Electric truck maker Balqon Corp., a startup given millions in contracts and development money by the Port of Los Angeles, has long struggled to deliver trucks with enough power to last a full port shift. Now, the company itself is running out of juice, too.
Balqon, whose headquarters former Mayor Antonio Villaraigosa once used as the backdrop to a State of the City speech – calling it an example of “L.A.’s economic future” – revealed in a recent public filing that it has defaulted on millions of its debt, has not paid payroll taxes and only has enough money to stay afloat through November, after which it may have to seek bankruptcy protection.
Chief Executive Balwinder Samra, who has seen more than $1 million of his own salary payments delayed, said he was negotiating extensions with creditors and admitted it was difficult to project what would happen beyond the end of the year.
“It is a challenging situation,” he said. “On one side you see an opportunity and on the other side you see capital constraints. The trick is how do I maneuver through it?”
Balqon’s birth as a business was effectively midwifed by the Port of Los Angeles, which gave it money to develop its prototype electric vehicle and then ordered 15 of the trucks at a cost of $4.3 million. Balqon agreed to relocate to Harbor City from Orange County in exchange for the contract. But the truck’s batteries proved too weak to last an eight-hour shift. The vehicles remain unused four years after their delivery. The port paid an additional $630,000 last year to upgrade six of the trucks, which will undergo further testing later this year.
The company’s fortunes have slipped dramatically in the meantime. Its net losses have totaled $22 million since 2009; liabilities have reached $11 million and it holds assets valued at just $360,000, including a mere $15,000 in cash. Most pressingly, Balqon has been in default on $3.4 million in convertible notes since March and does not have the money to cover the debt should creditors seek immediate repayment. It has also slashed research and development spending and shrunk its workforce to six full-time employees from 31 in 2011.
What’s more, the company is facing lawsuits from companies seeking payment on alleged debts, including Pacific Enterprise Bank and Security National Insurance Co.
“It does not look good,” said Andrea Belz, a technology consultant and professor at the USC Marshall School of Business. “There’s a significant set of payables that’s not going to be easy to deal with and it’s not going to just go away. The fact that gross profit is negative, that they’re not even covering their manufacturing costs, is a really bad sign and it’s clearly getting worse.”
Plucked from obscurity
Prospects were once rosier for Balqon – or at least they were deemed to be by the officials who once hailed the company as a symbol of innovation. Samra, who started Balqon out of his Aliso Viejo garage, seemed like a good bet when his startup came to the attention of port and city executives.
Once president and chief executive of Electric Vehicles International, a Stockton company manufacturing electric buses and trucks, he had also served as corporate vice president at Anaheim’s Taylor-Dunn Manufacturing, another manufacturer of industrial vehicles, including electric vehicles for use in warehouses.
He started Balqon in 2005, but he couldn’t get money to assemble a full truck. In 2007, the port, as part of an effort to cut emissions, decided to back Balqon. The port authority is basically a landlord and normally doesn’t own or operate many trucks. But it wanted to demonstrate that battery-powered trucks could work at the port. It intended to lend the trucks at no cost to trucking firms, which would use them to shuttle shipping containers. It was hoped that the shipping companies would order the trucks if they were pleased with their performance.
So the port paid Samra’s obscure startup $263,500 to develop its first truck. Officials at the South Coast Air Quality Management District contributed another $263,500.
The port then ordered 25 trucks at a cost of $5.8 million, or $232,000 each, and awarded it an additional $400,000 to develop and install better batteries in some of them. In exchange, the company moved to Harbor City in 2009 and agreed to hire locally. Villaraigosa spoke at the grand opening and returned months later to hold his State of the City address.
But the trucks, even those with the improved batteries, only lasted three to four hours before requiring eight hours to recharge. The port halted its order after 15 trucks were delivered, but not before paying $4.3 million. Included in that sum was a $1.2 million advance payment for trucks that were never built. The trucks that were built sat parked and unused in a maintenance yard.
The port then asked another company, Long Beach’s Vision Motor Corp., to retrofit some of the Balqon trucks with fuel cell technology. That proved ineffective. That contract was also canceled, but not before officials had spent an additional $263,000.
Last year, port officials went back to Balqon, asking it to upgrade six trucks for $630,000. That money will count toward the company’s repayment of the previous $1.2 million advance payment for unbuilt trucks, leaving a debt of about $530,000 owed the port by Balqon.
In all, the port has given Balqon $5.55 million and in return has received 15 trucks that are not usable. That comes out to $370,000 a truck.
Including the money that the port paid Vision in the unsuccessful attempt to upgrade the Balqon trucks plus the money that AQMD contributed to the prototype, public agencies have spent $6.08 million on the trucks, about $405,000 a truck.
For comparison’s sake, a low-emission truck that’s powered by liquid natural gas costs $140,000 to $160,000, according to a local broker.
Port officials did not explain why they kept pouring money into a product with such a spotty performance record other than to defend the process as one that defined clearly what would not work at the port.
“Our experience with the Balqon demonstration project helped us determine that lead acid batteries are not sustainable for actual real-world drayage duty cycles. This led to the development of lithium-ion batteries, a technology that remains in testing with hopes for success,” Port of Los Angeles spokesman Phillip Sanfield said in an emailed statement. “Our goal is to further understand battery life and how it can be used on a piece of heavy duty equipment.”
Results did improve in the upgraded trucks in short-term testing by California Cartage Co. last year. Port officials and Balqon have touted that progress. Nevertheless, Herman Rosenthal, a facility manager at California Cartage, said the trucks only worked “off and on.”
“Every once in a while they did go eight to 10 hours, but there were times you would use them at the start of the shift and for some reason a few hours later you would have to put them back to charge,” he said.
At SA Recycling, which tested out an older version of the trucks for the port in late 2011, there were also problems with the charger.
“The charger just didn’t work at all,” said David Thornburg, a company spokesman. “We never figured it out. Balqon was unresponsive in my opinion.”
They are not the only ones to allege problems. Late last year, T&K Logistics Inc. of Sheffield, Ohio, which contracted to lease 10 trucks from Balqon, sued the company. It claimed not all the trucks were delivered and that those that were delivered were “effectively unusable.”
“None of the yard tractors provided by defendants have been fully functional, including but not limited to an inability to hold electric charges, lack of electric heaters (even though the yard tractors were to be used in cold weather) and material design flaws,” the company said in its suit.
Samra disputed the notion that the T&K trucks were unusable.
The lawsuit was settled for undisclosed terms last month.
Financial problems
Meanwhile, the company was developing liquidity issues. It began trading on the Over the Counter market after a reverse merger in 2008, and two years later received a $5 million infusion when Winston Chung, chief executive of Seven One Battery in Shenzhen, China, purchased a large stake. Chung, now chairman of the Balqon board, granted the company the right to distribute Seven One’s batteries in the United States.
Between 2009 and 2012, Balqon raised an additional $3.7 million through four rounds of convertible-note sales to accredited investors. Most of those notes, however, are now in default and the company is struggling as costs continue to outrun sales.
Indeed, Balqon has been slow to replace revenue from the Port of Los Angeles, which accounted for about half of the $8.5 million it generated since 2009. Revenue in the first half of this year slid to $800,000 on the sales of batteries to bus manufacturers and telecommunication storage companies and of drive trains for trucks and buses. That revenue is down 29 percent from the same period a year ago, when it received the grant to upgrade six trucks.
Samra, however, said the company was continuing to diversify its customer base and product mix, and had found some success selling drive trains to overseas clients. He also added that he was working to find more financing and negotiate with note holders.
“We had one customer in 2009 and today we have over 160, so it kind of spreads out our sales risk,” he said. “We continue to work with investors and investment banks to see what opportunities are out there to capitalize the company properly.”
As for the port, it has spent millions and has yet to receive trucks that have been proved workable in the long term. Marshall’s Belz said it shows some of the challenges when public agencies delve into new technologies.
“It’s very difficult for government agencies to do a good job in picking technology winners,” she said. “A red flag for me in the initial investment from the port is the size of the order, in not having some intermediate milestones. … It’s like the snake eating the elephant.”
Port officials, however, said they’ve pushed the ball forward and remain optimistic about long-term testing, set to begin at port terminals later this year, of Balqon’s upgraded trucks.
“The Balqon development project allowed us to advance the science of zero-emissions vehicles at a time when few companies were developing Class 8 (heavy-duty) electric trucks,” Sanfield said. “We have actually found that new-technology developers are often startup companies that are struggling to develop a successful new product, with limited financial resources.”
