison balked at releasing any additional funds when CleanAir failed to raise the financing it promised.

The contract between the utilities and CleanAir called for the company to line up the bulk of its capital before receiving additional cash.

“There were always some questions about their financing,” said Richard Schweinberg, manager of electric vehicles at Edison. “That’s why the contract was written that way.”

Despite CleanAir’s failure to raise the necessary funds, the DWP released its half of the $7-million award to the company.

“It was going to fold up, or we were going to keep it alive,” said Waters.

So in May, 1990, the DWP and CleanAir amended the terms of the contract and $4 million was disbursed to the company over the next two years. The money was to help complete engineering and design work, cover overhead costs and build two prototype vehicles that could be displayed in Europe, Japan and the United States.

In return for the funds, the DWP was awarded royalty rights under which it could earn up to $14 million on the sale of the cars to the public. According to company and DWP officials, that would roughly double the $7 million the agency has committed to invest in CleanAir.

Officials said the DWP was also given rights to all of the company assets in the event of its collapse. Besides the two prototype vehicles, most of the company’s assets are “intellectual properties”--primarily designs and research.

John Schumann, DWP manager of research and development, acknowledged “it’s hard to put a dollar amount on intellectual properties,” but added, “we believe (CleanAir’s assets) balance our investment.”

The CleanAir vehicle, known as the LA301, was designed from the ground up as an electric car, in contrast to other experimental electric cars that are standard gasoline-powered autos that have simply been retrofitted with electric motors. Still, most of the components used in the LA301 are off-the-shelf hardware manufactured by other companies. CleanAir holds no patents.

The LA301, which seats four and would sell for about $25,000, can go 40 to 60 miles on its batteries. It also sports an auxiliary gas-powered engine and a seven-gallon fuel tank, extending its range to 150 miles. Engineers say it could go 75 m.p.h.

Traditionally, electric cars have been criticized for being slow and needing frequent recharges.

Most Los Angeles officials saw little of the car’s capabilities when it was brought to the DWP headquarters for an unveiling in November. The LA301 did not glide into town under its own steam; citing the hazards of Los Angeles traffic, officials ended up trucking the vehicle to the unveiling ceremony, which was attended by scores of local officials.

The DWP initially became interested in the development of electric vehicles for financial reasons.

Officials hope that if air quality can be improved by reducing auto emissions, the Air Quality Management District will ease requirements on electric power plants. DWP officials estimate that it could cost several hundred million dollars to retrofit existing plants to meet AQMD guidelines by the end of the century.

Including the $4 million the DWP has invested in CleanAir, the agency has spent a total of $6 million on various electric vehicle programs. It is budgeted to spend $2 million in the current fiscal year ending in June and an additional $3.1 million in the coming fiscal year.

Other city officials pushed for development of electric cars because of concerns over the health risks from smog.

It was at Councilman Braude’s urging and with Mayor Tom Bradley’s support that the DWP agreed in 1989 to award financial incentives to a company that would commit to commercially produce an electric automobile and make it available for sale in Los Angeles.

An international competition was held in September, 1990, and the agency made the $7-million contract award to CleanAir.

Doughty said that of the 19 companies that submitted proposals, CleanAir’s was the strongest. None of the major American or Japanese automobile manufacturers made a proposal, and only one standard car manufacturer--France’s Peugeot--entered the competition.

Now, most of the world’s major auto companies are involved in electric car technology. General Motors has a prototype electric car, the Impact, which the company says can travel 120 miles on a single charge and accelerate from zero to 60 m.p.h. in eight seconds.

GM, Chrysler and Ford have formed a consortium to develop a new generation of improved batteries to power electric cars. Similar efforts are under way in Japan and Europe.

Michael Gage, president of the DWP Board of Commissioners, said the agency’s electric car program can take much of the credit for these recent developments.

“There is no question that the LA301 became the driving force behind much of this (electric car development) worldwide,” Gage said. “The LA301 drove the industry to get involved. . . . Even if (CleanAir) falls through, we did what we set out to do: drive the electric car market.”

Also driving the market was a move by the California Air Resources Board in 1990. The board adopted strict tailpipe emission standards that require manufacturers to build a minimum number of electric cars.

Under the plan, 2% or 40,000 of the new cars sold in California must be electric by 1998. By 2003, 10% or 200,000 of all new cars sold statewide must be electric-powered. A group of Northeastern states announced last year that they will follow California’s lead.

Waters, general manager of the DWP, said development of the LA301 made it easier for the Air Resources Board to set those standards. “As long as we could show that it can be done, (the auto industry) can’t argue that they need more time,” said Waters.