Natural Gas Car’s Road to DOE Loan Paved by T. Boone Pickens

Behind every low-interest loan awarded through the Department of Energy’s Advanced Technology Vehicles Manufacturing program lie a few key players that helped clinch the deal. For Tesla Motors (s TSLA) there was chief executive Elon Musk and an early partnership with Daimler (s DAI). For Vehicle Production Group, or VPG, which scored the DOE’s latest conditional loan commitment of $50 million just last week, it looks like oil baron turned wind power investor and natural gas vehicle advocate T. Boone Pickens and the company he founded Clean Energy Fuels (s CLNE) were crucial figures.

VPG was founded in 2006 and has been supported by more than $10 million of investment from Clean Energy Fuels, a natural gas distribution company, as well as $10 million of Pickens’ own funds. In total VPG has raised at least $160 million in an equity financing round led by the investment group Perseus, which Clean Energy and Pickens also joined.

VPG, based in Miami, Fla., started integrating a natural gas model into its business plan when it linked up with Clean Energy Fuels, VPG chief executive David Schembri tells us. The connection between the car startup, Clean Energy Fuels and its investors is a tight little love triangle formed around interests in natural gas vehicles, with Perseus also having invested in Clean Energy Fuels.

The Loan

VPG’s DOE loan is meant to finance engineering and manufacturing costs associated with producing a compressed natural gas version of its base model vehicle, which runs on gasoline. However, as a spokesperson in the DOE loan office noted to us this week, the gasoline-powered model, called the MV-1, does not qualify as an advanced vehicle under the loan program requirements. Compared to gasoline and diesel vehicles, according to the DOE, natural gas vehicles “can produce significantly lower carbon monoxide, nitrogen oxide, nonmethane hydrocarbon, particulate matter and other toxic emissions, as well as greenhouse gas emissions.”

Under the program rules, ATVM-funded vehicle projects from new companies like VPG have to deliver fuel economy improvements of at least 25 percent over the average for vehicles with in the 2005 model year with “substantially similar attributes.” For the purpose of this calculation, the loan program compared VPG’s MV-1 to passenger vans, according to the DOE.

Schembri expects to begin producing the MV-1 in late January 2011 and begin shipping to customers by May 2011. VPG plans to contract manufacturing out to AM General, a company that once built Hummers for General Motors (s GM) at its Mishawaka, Indiana plant and now makes Humvees for the U.S. military.

Americans with Disabilities Act

VPG claims its design is “the only light-duty vehicle to date that meets or exceeds the guidelines of the Americans with Disabilities Act.” It has an access ramp at the side door that can hold up to 1,200 pounds, a 36-inch entryway and seating capacity for six people, including a wheelchair passenger and an optional jumpseat.

According to Schembri, VPG’s genesis traces to fleet vehicle operators trying to find a simpler, lower cost way to meet rising municipal requirements for wheelchair accommodations in taxi fleets and paratransit service (the Americans with Disabilities Act, or ADA, requires transit agencies to provide paratransit services to people with disabilities who cannot use the mainline bus or rail service).

“Fleet operators looked around for choices,” and found none, said Schmebri. To this day, virtually all vehicles equipped for wheelchair access are relatively expensive after-market conversions. An operator presented the problem to some of the people that would later found VPG, according to Schembri, and together they came up with a scheme to engineer and build a vehicle from the get-go for wheelchair accessibility.

Since ADA passed in 1990, said Schembri, “we’ve seen advancements everywhere except factory-direct autos.” Yet there’s a sizable market opportunity: Schembri cited estimates that 4 million people use a wheelchair in the U.S. and 10 million people use a walker, crutch or cane.

Natural Gas Cars

As for natural gas models, they make up a small portion of the global auto market. The Wall Street Journal reported this week (citing statistics from the International Association for Natural Gas Vehicles) that 11.4 million natural gas-powered vehicles are in use around the world, with most of them found in Pakistan, Iran, Argentina, Brazil and India.

In the U.S., compressed natural gas cars numbered only 110,000 last year, accounting for only a fraction of a percent of all transportation fuel used for on-road vehicles. These cars make the most economic sense for high-mileage fleet customers, which typically have central refueling stations (natural gas fueling infrastructure is very limited) and can reap savings from the lower cost fuel.

VPG is targeting four market segments with its MV-1, including consumers, municipal paratransit service providers, commercial fleets (such as limos and delivery), and taxi fleets. For fleet operators, the natural gas model could offer something of a two-for-one deal, said Schembri, helping them to meet heightening requirements for alternative fuel vehicles as well as wheelchair accessibility without having to foot the bill for retrofits.

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