The bankruptcy filing from electric bus manufacturer Proterra in early August is a significant stumble on the road to electrifying heavy-duty transportation, according to experts and analysts.
The California bus maker announced it had filed for Chapter 11 bankruptcy protection in an effort to maintain operations and restructure to better address what it called "macroeconomic headwinds." Proterra, which has a market cap of $15.24 million, ranks among the most competitive electric bus makers globally and is the largest in North America.
"This will be a challenge for the industry, but it’s not a death knell or anything catastrophic," said Matt Lichtash, principal consultant at PA Consulting, where he focuses on electric transportation. But it could shake the confidence of fleet managers and municipalities, who are some of the biggest buyers of electric buses, or e-buses, he said.
Paradoxically, Proterra’s struggles arrive at a moment when the market for e-buses in the U.S. has grown by 66 percent in 2022. Not to mention, the Biden administration’s 2021 infrastructure law has doled out $5.5 billion to transit agencies to fund the purchase of electric buses.
So what went wrong, and why has Proterra resorted to bankruptcy?
‘Proterra was quite early’
Many analysts in the transportation industry did not see Proterra’s bankruptcy coming.
"They’re one of the bigger and more experienced players in the electric bus scene, so when I learned about it, it came as a surprise to me," said Adrian Gomez, senior program manager at Forth, a nonprofit transportation policy firm.
There is going to be a strong market for electric buses and trucks.
He had seen recent shifts at the company, such as the consolidation of its operations in South Carolina, but didn’t read them as red flags. In hindsight, Gomez said that the pressures of inflation, tightening capital markets and a strained supply chain, as well as the challenges unique to the electric transportation market, were too much for Proterra. Like other electric bus manufacturers, Proterra struggled to turn a profit on a product with a notoriously long lead time and a significant degree of customization for each order.
"I just think all of it was exacerbated by the pandemic and the supply chain issues," he added.
Nikolas Soulopoulos, head of commercial transport research at Bloomberg New Energy Finance, also sees it as a matter of bad timing.
"There is going to be a strong market for electric buses and trucks," he said. "That market is not there yet, so the volume is really low. Proterra to an extent was quite early."
The company had to rely on relatively small orders from individual transit agencies, each of which had custom bus designs difficult to scale and standardize. Soulopoulos said. And Proterra had tried to expand into other business lines, such as standalone batteries and powertrains.
"Trying to do that on top of electric buses, on top of electric charging infrastructure, when volumes are low, potentially was too much," he added.
Will buyers lose trust?
Seeing a major electric bus manufacturer go under does not inspire confidence for the buyers of this technology, analysts said.
"This unquestionably makes it harder for city transit agencies to trust in their suppliers," Lichtash said. "But it’s definitely not impossible to gain that trust back."
Proterra will have to honor its existing contracts and warranties, and not leave customers out in the cold, to earn the trust back, Lichtash said.
Seeing a major electric bus manufacturer go under does not inspire confidence for the buyers of this technology.
Shakiness among Proterra’s clients could spill over to the clients of other bus makers, who could start doubting the overall outlook for bus electrification, he added. "That is going to cause some growing pains in electric bus adoption," said Lichtash, advising companies in the industry to double down on reliability and trustworthiness.
Gomez is slightly more optimistic. "There (are) years of experience behind this technology already," he said. "These buses have already been around for some time. So I don't think it's going to shake confidence in the technology itself."
Filling the void
Proterra’s potentially temporary exit from the electric bus market could create an opening for its competitors.
BYD, the vertically-integrated vehicle manufacturer that looms large in the industry, is the most obvious competitor to fill the gap left by Proterra, according to Soulopoulos. "They have an advantage there, which is volume and scale, which matters a lot in battery and vehicle manufacturing," he said.
Lichtash, however, is skeptical that competitors could pick up the slack in the short term. "A lot of bus manufacturers are cranking at pretty full capacity, and making them as fast as they can," he said. "But in the medium term, definitely that demand is still there, and it’s going to get captured by one of the other big players."
It could be challenging, still, for the cities and agencies that are purchasing buses. Existing Proterra customers will have to keep their fingers crossed that their orders are fulfilled. And in the future, less manufacturing capacity means even longer waits (and potentially higher prices) for electric buses.
But it’s definitely not impossible to gain that trust back.
"There will be people that will want to sell you an electric bus, and you will find suppliers. The question there is, at what cost and what lead time?" Soulopoulos said.
A lesson for climate tech
The challenges that drove Proterra to bankruptcy can apply to any climate tech startup trying to scale a new product.
Lichtash said replicability and standardization are key for startups to prevent these situations. In Proterra’s example, contracts and bus designs differed from city to city, making it impossible to gain the efficiency of scale. Standardizing the product and replicating it across orders would ease both sales and manufacturing, he added. "That will be key."
Standardization should extend to financing models, Lichtash said; instead of offering many unique ways for agencies to buy or lease electric buses. "At the end of the day, you’re going to need to pick one or two [models] and not try to be everything to everyone," he said.
Will Proterra will learn those lessons and emerge stronger from bankruptcy?
"I’m feeling pretty positive about it," Gomez said, explaining that Proterra is taking the necessary steps to recover.
And ultimately, some uncertainty in new climate technologies comes with the territory. "It’s something that consumers and corporations are going to have to live with, especially if they want to continue to electrify bus fleets," he added.