Carbon Revolution: Public millions, investor cash, Vic Govt's integrity...all up in smoke

Anthony Klan | June 30 2020

A Ferrari 488 Pista outside Carbon Revolution's Geelong headquarters. Source: Supplied
Sham performance figures, a fake US headquarters, vastly inflated environmental benefits, a founder with a bogus Cayman Islands address, tens of millions of dollars up in smoke…and funded by the Clean Energy Finance Corporation and the Victorian Government. Meet Carbon Revolution. Anthony Klan reports.

The Victorian Government made a massive 65% return on an eight month, $20 million, “loan” it made to a long failing Geelong manufacturer last year, with the gain paid for by unsuspecting investors it helped lure to the group.

Carbon Revolution makes ultra-high end carbon fibre wheels for high performance and luxury cars, including the $645,000 Ferrari 488 Pista and the $847,000-plus Ferrari SF90 Stradale, and has long been praised by politicians of all stripes who hold it up as a private enterprise success story representing the future of Australian manufacturing.

But our in-depth investigation reveals it’s overwhelmingly just smoke and mirrors.

The Victorian and federal governments, looking for an easy political fix to the manufacturing collapse have, over the past decade, thrown tens of millions of dollars at Carbon Revolution, which is based in a “purpose-built” factory on the campus of Deakin University’s Geelong campus.

The company now employs close to 500 workers - nearly half the entire number that had been employed by Ford’s massive factory up the road, whose closure, staged between 2013 and 2016, marked the death of Australia’s car manufacturing industry.

A float of the much-hyped manufacturer planned for 2017 or 2018 fell through and by 2018 the company was on death’s door.

Carbon Revolution has never turned a dollar and almost certainly never will - its entire existence is built around the massive tax-payer funded cash injections.

The key promise, building an affordable carbon fibre car wheel has failed to eventuate - the concept is little closer than it was in the 1970’s when the idea first emerged.

But instead of letting the company fail, and admitting to the major error, the Victorian Government pumped almost $30m more into the company to help it limp across the line to an ASX listing - and so become someone else’s problem.

It was a remarkable and deeply cynical move.


Carbon cowboys

Through stockbrokers and other sales agents such as financial advisers the investing public - no doubt encouraged by the endless government praise - sank $90m into Carbon Revolution (the entire amount sought) and it was listed in November.

There was never a realistic chance of Carbon Revolution staying afloat for long, let alone delivering profits to these new investors.

In the 2015 financial year Carbon Revolution delivered an $8m loss. In 2016 it lost $11.6m, in 2017 it lost $11.9m and in 2018 it lost $17.4m.

In the year to June 30 2019 the company delivered a loss of $21.9m and its auditors warned there was a “material uncertainty” it would be able to stay afloat.

But Carbon Revolution and the Victorian Andrews Government - which appointed two directors to oversee the entire deal - engaged in a complex, wholesale financial engineering operation to ensure it was foisted onto the ASX.

Using Carbon Revolution’s opaque 222-page prospectus, a similar document released a month earlier by Melbourne stockbrokers Evans & Partners, and scores of filings with the corporate regulator we have painstakingly mapped out the scheme.

(Prospective new investors had only two weeks to weigh up the deal, the prospectus was launched on November 8 and closed on November 25).

The ASX float ensured the so-called “existing investors” (whose shares were actually next to worthless given the company was verging on insolvency) including the Victorian Government, the Clean Energy Finance Corporation and several Carbon Revolution founders and their associates hit the jackpot.

Their bonanza would be funded entirely by the new investors.

Of the $90m raised, $60m - cash - went straight to these existing investors.

By the second half of last year, Carbon Revolution was so desperate and broken, its own auditor said it would be unable to pay its debts and collapse into insolvency if the $90m ASX raising failed to get off the ground.

Despite this, and the fact the raising was ostensibly to help fund a “significant industrialisation program” at Carbon Revolution, just $20m of the $90m raised actually went to the company.

Almost $5m was taken out to pay the costs of the capital raising; and a $5m “mandatory pre-payment” went immediately to Swiss car wheel manufacturing giant the Ronal Group, a long-standing Carbon Revolution creditor which was owed $18m and threatening to call in the receivers.

(Carbon Revolution is due to pay the remaining $13m, with interest accruing at a high 10%, by June 2021 or face insolvency).

The $20m left over was, based on the company’s own forecasts, little more than it would burn through in its normal operations in just 12 months.

The ASX float was a bonanza for the “existing investors”: they received $35.8m worth of shares for “nil consideration” and a $48.4m boost on $73.4m of debt they had contributed just six months earlier (that’s $84m in gains - much of it taken out in the $60m cash bonanza the second the deal closed).

But it was financially devastating for the already heavily indebted and teetering Carbon Revolution.

The $84m in gains that went to existing investors, plus a $14.4m loss from normal operations, meant Carbon Revolution delivered a massive $98.7m loss for the six months to December.

Its latest accounts show that at December 31, just four weeks after the float was completed, Carbon Revolution’s accumulated losses were $188m - up from $89m the year before.

The ASX was so concerned about the appropriateness of the vast gains set to flow to the Victorian Government under the deal it issued it with a “restriction notice”, placing a “mandatory escrow”, or freeze, over 100% of the shares it ended up with after the float.


Secret bailout

Carbon Revolution was founded as CFusion in 2007, with the help of a federal grant, by a group of engineering students at Deakin University’s at Geelong’s Waurn Ponds.

They built a wheel from carbon fibre, the CR-9, and in 2012 changed the company name to Carbon Revolution and shopped the wheel around in Europe and the US.

They talked a big game - the “world’s first one-piece carbon fibre wheel” was a “game changer”, a “disrupter” that would revolutionise the market.

In 2012 it attracted the attention of Switzerland’s Ronal, which in December 2013 invested $15m equity and put two directors on Carbon Revolution’s board.

The plan was Ronal would sell the CR-9 through its network of European distributers.

Politicians have been beating a path to its door for years.

In March 2014 then Coalition industry minister Ian Macfarlane visited Carbon Revolution to announce a $5m grant as a “show of confidence in the region and the change of direction that is taking place in Australian manufacturing”; Abbott was in town five months later telling the media throng: “This is a region in transition, from a smoke stack economy to a high tech economy”; and Turnbull was here weeks out from the 2016 election, holding a Carbon Revolution wheel above his head and for the cameras and spreading the love: “This is the world’s best technology. How proud do you feel?!” 



None of them, it appears, were interested in looking too closely.

A key event in Carbon Revolution’s “success story” was a 2015 deal with Ford, whereby Carbon Revolution’s wheels would come standard on its Mustang Shelby GT350R V8 muscle car.

Carbon Revolution used the deal to claim its “technology” was destined for the broader consumer market and the US$73,345 ($106,870) GT350R was advertised as the first “major series production car with carbon fibre wheels”.

It was billed by the company as a major coup, (despite the fact only several hundred GT350R vehicles were sold globally each year).

However our investigations show that key contract was in fact connected to yet another grant - $5m Ford had contributed to a government package to help fund “108 new jobs” to soften the blow of the closure of its Geelong plant.

Either way, in April last year - months before the ASX float - news emerged in motoring enthusiast publications that Ford would be discontinuing the GT350R from 2020.

Carbon Revolution has no other contract to provide its wheels as standard on any car.

The company’s wheels can still be purchased on GT350R stablemate theUS$72,900 ($106,200) Shelby Mustang GT500, launched in 2019, but only as part of an optional US$18,500 ($27,000) Carbon Fibre Track Pack, and they sell in significantly lower numbers.

Carbon Revolution also has contracts to provide (Ferrari badged) wheels for the Ferrari 488 Pista and the Ferrari SF90 Stradale - one of five cars launched by Ferrari in 2019 - but in each case the wheels are only offered as optional extras.

(In the case of the 488 Pista for an extra $28,000, and in the case of the $847,000-plus Stradale, they are part of an optional $111,300 “light weight” Assetto Fiorano package.)

Carbon Revolution’s prospectus states that in the 2020 financial year, “over 93%” of wheel revenue would come from sales for the GT350R, GT500 and the much rarer 488 Pista and the SF90 Stradale.

The remaining 7% of its revenue comes from a handful of wheels sold as an option on Ford’s rare GT Program “hyper cars”  and wheels sold as part of an optional extra “Record Version” package on the already limited edition (500 to be made) Renault 2020 Megan R.S. Trophy-R “cult” rally car.


What revolution?

The central question about Carbon Revolution is - what revolution?

Carbon fibre has been around for decades, and carbon fibre car wheels have been around since 1971, when they were introduced by French car maker Citroen.

But the reason carbon fibre car wheels have never gained widespread acceptance is their exorbitant cost.

Carbon Revolution’s wheels are high quality - but like all their predecessors, they’re also hugely expensive.

It costs Carbon Revolution over $15,000 to make a set of four.

And the company has provided no credible evidence - whatsoever - that it has overcome this basic and fundamental hurdle.

Or that it’s ever, even remotely, likely to.

The CR-9 wheel was “officially launched” in 2012, as an “aftermarket” item (ie not sold with the car) to fit the Porche 911 GT3, the Lamborghini Gallardo and the Audi R8. 

Reviewing the wheel in 2012, publication Popular Mechanics noted its “breathtaking” light weight.

But added: “The hitch? Equally breathtaking is the CR-9’s price —about $15,000 per set.”

That was why Ronal could’t sell the wheels - they were simply far too expensive.

Little has changed.

The Evans & Partners document shows that in the 2019 financial year it cost Carbon Revolution $3900 to make each wheel - that’s $15,600 to make a set of four.

But remarkably, it consistently sells its wheels for a huge loss, earning an average of $2420 a wheel.

That means for every wheel Carbon Revolution sells it loses $1480 - almost $6000 on every set of four.


Green shoes

In May 2016 then Coalition PM Malcolm Turnbull ordered the CEFC to create the new Clean Energy Innovation Fund.

(It was originally to have a size of $1bn but this was reduced to $200m just months later).

It was a key step in the Coalition’s plans to abolish the Australian Renewable Energy Agency (ARENA), which like the CEFC had been created by the ALP.

ARENA had been created to provide early stage research and development grants to clean energy projects, before they were viable for CEFC funding.

(ARENA still exists but it’s on its last legs - in 2016 its budget was slashed by $500m and it hasn’t funded beyond mid-2022).

In opposition in 2011, the Coalition attacked the proposed CEFC as a “honey pot to every white-shoe salesman imaginable” with money going to “all sorts of wild and whacky proposals that the banks would not touch in a fit”.

If such a description fits anywhere, it’s in relation to the first major investment made by Turnbull’s new clean energy fund: a $10m equity stake it made in December 2016 in Carbon Revolution.

That investment was part of Carbon Revolution’s first major capital raising, which brought in $50m in equity.

From square one, the credentials of Carbon Revolution as a “clean energy” technology are a major stretch.

It ships raw products from Japan, builds the wheels in a highly energy intensive process in Victoria and then ships them across the ocean to the US and Europe where they are fitted to gas guzzling muscle and super cars.

But the deeper we dig the more bizarre things become.

Carbon Revolution’s website has long carried the addresses of two locations: its factory at Deakin University, at Waurn Ponds in Geelong; and that of Carbon Revolution USA, 7251 West Lake Mead, Suite 300 Las Vegas, Nevada.

The only phone numbers provided for Carbon Revolution on the website are numbers for the US office.

However our investigations reveal these US headquarters don’t actually exist.

Instead, it’s a “virtual office”, which can be leased “from $3 per day”.

In fact, Suite 300 in the building - known as the Bank of Nevada Complex - doesn’t even exist, floor plans show.

Google searches show scores of other businesses use the same fake address, including “Discount Las Vegas Lawyer”, a provider of massages, and a company offering “one day business ethics training” for “$695-$995”.

Also geographically curious is the “residential address” Carbon Revolution co-founder Brett Gass has provided to corporate regulator the Australian Securities and Investments Commission.

The address - 10 Market Street Suite 755, Camana Bay, Cayman Islands - is not a property at all, but a PO Box presenting as a physical address.

According to the provider of the service, “anyone can have a mailbox here” and don’t need to be resident of the Cayman Islands.

Gass, 49, was a director of Carbon Revolution from 2007 until 2018 and is currently its Chief Technology Officer.

Gass has repeatedly declined to comment.

We have repeatedly, over several months, sought comment from Carbon Revolution but the company, its directors and its PR agency have refused to comment.

Victorian Trade Minister Pakula’s office initially agreed to provide responses about Carbon Revolution to Michael West Media, but failed to do so after being provided with our highly detailed questions.


Ghost car 

The key claim in Carbon Revolution’s November capital raising documents is that carbon fibre wheels can reduce fuel consumption “by between 2-6%”.

But there is no evidence to back this up, no explanation about why there’s a three-fold variance in this apparent fuel saving, and the fine print reveals Carbon Revolution didn’t even do the (unpublished) “tests” - they used a computer model.

“The 2010 Ford Focus was used by Carbon Revolution as a benchmark to develop a computer simulation model for quantifying fuel economy improvements,” reads a note in the fine print of Carbon Revolution’s prospectus.

In other words, they put $15,000 wheels on a $10,000 car to extrapolate hypothetical (and highly questionable) results that they have not released.

It’s difficult to pin down the precise weight of Carbon Revolution’s wheels but the Popular Mechanics article notes the 19’’x12’’ CR-9 rear wheel had a reported weight of 17.8lbs (8.07kg). (Carbon Revolution only produces the CR-9, or close variants thereof).

It’s been estimated the CR-9 wheels are around 1kg per wheel lighter than some alternatives, meaning the wheels save about 4kg a vehicle.

On a 1.5 tonne vehicle that’s a weight saving of about one quarter of one per cent.

Carbon Revolution says a key benefit is the wheels significantly reduce a car’s “unsprung” weight - that is, the components below the suspension - so providing superior handling.

However the jury remains out on the extent of this benefit (as demonstrated by an underwhelmed Jay Leno who tested the CR-9 in 2014) and in engineering there is nothing new about the concept of unsprung weight.

Either way, high-performance, super light weight wheels, such as those made from aluminium alloy, are ubiquitous and available at a fraction of the price.

Enkei’s 18” x 9.5” RPF1 wheel weighs 17.9lbs (8.1kg) but costs US$365 ($530) - a fifth of what Carbon Revolution sells them for (and less than one-seventh of what it actually costs the company to make them).



The promise of the November 2019 ASX float included funding a “significant industrialisation program” allowing Carbon Revolution to “invest in new manufacturing equipment to reduce unit costs of production” and “further increase our manufacturing capacity as demand continues to grow”.

But the company has been making similar claims for many years - the federal grant it was seeded with in 2007 was to “commercialise” its “single piece carbon fibre wheel technology”.

The $5m grant in 2014 was, in part, to help fund a new $24m “purpose built manufacturing facility”.

The facility, built by Deakin in 2015, gave Carbon Revolution the capacity for “commercial scale production” of carbon fibre wheels.

The 2016, $50m capital raising was to “continue the industrialisation” of the company.

The 2018, $10m grant from the Andrews government was to allow Carbon Revolution to “materially increase production capacity”.

The underlying premise seems to be that somehow the wheels will become affordable enough to consumers to make them viable.

But, as Ronal found out the hard way years ago, it’s just not going to happen.

The wheels are still $15,000 a set.

It’s just meant that Carbon Revolution’s manufacturing capacity - both in terms of plant space and workers - has been artificially bloated to ludicrous levels at taxpayer expense.

The Coalition’s 2014, $5m, grant was to give Carbon Revolution the capacity to build “50,000 carbon fibre wheels a year”; the 2016 $50m capital raising was to “expand production to 100,000 a year by 2021”; and the 2018 Andrews grant (part of which saw Carbon Revolution’s “building footprint” treble from “3,000sqm to 10,000sqm”) was so it could build “more than 150,000 wheels a year”.

In the 2017 financial year Carbon Revolution sold around 3500 wheels.

In 2018 it sold 3178.

In the 2019 financial year, its biggest year ever, it sold a total of 5700 wheels.

That’s one-tenth of the annual capacity of 50,000 wheels a year it already had way back in 2015.

Or one-thirtieth of the 150,000-plus Andrews bragged about in 2018.

Since the 2015 Mustang GT350R deal and the November raising Carbon Revolution had sold, in total, just 17,300 wheels, enough for about 4,300 vehicles.


Buying jobs

In 2014 Carbon Revolution had a handful of employees.

By September 2015 it had a workforce of “almost 100”, having almost doubled the number of production workers that year.

By November last year it had “over 380 full time equivalent personnel”.

At December 31 it reported having “470 team members”.

To put in perspective how out-of-whack that is, in 2015 Dingle was quoted as saying that to produce 50,000 wheels a year Carbon Revolution needed a workforce of “150 people”.

For 250,000 wheels it was “probably more like 350 people”, he said.

Based on Dingle’s own numbers, its current 470 employees are enough to build around 50 times the 5,100 wheels Carbon Revolution actually built in 2019.

The $15m equity Ronal had invested in 2013 was quickly chewed up - in the 2015 year alone Carbon Revolution lost $7.9m and its losses were growing fast.

Ronal made a loan of several million dollars to the company in April 2015 to prop it up in a bid to protect its investment.

But a $100m float planned for 2017 or 2018 failed to materialise and the Ronal loan, accruing interest at a high 10% a year, kept growing.

By last year, if not before, the loan was maxed out at its $18m limit and Ronal was threatening to call in the receivers.

Then the Victorian Government stepped in.


The state of Victoria

In two steps the government pumped almost $30m into Carbon Revolution so it could be hoisted onto ASX before it collapsed.

Both were dressed up to make it look like the long-failing company  was thriving.

Two months out from the state election, in September 2018 Victorian Premier Daniel Andrews and four of his MPs went to Geelong to announce a “massive expansion” of Carbon Revolution.

The “world leading Geelong manufacturer” would undergo a “$100 million expansion” which would “create 500 new jobs”, helping “cement Victoria as a manufacturing powerhouse”.

“This is yet another massive vote of confidence in Geelong - these are hi-tech, secure jobs that will help the local economy continue to prosper,” Premier Andrews said.

He was referring to a $10m grant signed-off two months earlier.

The $10m was to be dolled out over five years to 2023.

But things were dire at Carbon Revolution.

The company was “not yet profitable and does not yet generate sufficient funds from operations to continue”, the October 2019 Evans & Partners document said.

Its prospectus said there was a “material uncertainty” about its ability to stay afloat - and it would become insolvent and collapse if the ASX float didn’t eventuate.

The Andrews Government knew it had a big problem on its hands.

It had won the state election but the company was still in serious trouble and teetering on the verge of collapse - and now only months out from the May 2019 federal election.

It drastically sped up the payments and Carbon Revolution received $7.5m via an “early advances” between January and March 2019.

(The advances, $5.5m of which are due to be repaid by 30 June next year, carry something called a “facility fee” of $37,000 a month.)

Secondly, a $20m “loan” would be made to the failing company.

On March 22 last year, Victorian Treasurer Tim Pallas and Trade Minister Martin Pakula visited Geelong to announce the loan.

They lavished praise on the “cutting-edge Geelong manufacturer” which had “important intellectual property” the government wanted to “retain as part of Victoria’s high-tech manufacturing future”.

“We are giving Carbon Revolution the support they need to succeed and we are confident that more private investors will get behind this innovating manufacturer,” Pallas told the cameras.

But while it was busy talking up the failing Carbon Revolution - as it had been doing for years - and encouraging the public to invest, the Victorian Government was busy ensuring it didn’t lose a cent.

On February 13 2019 it signed a “general security deed”, placing mortgages over all the “present and future property” of the entire Carbon Revolution group.

On May 29 it signed a similar “state note general security deed”, “granting security over all of (Carbon Revolution’s) present and future property in favour of the State of Victoria”, which would “release the secured property….once the State is satisfied that all secured liabilities have been fully satisfied”.

Not only that - it helped structure a scheme that would see it vastly capitalise on the situation.


Engineering (financial)

The government’s $20m “loan” formed the basis of a $73.4m “convertible note” raising for Carbon Revolution, completed on May 29, 2019.

Existing investors Deakin University, Ronal and Melbourne’s Acorn Capital (whose dealings we covered in March) all contributed to the raising, with most of the money coming from “major financial investors”.

CEFC injected $2m, taking its total investment to $12m.

The deal was this: together, these May 2019 investors put in $73.4m and received convertible notes. (A convertible note us a short-term debt that converts into shares).

When the November ASX raising was complete, the $73.4m would automatically be converted to $121.8m worth of shares (a boost of $48.4m) at the stock’s issue price of $2.60, delivering them a massive 65% return in just six months.

Then millions of those shares would be transferred to the investing public (shares they had paid $2.60 each for under the ASX float). Tens of millions of dollars of the cash the new investors had paid for their shares under the float went to the May 2019 investors.

The Victorian government had no shares in Carbon Revolution before May 2019.

(The $20m “loan” comprised of $19.5m in cash and about $500,000 in capitalised interest.)

The deal meant that in November the Victorian Government recovered $19.3m in cash and landed a windfall of over 5 million Carbon Revolution shares - $14m worth at the $2.60 issue price.

(The government had gone even further to stack the deck in its favour - before the float it entered a “subordination deed” which ranked its convertible notes and debt - and the money owed to Ronal - above all the money put in by the other May investors).

And to ensure Carbon Revolution’s earlier shareholders - those involved in the 2016, $50m equity raising - didn’t miss out on the bonanza, they were party to an “anti-dilution” deal, receiving $35.8m worth of new shares for “nil consideration”.

All up these two deals (the $35.8m and the $48.4m) cost Carbon Revolution $87.2m.

“The aggregated impact at a price of $2.60 per share is expected to result in a $87.2 million charge to the statutory forecast income statement,” says a note in fine print on page 84 of the prospectus.

Paying for it was the investing public, drawn in by slick marketing and the close involvement of government.

Of the $90m raised, the $60m that was cashed out immediately was split roughly in thirds between Ronal ($20m), the Victorian Government ($19.3m) and “other existing shareholders” including the CEFC ($19.6m). 

Under the scheme, Carbon Revolution “directors/management and associated entities” received 396,000 shares and cashed out $1.3m.

Deakin didn’t cash out any shares under the float.

Of their remaining holdings, the ASX placed “mandatory escrow” orders on 46% of the shares held by the company’s directors and managers; 30% of the shares held by Ronal; 14% of the shares held by Deakin; and 11% of the shares held by the “other existing shareholders”.

It placed a massive 100% of the 5.4m shares now held by the Victorian Government in mandatory escrow.

The Victoria Government had been intimately involved in the deal every step of the way.

According to Carbon Revolution, the $20m was a “critical important factor” in getting this “pre-initial public offering raising” over the line.

The $20m loan would “also see the Government appoint up to two board members - strengthening oversight of the company’s operations”.

Under the agreements, Carbon Revolution must “immediately on demand” repay $5m of the outstanding loan balance each time the “State of Victoria” sells 20% or more of its shares in the company.

According to the prospectus, the mandatory freeze on the Victorian Government’s shares lifts in stages between 30 May 2020 and 29 November 2020, meaning it is already able to sell some of its 5.4m shares.

How much the government ultimately extracts will depend on when it sells its shares and the prices it manages to achieve.


Please sir…

Unsurprisingly, Carbon Revolution was back asking for more money almost immediately after the November raising.

In mid-March it entered a trading halt, then announced it had raised another $25m at $1.50 a share.

Weeks later, on 20 April, the company announced it had raised another $2.73m, also at $1.50 a share.

Carbon Revolution shares are currently trading at around $2.

They soared from $2.60 to $3.45 at the time of the much-hyped listing; rose even higher to $4.47 in late January; slumped to a low of 81c in late March amid the broader market crash; then recovered to around $2 in mid-May.

The company said it would face some negative impact from the Coronavirus pandemic.

However, given the Federal Government’s Job Keeper package, and the fact Carbon Revolution has 470 employees, the pandemic could actually serve to keep Carbon Revolution above water longer than would otherwise be the case.

In late May it said Ferrari had returned to “full production” and the US factory that builds the GT500 was gradually ramping up operations.

Based on our comprehensive investigations it appears almost certain Carbon Revolution’s share price will slump to near zero in the medium term, at least in the absence of ongoing government bailouts.

That its shares are trading at around $2 is, in our view, a function of a highly misinformed market.


A shorter version of this article was first published at Michael West Media and is republished here with permission

© 2020 Anthony Klan. All rights reserved.