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Market tantrum scares cleantech investors

Cleantech companies might not be feeling the sting of today’s market frenzy any worse than the rest of the pack. But for those companies, which typically require massive capital investments, a sustained downturn could crunch down on the sector’s badly-needed cash flow.

A number of prominent investors and sector analysts painted a gloomy picture when contacted by VentureBeat, citing cleantech’s more intense up-front costs.

The NASDAQ composite index fell nearly 7 percent for the day. This comes on the first day of trading after market analysis firm Standard & Poor’s downgraded the U.S.’s debt rating, implying that the country is slightly less trustworthy as an investment. If that leads to a sustained downturn, it could lead be especially damaging to cleantech investing activity.

Cash Crunch

If the market experiences sustained losses like it did after a broad sell-off in 2008, clean technology companies could face a “cash crunch” that makes it much more difficult to raise funding. That would make it more difficult for companies like electric car maker Fisker Automotive, which have not raised a significant amount of funding, to launch new projects.

“It’s gonna make it a lot tougher for other firms to try and launch things,” Kachan & Co. managing partner Dallas Kachan told VentureBeat.

Clean technology companies typically face larger upfront capital costs, particularly companies that manufacture electric cars like Tesla Motors and Fisker Automotive. That’s compared to Web 2.0 companies like LinkedIn, where capital costs are much smaller to launch a prototype. So they require much more funding for a product that is less proven.

“For electric cars, the ante is around $1 billion,” Kleiner Perkins Caufield & Byers partner Ray Lane told VentureBeat. “There was a five-year window where you could create a car company. This is not easy to do.”

Upcoming milestones from companies like Tesla Motors, which plans to launch its Model S electric sedan later this year, should be unaffected. Fisker Automotive is also rolling out the Fisker Karma, whose launch should also be unaffected due to any sustained downturn sparked by the market frenzy today. At worst, a cash crunch would delay those rollouts.

But making a brand new electric car? That’s another story, Hurst said.

“Things like the Tesla Model S, they’ll probably be able to just push it back a few months — I would guess they have most of their funding for development work pretty well spent,” Pike Research analyst Dave Hurst told VentureBeat. “The bigger question is for companies like Fisker, a cash crunch could have a major impact on those types of vehicles that are two or three years away.”

IPOs scattered

The past six months have seen a number of high-profile trading debuts from the likes of business social network LinkedIn and cloud music provider Pandora. That also includes clean technology companies like biofuel makers KiOR and Solazyme. Those companies were riding a wave of positive sentiment that has bolstered IPOs in recent months.

The market chaos today has raised questions about whether the window for companies looking to file for an initial public offering has closed. Cleantech companies looking to file for an initial public offering, such as solar power provider Brightsource, are not immune to the market jitters either, as the broad sell-off has scattered cleantech investors.

“Whenever you see a broad market-selloff like this, it calls into question the IPO climate and investor appetites for new offerings,” Kachan said. “Downturns like this involve retail investors, moms and pops with retirement funds, these are the same retail investors that had currently been in a love affair with certain cleantech offerings like Tesla.”

Here are a few clean technology stocks that are taking some hits. Each shows the amount of value the stock has lost since it began trading this morning during the first day of public trading after the S&P’s downgrade.

KiOR (Debut: June 24) — $10.28, down 16 percent.

Tesla Motors (Debut: June 30, 2010) — $23.64, down 2 percent

Solazyme (Debut: May 27) — $14.35, down 19 percent

First Solar — $99.88, down 5 percent

Cree — $26.65, down 8 percent

Out of Gas

The last time there was a broad market sell-off in 2008, it signaled the start of a period where consumers were much more skittish and less likely to spend a lot of money. That includes buying large-ticket items, such as electric cars, which cost upwards of $30,000. The Nissan Leaf, one of the cheapest electric vehicles, still costs around $32,780 before federal tax credits.

Most electric car buyers are more concerned about how long it takes to charge the car and how far it is able to drive than the actual price of the electric car, according to a report by Accenture. Pure plug-in electric cars are typically limited in how far they will go on a charge. But that’s for the early adopter market — a small, but fiercely competitive low-end electric car market where Nissan has currently taken the lead in terms of sales.

Even for that market, Nissan has only sold 3,875 Leafs compared to GM’s 2,745 Volts sold in the first half of the year. The car companies have to eventually make the cars more appealing to mainstream markets.

“In 2012 and 2013, as the early adopter market starts to tap out your early adopter market, the mainstream is going to be a lot harder to convince them to pay for all this fuel up front, which is essentially what they are doing with an electric vehicle,” Hurst said. “I think it will have a much bigger impact on the broader automotive market, not just electric vehicles.”

Despite concerns about a sustained downturn as a result of today’s flash crash, the long-term prospects for clean technology still look good, Kachan said.

“We’re running out of the tools we need, the food and water we require today, let alone for the population tomorrow,” Kachan said. “Long-term, it’s hard to argue that the fundamental drivers of a cleantech market are going away. Even in a down market, we’re still running out of the building blocks for modern society.”

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