Like most stakeholders in the clean energy space, climate investor Milo Werner doesn’t welcome the upheaval of the incoming Trump administration. She shares concerns that his team could move to reel in the Department of Energy’s Loan Programs Office, or else pick apart the Inflation Reduction Act.
But Werner, who spent nearly a decade as a Tesla engineer and who specializes in scaling advanced manufacturing, also sees that probability as a critical turning point, especially for the private sector.
“Some funding is going away, but it is really forcing us to have to figure out how to structure our financial markets to take advantage of this huge opportunity,” she told Latitude Media, namely in clean manufacturing. Werner said there’s been “a 10x step up in domestic factory starts” in the wake of the pandemic, for everything from semiconductors to electricity generation.
Federal support, including from LPO, has been incredibly instrumental for companies navigating the industrialization process over the last few years, Werner said, but that funding was never intended to be a “bridge from pilot into mass commercialization.”
“They were never going to last forever,” she said. “And I think we have to chart a path forward, with or without them.”
One outcome of decades of outsourcing, she wrote in light of the election, is that the U.S. “got dangerously rusty on the skills and financial instruments for industrializing new technologies.” That dearth of capability stands to pose a major barrier to first-of-a-kind projects, which already struggle with workforce and financing access.
Werner launched her proposed solution for that pathway in the spring, several long months before the election threw funding for cleantech manufacturing into jeopardy. Her nonprofit organization, NextGen Industry Group, hopes to rebuild a base of domestic manufacturing skills to support the incoming “renaissance” of manufacturing brought by onshoring and the IRA.
The organization is building a peer group for the 140 or so companies they’ve identified that are in the midst of scaling from pilot to their first profitable production facility. And a key part of the group’s mission, Werner said, is to get them to talk to each other.
“We’ve spent the last 40 years outsourcing the majority of our production capabilities, so these companies…don’t have a lot of peers to look to or support to gain around their natural ecosystem,” she told Latitude Media.
Werner isn’t alone in worrying about the fate of FOAK projects. In October, RMI and Deep Science Ventures took a different approach to her nonprofit structure with their launch of Mark1, a developer-as-a-service offering. Though Mark1’s scope is wider, covering any U.S. company in the industry and not just those in advanced manufacturing, the venture is based on the same fundamental premise as NextGen — that getting cleantech companies from pilot to commercial scale will require new ways of thinking about experience, and about financing.
Manufacturing’s missing middle
During her time at Tesla, Werner led the new product introduction team and oversaw the launch of things like the Model S powertrain, drivers assist, and the Model X.
Her tenure was focused on scaling operations — including building out the former Toyota factory in Fremont, California that Tesla acquired in 2011, into a production facility that today churns out hundreds of thousands of vehicles a year. The experience directly impacted Werner’s plan for NextGen Industry Group.
“Reflecting now, I see how even the smallest amount of mentorship could have saved us time and money by helping us see around corners and avoid some of the most obvious pitfalls,” she wrote at the time of the nonprofit group’s launch.
Though it’s still early days for NextGen, Werner is working on building a “leadership peer group,” focused on developing operational expertise at the board level. “We’re seeing quite a few boards move towards pure financial investor leadership,” she explained. “You see them weighing in to approve financial budgets, which are how the operation is going to scale, but many of them…don’t have experience actually scaling operations.”
Werner sees boards as an opening for major impact via giving them access to operational expertise in everything from facility siting and design decisions to contract structures, and building appropriate capital stacks.
And it’s that last element that will be a core part of NextGen’s focus moving forward, Werner said.
“It’s incredibly hard to navigate across the missing middle, and not everybody is successful, not because they don’t have an amazing technology but because there is just not a financial instrument to support them in a reasonable fashion, a framework for them to use in a repeatable fashion for commercializing new technologies,” she said, adding that even under a supportive Biden administration, the combined funding instruments available to advanced manufacturing projects today still wouldn’t be sufficient to “properly industrialize these companies.”
And especially absent reliable federal support, Werner thinks the industry needs an entirely new class of financial instruments, in addition to the ones that are already in use.
Early next year, NextGen will be releasing its own crack at designing that capital stack, Werner said. In partnership with an economist at “one of the top research institutions,” they plan to engage all capital stack stakeholders to begin defining a repeatable solution. Werner declined to specify the structure of the capital stack NextGen has in mind, but said that building it will involve equity investors, debt providers, strategic customers, financial institutions — and the federal government.
They’ll seek to develop a fit-for-purpose financing model that is replicable across advanced manufacturing sectors, answering questions about ideal amounts of debt versus equity, Werner said, as well as looking to structure customer contracts “in a way that would give you access to more financially flexible instruments.”
Those instruments, she said, could include a new class of credit or equity that are dependent on certain milestones, modeled after the biotech industry, or the revenue-based financing used by the apparel industry. Another, “more radical” option, she wrote last week, would be for projects to use customer purchase orders as loan guarantees.
Moving into a second Trump administration, it’s possible that non-governmental sources of funding will have to step up even more, particularly for advanced manufacturing, Werner said. “We have to develop a new framework that is capitalist market driven to commercialize these companies, and it has to be risk-adjusted.”
