Chinese auto giant building $200M factory to make EcoMotor’s efficient engines

Startup EcoMotors has reached a “massive inflection point” in the life of its business, as Khosla Ventures partner Andrew Chung explained it to me in an interview last week. On Tuesday the five-year-old startup, which is backed by Khosla, Bill Gates and Braemar Energy Ventures, announced that it has struck a deal to have Chinese auto parts giant Zhongding Power build a $200 million factory in the Anhui Province in eastern China that will make EcoMotor’s efficient, low cost and light weight engines.

The factory will be the first in the world building EcoMotor’s “opoc,” opposed piston, opposed cylinder engine, at a commercial scale. When it starts production in 2014, the factory will aim to produce 150,000 engines per year. There’s also an adjacent site that could expand production to 400,000 engines per year down the road.

EcoMotorsStrategic deals with huge Chinese companies are becoming a valuable way for Valley cleantech startups to move into commercial production and actually have a chance at succeeding. In particular Khosla Ventures has been adept as of late at helping its companies navigate deals in China.

Chinese parts company Wanxiang invested $420 million into GreatPoint Energy — a company based in Cambridge, Mass. that converts coal into cleaner-burning natural gas — in order to commercialize GreatPoint’s technology in China. LanzaTech, which turns gases emitted from industrial processes into biofuels and biochemicals, is working with China’s largest steel producer, Baosteel, as well as Chinese coal producer Yankuang Group. Khosla Ventures has invested in both of these firms.

By partnering with a giant like Zhongding, EcoMotors doesn’t have to raise and spend a lot of money on infrastructure. In return, Zhongding will sell the engines domestically in China — these particular engines will be powerful ones used for generators, off-road vehicles and commercial vehicles. Chung called the strategy “cleantech done right.”

EcoMotors’ engine can be 20 to 50 percent more efficient, 20 to 25 percent lower in cost to buy, and half the size and half the weight of a traditional engine. For car manufacturers the capital savings are even greater — at 30 to 40 percent — when using EcoMotors engine to build an efficient vehicle. When placed in a passenger light weight vehicle, the engine could deliver a 100 MPG, 5-passener, car.

The Chinese car market, as well as the engine market, are the largest and fastest growing in the world. And the Chinese government has set very aggressive goals to reduce the country’s air pollution and carbon emissions.

EcoMotors is a particularly unusual investment for a venture capital firm because the internal combustion hasn’t seen much innovation in decades. But the global trends of needing this innovation are clear: more and more countries are pushing for lowered car emissions, air pollution is a massive problem throughout developing countries, and the cars that will catch on in the price┬áconscious developing markets will be cars that use fuel efficiently and thus save their customers money. Other startups working on efficient engines include Pinnacle Engines, Achates Power, Grail Engine Technologies, and Transonic Combustion.

Updated at 3:00PM PST, April 9, with mention of the deal with Baosteel, China’s largest steel producer.