How to determine the right scale for your FOAK manufacturing plant? Here is a step-by-step guide. Scaling a First-of-a-Kind (FOAK) manufacturing plant is all about finding the sweet spot where your costs start to drop significantly with increased output. While your FOAK plant might not achieve the full scale needed for optimal efficiency, it must demonstrate the potential for cost reduction as production ramps up. Here’s a step-by-step process to determine the right scale for your FOAK plant:  1. Understand the Purpose of Scaling The primary goal of scaling is to reduce unit costs. Your FOAK plant needs to show this dynamic—proving that as you scale, your costs decrease.  2. Identify Your Business Type Start by determining whether your business is OPEX-intensive or CAPEX-intensive: - OPEX-Intensive: If your operations require a constant influx of materials, energy, or labor, you’re likely OPEX-intensive. - CAPEX-Intensive: If your business requires significant investment in large structures or machinery, with relatively low ongoing operational costs, you’re CAPEX-intensive. Understanding this distinction is crucial because it dictates where your cost savings will come from—whether through operational efficiencies or capital investment reductions and funding mix.  3. Engage with Suppliers Your next step is to talk to your suppliers, as their pricing will significantly impact your costs: - For OPEX-Intensive Businesses: Discuss with suppliers to understand at what order volumes they’re willing to offer substantial discounts (ideally 30% to 50%). These discounts are usually available for consistent, long-term orders (3-5 years) of materials, components, or energy. - For CAPEX-Intensive Businesses: Engage with equipment suppliers to determine the conditions under which they’ll offer discounts on large orders of machinery or infrastructure. For example, when planning a lithium-ion cell gigafactory, I found that ordering one electrode-to-cell line cost X, but ordering four lines yielded a 10-15% discount. In another case, sourcing wind turbine blades, we secured up to 80% discounts. If your materials are traded commodities like oil or metals, you might not secure such discounts, making risk analysis even more critical. For CAPEX-intensive businesses your financing costs might be your biggest costs. You won’t be able to reduce those simply with scale at this stage. I’ll go more into financing cost in my later posts.   4. Calculate Your Output Volumes Once you know the volumes required to secure supplier discounts, apply these to your production processes to calculate your corresponding output volumes. This will help you determine how much you need to produce to start seeing cost reductions.  5. Optimize Production Processes The challenging part is now reducing other operational costs, like labor and energy. Analyze your production line operations, the layout of your manufacturing process, and the overall production flow. This is where creativity and optimization come into play. Since you’re building a FOAK plant, you have the opportunity to design processes that optimize resource and energy use. It’s unlikely that your production process is entirely novel, so seek out experts who have experience optimizing similar processes. Hiring a team or consultant with a proven track record of reducing operating costs will greatly increase your chances of success. This step is crucial for two reasons: 1. It helps you estimate your minimum possible costs. 2. It allows you to present well-founded cost projections to investors with confidence.  6. Map Your Cost Curve With a clear understanding of your production costs and supplier discounts, plot these cost points against your output levels to create a cost curve. This curve will likely slope downward as your output increases. Look for a point on the curve where costs start to drop significantly, but your capital investment (CAPEX) remains minimal. This is your FOAK sweet spot—the optimal scale that requires the least investment while still being large enough to demonstrate scalability and cost reduction. By following these steps, you can determine the right scale for your FOAK manufacturing plant, ensuring it’s set up for both immediate and long-term success. #investment #cleantech #cleantech #hardware #foak #planning #startups #manufacturing

Who do you go to for the money and when? When you're scaling up from Lab to Nth-of-a-Kind (NOAK), understanding the capital stack is crucial. The picture from the Sightline Climate FOAK guide is a useful rough guide to the funding types available at different stages: 💡 Catalytic Capital:     - Stage: Lab and Pilot     - Description: Patient, risk-tolerant, and flexible investment capital that supports high-risk, innovative technologies. 🏛️ Government Funding:     - Stage: Lab, Pilot, and beyond     - Description: Non-dilutive grants and loans, often provided by agencies like the DOE in the U.S., to support R&D and early commercialization. 🚀 VC & Growth Capital:     - Stage: Demo     - Description: Venture capital for early-stage companies and growth equity for scaling climate tech startups or acquiring significant stakes in them. 🏢 Strategic Investors:     - Stage: FOAK     - Description: Corporates, such as those in oil & gas or industrial sectors, investing directly to scale technologies that align with their business. 💰 Project Finance:     - Stage: NOAK     - Description: A mix of debt (typically 60-80%) and equity (20-40%), used to finance the large-scale rollout of proven technologies. The journey from FOAK to NOAK is about more than just technology—it's about matching your stage with the right type of capital to keep the momentum going. Get your FOAK guide here: https://www.sightlineclimate.com/foak-guide   #ScaleUp #FOAK #NOAK #ProjectFinance #ClimateTech #VentureCapital #StrategicInvestment #GovernmentFunding #CatalyticCapital

Good news at last. But progress still slow.  Morrow Batteries, founded in 2014, has finally opened its first 1 GWh factory after ten years and $206 million in investment. The factory will produce LFP batteries—nothing revolutionary, but solid progress for an EU battery industry that's been starved for good news. Unlike the fast-paced, high-risk approach of Northvolt, Morrow is taking its time—slow, deliberate steps. This first 1 GWh plant seems to be more about testing production processes and ironing out any inconsistencies in speed and quality rather than rushing to market. Morrow aims to scale up to 43 GWh by 2028. But given the company’s glacial pace, it wouldn’t be surprising if this milestone gets pushed to 2038. Here’s hoping they prove me wrong. https://www.marketscreener.com/quote/stock/SIEMENS-AG-56358595/news/Norway-s-Morrow-Batteries-opens-factory-plans-first-deliveries-by-year-end-47669976/ #Batteries #EnergyStorage #Manufacturing #ScaleUp #LFP #CleanTech #EUInnovation #MorrowBatteries #Northvolt

What you can learn from First-of-a-Kind (FOAK) projects in nuclear? A lot, it appears. I’m currently doing  an in-depth analysis of nuclear sector with some of the best experts in the field, and here is what I’ve found.  Nuclear FOAK projects are notorious for their complexity, and this is reflected in their cost overruns. The first decade of this century saw over a dosen FOAKs in building so-called Generation III/III+ reactors. Most of the nuclear reactors in operation have been built around 1970-1980’s, and are known as Generation II reactors. The latest generation came in with improved safety features.  The FOAKs of these new generation of reactors had costs overruns at least twice the budget. At the planning starge, costs would be estimated at around 2300USD per kW, but upon completion, the real costs shot up to 5300 USD/kW on average. Some, such as the EPR reactor at Flamanville in France was initially budgeted at 1,886 USD/kW, but the final cost ballooned to 8,620 USD/kW.  1. The Real Risk: Planning, Not Technology A key takeaway from nuclear FOAK projects is that, at the FOAK stage, technology risk is surprisingly low. The real challenges lie in planning and execution. In the Flamanville project, the project documentation was modified 4500 times while the construction was already going. At the same time, two similar reactors in China were built with “only” twice the planned time and 1,6 times over budget. For non-nuclear FOAKs, the lesson is clear: focus on planning from the outset. 2. The Temptation Trap: Don’t Lowball Your Estimates It’s hugely tempting to present low cost estimates to attract investors and stakeholders. However, as nuclear projects have shown, this can have disastrous consequences. Both successful and unsuccessful FOAK projects have demonstrated that lowballing costs to gain early support often leads to significant overruns later on. Take the APR 1400 in Korea—initially budgeted at 1,828 USD/kW, the final cost came in at 2,410 USD/kW, which was still one of the more successful projects. The lesson here? Underpromise and overdeliver. Be realistic in your projections and avoid the temptation to lowball. 3. Simplify Management: The Achilles’ Heel of FOAK Projects One glaring issue in nuclear FOAKs was the complexity of project management. In many cases, equipment supply agreements became too complicated, and decision-making was fragmented across multiple bodies. Contracts with equipments suppliers were overly complex. The takeaway? Keep your management structure simple and ensure there is a single, clear decision-making authority. Conclusion: Apply Nuclear FOAK Lessons to All FOAK Ventures Whether you’re working on the next generation of nuclear reactors or pioneering a new technology in a completely different field, the lessons from nuclear FOAK projects are invaluable. Remember that the primary risks are not technological but managerial and financial. Plan thoroughly, simplify management, and always aim to underpromise and overdeliver. Source: https://www.oecd-nea.org/upload/docs/application/pdf/2020-07/7530-reducing-cost-nuclear-construction.pdf   Thanks to Arkady Karneev for the help in preparing this article.  #FOAK #ProjectManagement #NuclearEnergy #Innovation #CostManagement #TechnologyRisk #Execution #Leadership #LessonsLearned #StakeholderManagement #PlanningAndExecution

Licensing, Buy-out or Project Finance?  When your startup reaches the "First of a Kind" (FOAK) stage, scaling beyond it is the next big challenge. Typically, there are three ways to take your startup to the next level: 1. Switch to a Licensing Business Model 2. Exit Through Acquisition by an Incumbent 3. Rinse-and-Repeat Through Project Finance Choosing the right path depends on several factors, starting with the existence of a market and its participants. 🔍 Licensing Your Technology If your innovation is something like a new method for making anodes or cathodes for lithium-ion batteries, licensing might be your best bet. Why? Because there are already battery manufacturers out there who are ready to adopt and apply new technologies. The licensing model has worked well for many companies in wind turbine manufacturing, allowing them to scale without the need for massive capital investment. 🏢 Exit Through Acquisition Getting acquired by an incumbent can be a solid strategy, but it usually requires more than just a FOAK. Big players will buy your business for one of three reasons: 1. Niche Expertise: Your product or service thrives in a niche market not covered by the incumbent. 2. Geographic Expansion: Your company is gaining traction in a geographic market that the incumbent hasn’t tapped into. By acquiring you, they get both a new product and a new market. 3. Eliminating Competition: You pose a threat to their existing business, and they want to eliminate you before you grow too big. 🚀 Go Big and Scale The final option is to plow ahead and grow into a big business yourself. This route is tough but can be rewarding, especially if there are no incumbents with similar technology in your market. Think of the early days of EVs—there were no established players, which allowed companies like Tesla to rise. Green hydrogen is another area where the first big companies are yet to emerge, offering a rare opportunity for new players. Which Path Will You Choose? Each path has its pros and cons, and the right choice depends on your technology, market, and long-term vision. Whether you license, sell, or scale, the key is to make an informed decision that aligns with your goals. #Startups #FOAK #Scaleup #Licensing #Acquisition #ProjectFinance #GrowthStrategy #Greentech #Innovation

What is the first question you need to ask a greentech scaleup?  When evaluating a greentech scaleup, the first question you should ask is simple: Is your greentech truly green, or just pretending? The goal here is to distinguish between business-as-usual ventures and those that can genuinely reduce CO2 emissions on a global scale. A good rule of thumb? Consider whether the technology could, in principle, reduce 500 million tons of CO2 annually. That’s roughly 1% of global emissions. Not just your specific scaleup, but if the entire market adopted this technology, could it make a meaningful impact?  Take hydrogen-powered propeller airplanes, for example (see my Saturday post for more details). Aviation as a whole accounts for over 2% of global CO2 emissions, but propeller airplanes represent only about 15% of all commercial flights. Even if every propeller plane were retrofitted with hydrogen, the impact would be minimal—reducing emissions by just 0.3%. Investing in such projects is essentially spending money, time, and talent for little to no impact. Now, I’m not saying that a scaleup falling short of the 1% criteria is a bad business (hydrogen planes aside). It just means that its primary purpose is profit, not emissions reduction. To learn more about the 1% rule, check out the book by Bill Gates “How To Avoid The Climate Disaster” in the "Book Review" section of this blog.   #Greentech #Scaleups #CO2Reduction #Sustainability #Impact #investment

22 minutes on YouTube could have saved investors $100M. That’s the harsh lesson from the rise and fall of Universal Hydrogen. Every hardware startup failure is a lesson too valuable to ignore. So, what can we learn from Universal Hydrogen’s downfall? Let’s break it down. What Was Universal Hydrogen? Universal Hydrogen (UH) set out to revolutionize aviation with capsule modules designed to safely store liquid hydrogen and act as modular fuel tanks for aircraft. The vision was bold: retrofit propeller aircraft with these hydrogen tanks and fuel cells. The startup had a stellar founder—Paul Eremenko, a former CTO of Airbus—and managed to raise around $90-100M. It had its first test flight, and then, last month, UH went bankrupt. I don’t know the inside story of UH, but from where I’m sitting, the reasons for their failure are clear from. Here’s where the red flags were, using my system for evaluating startup scalability. 🚩 Red Flags All Over 1. The Climate Relevance Test Yes, aviation is responsible for almost 2% of global emissions, so it passes the Bill Gates test - removing 1% of CO2 by 2050. UH however seemed to be targeting only propeller aircraft. These are responsible for 10-15% of all commercial air traffic. So even if UH succeeded, it would have mitigated an irrelevant amount of CO2. Should’ve been a non-starter immediately. 2. Does It Work? Universal Hydrogen promised a quick scale-up, but several critical product and technology issues should have raised eyebrows:    - Volumetric Density: Liquid hydrogen’s volumetric density is four times smaller than jet fuel. This means you need four times as much hydrogen to cover the same distance, resulting in 15-40% less space on the plane for passengers or cargo.    - Energy Efficiency: Hydrogen’s energy efficiency is abysmal—about 22-23% from production to engine for a propeller aircraft, compared to 56% for batteries.    - Infrastructure Readiness: Green hydrogen production is virtually non-existent today. Almost all of the 100 million tons of hydrogen produced annually is gray. Building the necessary infrastructure—from wind turbines to electrolyzer and liquefaction plants—would be a massive and costly undertaking. 3. The Business Case Here’s where it really gets interesting. If the previous points didn’t scare off investors, this one should have:    - Retrofit Costs vs. Benefits: Retrofitting propeller planes with hydrogen tanks and fuel cells means airlines would have to pay for the retrofit, lose 15-40% of passenger capacity, and somehow be happy about it? With airlines operating on thin EBITDA margins of 10-15%, this is a hard sell. Low-cost carriers, who might have slightly higher margins, are unlikely to be interested in retrofits.    - Market Potential: When was the last time you flew on a propeller plane? These account for only 10-15% of all commercial flights, making for a very small Total Addressable Market (TAM). Lessons Learned So, what can we learn from Universal Hydrogen’s failure? 1. Technical Characteristics Matter: Always do a thorough energy efficiency and size/weight calculation. Compare your product to existing solutions. If it’s bigger, heavier, or less efficient, you need a compelling reason why customers would choose it—and the fact that your product is “sustainable” isn’t enough.    2. Check Infrastructure Availability: Is the necessary infrastructure already in place? If not, when will it realistically be built? If someone is already pouring concrete, risks are lower. If not, think twice. 3. Understand the Customer’s Perspective: Why will they buy your product? Don’t rely on “green” or “sustainability” as your main selling points. Check if your customers have the cash, or if there are laws and regulations forcing their hand. If penalties for non-compliance aren’t severe, they won’t care. 4. Watch YouTube: Sometimes, the simplest answer is just a Google search away. Someone out there might have already posted a video or article explaining why your idea is flawed. Like this video posted around the time UH was launched—it could have saved investors $100M if they’d watched it. Here is this video, which I’ve used for most of the above figures. It was published in 2022 and takes just 22 min to watch on 1.25x speed: https://h2sciencecoalition.com/blog/hydrogen-in-aviation-explainer-video/ #Startups #Failure #Innovation #Hydrogen #Investment #LessonsLearned #sustainability

Investors think that hard tech climate scaleups lack generalist and financial expertise. While Founders agree only with the latter. Why? Source: https://planet-a.notion.site/BUILDING-AND-SCALING-CLIMATE-HARDWARE-A-PLAYBOOK-71e1b097041c49f69e31d4f3cb2de155 📖I’m reading the Building and Scaling Climate Hardware Playbook, and this picture struck me for two reasons. First, are the polarizing views of founders and investors. The gap is simply astonishing. Second, is the confidence of founders, that they have all the generalist skills needed.  ❓What is a generalist anyway? I’d say he is a consigliere  in Mafia terms. What the hell does a consigliere do in a hard tech startup? Here is my take (in no particular order): 👥Team organization. Who’s doing what and what protocols the team follows in different circumstances.  💰Investor relations. A generalist can answer the main question of the business - where is the money? He keeps relationships with current and future investors smooth, being their one-stop shop for any questions they might have. Note that pure finance guy/gal are not the best for it, as they often need more business acumen.  🎙️Public Face. Being a generalist helps when speaking to the public, journalists, regulators, etc.  🧭Strategy. For the generalist, it is easy to keep track if the company is on the right track. He can be an early warning system of the need to pivot or to get back to doing the right thing.  🧞‍♂️Filling in roles. A startup is by definition understaffed. A generalist often has enough experience or training to temporarily fill the roles of CFO, CCO, or industry expert. Given that investors see more than one startup in their lifetimes, and given my experience as a generalist, I side with investors. What’s your take? #staff #startups #scaleup #recruitment #management #greentech #VC #investment #learning #strategy #experience #cleantech

Strategic investors can be a double-edged sword for greentech scaleups. Here’s what to look out for. ⌛️Never before there was such a meaningless waste of time. I’ve spent three days in a small Siberian town, having endless meetings with a factory, belonging to my host corporation. The purpose - integrate it in the supply chain of my in-house battery startup. Easier to force a square peg into a round hole.  🏭Strategic investors prioritize squeezing every bit out of their current operations, so they often look for technologies that align with their current products. They aim to enhance or protect their existing margins using your innovation. And, above all, to find new markets for their existing products. You got it right - you are the new, high-margin market!   🌍 Capturing New Markets Sometimes, strategic investors are on the hunt for completely new markets. This is a more favorable scenario for founders. In these cases, they are more likely to value your insights and offer substantial support. They can connect you with their extensive network of clients and suppliers, which can be immensely beneficial.  ⚠ Potential Challenges Navigating Corporate Ecosystem: You might need to work with their preferred suppliers, which could divert focus from your optimal path 2. Sidelining Innovation: There’s always a risk that strategic investors might stifle your innovation to protect their existing products. Sometimes its the sole reason for investing in your company.  ✅ Key Takeaways for Founders 1. Highlight Strategic Fit: Emphasize how your technology aligns with their existing portfolio and can enhance their margins. 2. Show Market Potential: Demonstrate how your product can help them capture new markets, without endangering their existing products, ensuring they see the value in supporting your growth. 3. Be Prepared for Integration: Understand that you may need to engage with their ecosystem, so be ready to adapt. Strategic investors can be powerful allies if you navigate their complexities wisely. Ensure your pitch aligns with their goals and be prepared to spend a lot of time with their fauna 🦑. #Greentech #Scaleups #StrategicInvestors #Innovation #BusinessGrowth #Startups

How much time do you need to rest? Two weeks? A day? A blink of an eye? As founders, we often find ourselves caught in the relentless grind of building our startups. But it’s crucial to remember that quality downtime is not just a luxury—it’s a necessity. In Josh Waitzkin's book, “The Art of Learning,” he shares a fascinating story from his experience in winning international tai chi push-hands competitions. Waitzkin trained himself to relax and recuperate during short breaks between rounds, and even during the moments his opponent blinked. While startup founders may not need to master the art of resting in the blink of an eye, this example underscores the importance of controlling your rest. For founders, the ability to switch off and rejuvenate can be a game-changer. It’s about finding those pockets of downtime and making the most of them. Whether it’s a quick power nap, a brief walk, or a few minutes of deep breathing, these moments of rest can help reset your mind and boost your productivity. As holidays season hits full swing, I wish everyone a rejuvenating holiday! Take the time to relax, recharge, and come back stronger. Master the art of downtime! #Startups #Downtime #Rest #Productivity #MentalHealth #FounderLife #Sunday

Yesterday’s post sparked a comment about the immense difficulty of building a new EV manufacturer. I couldn’t agree more. Many new EV manufacturers have already failed, and many more will follow. Let's dig into this a bit more. I stumbled upon a short video by Paul Kirby , where he walks through an abandoned Arrival factory. Just a couple of years ago, Arrival was touted as the next big thing in EV truck and bus manufacturing. They envisioned revolutionizing the industry with streamlined manufacturing and innovative design. Their strategy? Ditch the massive factories in favor of numerous micro-factories, built close to where the demand was. This approach aimed to bring production closer to customers, promising efficiency and flexibility. But now, Arrival is a cautionary tale. I’m curious about what led to their downfall. If you know the inside story, I’d love to hear it. Your insights would be invaluable. Moreover, I’m keen to create a podcast episode about Arrival, featuring someone from their founding or management team. I believe their story holds crucial lessons for all hard tech startups. Picture credits: Paul Kirby Watch the video here #startups #failure #businesscase #learning #EV #manufacturing #innovation #scaleup #howto

I saw this table today from ICCSINO . There is a discussion below the original post, including some clarifications and corrections to the table. But no amount of polishing can hide the fact, that more than 2/3 of EU planned battery capacity is at risk. Despite being a leader in EV adoption, the EU is failing to join the EV revolution. Here is why. EU car makers can’t switch to EV’s. And they won’t be able to.   EU carmakers are trapped in the classic Innovator's Dilemma. Their existing product (ICE) sells well and pays high premiums. The new product (EV) is niche, requires reorganizing 80% of the supply chain, and its margins are lower. How on earth do you convince any investment committee to go with EV? You don’t. Cheaper to lobby lifting ban on ICE sales.  The EU battery industry is short on manufacturing skills While the EU has excellent R&D capabilities, it lacks high-volume manufacturing skills in batteries. Where would they get them, if all the manufacturing is done in China and Korea? But without big factories in the EU now, there will be nowhere to train your staff. When I was leading the acquisition of EnerTech Inc. by Rosatom, my main goal was getting access to 20+ years of experience in Korean manufacturing. Environmental regulations delay building factories While I’m generally ok with environmental regulations, one major concern I hear from the EU battery startups and producers are the long time it takes to get all of your approvals in order. To give you an example, a 500 MWh electrode-only plant was planned, approved, and executed in just over a year in Korea. The same plant in the EU would take at least 2 years just to get all necessary approvals.  Whining about the EU bureaucracy and automotive OEM’s idiocy aside, what startups and businesses could do?  Forget about established car makers. Build your own, new EV brand. Build it from scratch, and source batteries for now from China. There is no shortage of automotive design and manufacturing skills in the EU. This will take at least 5 years from concept to homologated and ready-to-roll vehicle. A smart OEM will set up a new, independent Stick with cell assembly for now. Outsource electrode manufacturing to Asia. Electrode production is the most polluting and energy-consuming part of the cell manufacturing process. You’ll get your gigafactories up and running faster and will have more time to get experience in cell manufacturing during the next four to five years. After that, you can add electrode manufacturing. To learn more about the Innovator’s Dilemma, check out my review of Clayton Christensen seminal book “The Innovator’s Dilemma” in my blog https://www.askerov.pro/post/facing-the-innovator-s-dilemma