*SYNDICATED EPISODE* - More Efficient EVs, From The Powertrain Up With Scalvy

NICK:

Welcome to the Climate Capital Podcast, where we interview founders who are solving the most difficult and important decarbonization problems in the world. Climate Capital, across our funds and our syndicate, is one of the most active funders of early-stage climate tech in the world. For full disclosure, Scalvy is the portfolio company of Climate Capital. CCPod is not investment advice and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any investment decision. This is Nick van Alstel speaking, venture partner at Climate Capital, and I am joined today by the CEO of Scalvy, Mohamed. Mohamed Badawi is the co-founder and CEO of Scalvy, a VC-backed startup developing software-defined energy management modules that unlock significant cost savings and superior performance in the energy storage and clean mobility sectors. After developing proprietary technology and securing over six patents in the past two to three years, Scalvy launched commercial engagements and worked with several Fortune 500 companies and startups across the mobility, stationary energy storage, and data center markets. Before founding Scalvy, Mohamed was a tenured professor at San Jose State University in Silicon Valley, where he founded and directed the Electric Mobility Research Center. Thanks for having me today.

MOHAMED:

So, I'm Mohamed Badawy, I'm the CFO and co-founder of Scalvy. Scalvy is a venture-backed startup company that is working on building energy management hardware models. that are software-defined. By software-defined, we mean that they can be reconfigured for a different number of applications based on the software configurations that you put into them. I started this company about two and a half years ago. I was coming right out of academia. I started as an assistant professor for about five years or so, and then I got my tenure. Why do I leave while I'm starting Scalvy? So... What we're doing here at Scarlett is basically building these energy management modules that are integrated into energy storage cells and modules. So basically think about your battery module or the group of battery sets together, we have this energy management module on top of that. which would look very similar to a battery management system, except that it has a ton of other features, that it can invert the DC power to AC, it can regulate the DC output, it can charge the batteries. So in a CMOS, when you're using these modules with your batteries, you don't need anything else in the vehicle, you don't need any other electronic systems in the vehicle. And that's where the cost savings and the superior performance come from.

NICK:

Excellent. Yeah. Excited to talk a lot more later about sort of the technical unlocks and the applications of that. But first I wanted to kind of hit on it's an interesting note that you went from sort of the tenured professor track, which folks that are in academia, certainly all, that's like the end goal. And then you decided to start a startup, which we're certainly excited and happy about at Climate Capital. And I'm sure we'll kind of hit on some, I imagine there might be some similarities between the things that you have to navigate as a professor, whether securing funding or managing your team to being a startup founder. But before I digress on that point too much, You know, I think electric vehicles are probably one of the first examples that come to folks mind when we start talking about the technology. But I imagine that there's probably other applications beyond purely just in an electric vehicle for your technology. So what might some of those look like?

MOHAMED:

Yeah, so funny quick story about this. When we were visiting Kawasaki Drowned, a couple of years ago, there was this particular VC that were very interested in them. But they were a little bit worried about the electric vehicle market because it's kind of affected by the policies and all that. So the question to us was, do you see any other vertical that you can get into beside the electric vehicles? And our answer at the time was, no, this is pit for electric vehicles, cannot be in any other vertical. But then as we really build the technology and as we develop the idea and as we start exhibiting a point to expose, we find people coming from these other segments, sectors, teaching us how our system can be applied on their sectors. And the two, the two particular sectors that we're focusing on now based on this market pool was stationary energy storage, that is providing grid services that is connected to the grid of a large scale and data center applications.

NICK:

Got it. Two very high growth sectors. You know, we've discussed a lot of great content already, but now I think is a perfect opportunity to get into the conversation of, A, I'm curious, when you were making that transition from considering being a tenured professor to founding Scalvy, what was the primary catalyst behind that decision? And then B, I'd love to talk about what Scalvy is doing differently from competitors yet. So, two-part question, but I'll let you drive from there.

MOHAMED:

Working in research is a wonderful experience in Berlin. Commercializing a product is something completely different. It's the idea that I'm not working to publish a paper. I'm not working to get a grant. I'm more like to actually commercialize a product and put this product into vehicles and make profit and start a company and employ people. It's a completely different energy that this process gives you. And I have always been hungry to start this journey. I remember when I was just about ending my PhD program, I told my lab mates in the morning, if I don't start the company within the next five years, you know that I failed my course.

NICK:

Yeah, that was your five-year plan. It's like a minimum I got to try.

MOHAMED:

And it took me five and a half, six years or so until I started. But yeah, it was always a focus of mine to commercialize something. Now, the issue that I had in the past is that I don't want to just start a company for the sake of starting a company. I want to start a company to solve a real problem that is existent and that I think I have a sweep support. And my times doing research at the university allowed me this opportunity that I'm doing free research, I'm working on different ideas, I'm working with companies, I'm working with research labs and developing different concepts and different ideas until I sell it. that I really know exactly what I want to bring to the market and I really know the value of it. So, that was the main catalyst for me to decide 100%. I'm going to go for that.

NICK:

Excellent. Makes sense. Yeah, it feels like you really honed in on a very specific lane where you felt like you had the expertise and insight to build something that would make a difference and be competitive in what is ostensibly, I'm sure, a competitive market.

MOHAMED:

And now we can get to the second part of your questions. What's different about what Scalp is doing? And also, I'm gonna tell you a story about that. When I was a professor, so I was one of the well-known experts in electric power trades. So I got approached by an army contractor at the time, one of the largest companies that are working on army vehicles and so on. And they had a question for me, do you know of any company that develops powertrains, but in a modular way. And we're asking them, what do you mean? Why do you need it to be modular? They said, well, it has a ton of different vehicle models. We don't reduce hundreds of thousands of units of any of that. But we have a ton of them. And we're trying to electrify a big amount of these models, a large subset of these models. So it would be just a waste of time and resources to try to customize a powertrain for every single one of these vehicle types. And okay, I took that question, I went to my network, I went to suppliers, I went to OEMs, I really tried as hard as I can because I was trying to get funding from them, trying to share with this three-way project, then me as a research professor and that company get funding and start something together. But there was nothing, that no one is doing that. So, and also for me, I spent about 10 years of my career just working with modular electronics in my research, in my research in my grad school, et cetera. So they kept, okay, why don't I try to do something like that? Then I started the research and I'm very cool that, okay, I cannot contain this research in my university, something I have to start. my old company and then i started recruiting my co-founder for the largest part being company understood our team people came from tesla from mks from delphi from values from some of the last space and that does.

NICK:

Make sense yeah so it sounds like based on that sort of that question that was posed to you by that army contractor you went on this sort of. this investigative journey to say, hey, this must already exist somewhere. Like, why can't, why can't I find it? And then you realized, oh, wait, actually someone needs to build a solution in this space. And when we talk about modularity, you know, for, for the audience's sake, like maybe we can just briefly discuss when we think about a traditional powertrain. what about it is not inherently, you know, quote, unquote, modular, and, and what would the advantage of the much the more modular systems that Scalvy is now producing be for for some of these different applications?

MOHAMED:

Yeah, sure. So when we talked about the three different main parts of part three, talk about the battery, the motor, and then the electronics. Now let's take a deeper look at these electronics, what's actually there. So usually there you have the battery management system. You see some couple of the battery cells or modules, what it does is that it manages... It doesn't really manage them, it kind of protects them and estimates their state of charge, do some measurements and report it back. So the thread does some kind of light management plus protection. And then you have the inverter or the motor drive unit, which is responsible for driving the motor from the batteries so that it converts DC into AC and ride on motor so now these are two central kind of bulky systems so far and now we have the onboard charger so that you can charge your batteries from the grip that's number three now and then you have DC-DC converters it's usually more than one so that I can take the power from this high voltage battery packs into low voltage low voltage auxiliary auxiliary bus. These are the four main subsystems. All of them, every single one of them is bulky. It needs to be placed in its own location inside the vehicle, on the vehicle chassis. It takes away from the space that you would have given to the battery otherwise. and typically for an OEM they are gonna get the inverter from one supply let's say i'm getting my inverter from Bosch i'm getting my DC-DC converter from Denso i'm getting my own board charger from BorgWarner etc and then they have to put all of these systems together and that's when really all hell breaks loose so you're gonna find that this doesn't work with that there is some coupling here there is some So it's just the idea of customization and bulkiness and centralization, that everything is centralized, that you really have to customize it. Or you're going to get something off the shelf that is not really well designed for your system. So the best analogy I like for it is that, let's say you have a cassette made of Lego blocks, right? And you have a lot of customers, everyone wants a different castle. You're gonna have to build one castle for each. You're gonna have to customize one castle for every one of them. But what we're doing at Scalaby is that we're giving people these building blocks, these Lego blocks, gently put with their battery cells and modules, and they can build whatever system they want. Ah, understood. So at a certain degree, it is modular that if you can use the same exact hardware in different vehicles, but configure them different.

NICK:

Interesting. And you could theoretically use, you know, all of your parts that build up to the comprehensive powertrain, or if you only need one specific that you want to integrate with your technology, you could just choose that one.

MOHAMED:

Yeah, so usually, every one of our walks has all the features that you need, from the inverter, or onboard charger, DC converter, BMS, software has this four plus one software is the one systems. And then you use as many or as few as you need. So it depends on your voltage level, your power level, and you can configure them differently. You can put them in series, you can put them in parallel, and they go, they integrate directly with your battery cells modules. So at the end of the day, what you're going to get is a battery pack with our modules going inside the pack that does not need any electronics attached to it. It directly connects to the motor, it directly connects to your loads, it directly connects to your charging ports.

NICK:

Yeah. And, you know, to me, it sounds like one of the first unlocks for you was you were posed this question about whether this exists somewhere. And you went on a journey to see if you could find it and you couldn't. I'm curious now in terms of when you started building the company and recruiting folks to work alongside you, what were some of the technical unlocks? One of the big sort of aha moments where you were like, Oh, this is actually starting to work. You know, like we've actually, we're actually hacking it. Like this is, we're getting somewhere with this. What were some milestones

MOHAMED:

We're still having new aha moments all the time. What thing happens when you're starting, when you're working and commercializing a new technology is that there is no reference. No one did what you did before. So there is no place that I'm gonna go read the paper or something and understand how they are doing it and imitate them. It's always a discovery journey. But there are basically two large segments at 3D we needed to focus on early on. First one, the hardware implementation, that it needs to be cost attractive. It's not super complicated to build modular electronics. But it's nearly impossible to build modular electronics that are going to compete in pricing and that are going to actually do cost savings for your end users. That's what we focused on from day one, before even we started designing anything. I surveyed the market, I surveyed ground vehicles, automotive, low-speed vehicles, off-road, commercial, aviation, eVTOLs, drug companies. I spoke with as many people as I could. And it became very clear, cost efficiencies can be the number one factor.

NICK:

And not to get too distracted, but especially as we move into an environment where, you know, there's a lot of uncertainty around how much federal and policy support we might have for energy transition dynamics in general becomes all the more imperative that, you know, no one's necessarily going to pay more for a product just because it's, uh, you know, incrementally more efficient. You have to actually unlock real, real efficiencies and real cost savings for folks.

MOHAMED:

So our IP, big part of it, I would say about 50-60% of our IP focused on how can we deliver these concepts in a cost-efficient manner. So you always look at what's the most cost-efficient way we can build this, and if we're able to build it, if it's working, we file the IP, we make sure that we're the only company who can do that in a cost-efficient manner. The second part is a software because it's easier said than done when you have that many models and all of them have the same goal of driving a motor, of synchronizing mutual motors together, of delivering low-to-external resupply by accepting charge from the grid. It is not an easy task to do that. So a big part of our IP started focusing on this, and we had a ton of challenges, a ton of struggles that took us time to be able to implement it and demonstrate it.

NICK:

Yeah, I'm glad that we're talking about the software component too because this is something that I've, you know, learned more about when it comes to sort of electrifying transportation is that the whole shift from there's a lot that's inherent to the shift from internal combustion engines to plug-in electric hybrids or fully electric vehicles. But one thing that, you know, folks don't often necessarily touch on And that was certainly a new learning for me over the past few years is really the way that electric vehicles are really much more software defined in many ways than traditional combustion engines were. And that introduces a lot of complexity and can introduce a lot of uh risks which we don't have to necessarily spend as much time on on you know the cyber security front but you've really seen some legacy auto manufacturers struggle with this one you know i think i forget if it was ford or gm but there was some ceo i think it was ford talking about how like you know we tried to contract out a lot of our software development to third parties as we built up our evs and that ended up really being a challenge because we didn't own it in-house so yeah it's an important i mean all of this is just to say it's an important As important as the hardware is, it's a really critical component of the stack of making the electric vehicle as productive as possible.

MOHAMED:

I really think the new kind of automobility, and when you really look at what automotive OEMs would specialize in, they really focus on what's making their brand special? What's going to differentiate the BMW from a Toyota from a Mercedes? That's what we really need to focus on, rather than getting involved in some supply chain verticals that would be better handled by their supply chain network and suppliers. And definitely, if they are marketing the software-defined vehicle, then this is the thing that their team should refocus on.

NICK:

right? Yeah. And, you know, tangentially, but perhaps that's why, you know, electric vehicles of all spaces, it's been an, it's been an interesting industry in the sense where incumbents have in some cases, or many cases had incumbents that focused on electric vehicles from the start have had more success than some legacy auto manufacturers, because I guess they understood that from the start, but not to get too distracted. I'm interested to you know, shift the conversation a little bit to how things are sort of on the commercial traction side and the sales conversation side. So who are some of the folks that you're working with? Who are some of the initial customers that are most interested in the technology? What are some of the what's kind of the tenor of the conversations you're having with them feedback that you're getting all that good stuff?

MOHAMED:

Yes, well, we really started accepting commercial engagements about four, four and a half months ago.

NICK:

Nice, so we're still early in the process.

MOHAMED:

We're still early, but during that time, right now we're at about 7, 7 going to 8 commercial agreements already. Excellent. With partners, with commercial OEMs, commercial vehicles, or like electric trucks, etc. And the space that I'm very excited about is the off-road space, off-road vehicles. Interesting. Yeah, whether heavy machinery or material handling, we have a lot of agreements there also. And then energy storage, as I mentioned, energy storage and data centers, we start getting commercial traction there as well. So, it has been a lot over four months to close that many deals. And all of them are like, pay customers. None of it is like a free book or anything. But it had been a lot but figure that that kind of confirmed the market need for the technology. And we really believe that as time passes, the market is gonna even identify itself more. Because as our OEM start getting more exposure on what this technology is capable of doing, they gotta start using it in the right spots. And that's what we're focusing on over the next years.

NICK:

Yeah, it sounds like you have some early positive indicators that you've found some product market fit and then as that continues, it can certainly build momentum and turn into a positive flywheel of, you know, growing existing relationships, getting referrals to others. So, a lot of these supply chains are kind of intimately interwoven and people definitely talk to one another.

MOHAMED:

Yeah, and we can see that we would we would start the deal with a with a customer and then we find out of the blue that the biggest competitor they're reaching out to us right away and ask a question about technology.

NICK:

Yeah, that's funny. I'm curious just to make sure I understand on the off-road segment, Ian, you mentioned, you know, this can be a variety of types of vehicles, but like really specifically, are we talking about like vehicles that might be used on a construction site, that type of thing? Okay. Yes, yes.

MOHAMED:

So that's it. Heavy machinery is basically construction, mining. Yeah, things of this matter. And then there is also material handling, which are like warehouse vehicles, or so on. And then there are different use cases for each. So Heavy machinery, one of the biggest challenges is kind of similar to what we mentioned about army vehicles is that it's just so many different models, electrifying that is not easy. Customizing for every model is just a waste of resources. And then for material handling part, we have a big value add is that our systems are quite safe compared to a conventional powertrain. because we actually don't have a high voltage DC plus even though we can support high voltage load without having high voltage DC plus.

NICK:

So does that help with things like fire and electrical fault safety?

MOHAMED:

And it also gives material handling OEMs kind of a peace of mind that even if operators or maintenance people are working on the vehicle, it's just like, it's very safe to work on it. Versus a high-vehicle system that you need the equipment and you need a certain procedure just to be able to get close to it.

NICK:

Right. And at, you know, at the minimum, it requires more attention and more, you know, that requires the operator to be much more kind of attuned and focused to the risks at hand. Yes. Excellent. Yeah. Kind of turning the conversation towards a little bit of reflection and also looking ahead, I'd be curious, you know, for any other things that stood out to you as far as what it's taken to get to this point and that could be related to Hiring, fundraising, as we talked about, you know, there are some interesting parallels between your history as a professor, making it to the tenure track and all the things that you have to navigate there, and then all the things that you have to navigate as a startup founder. But, you know, whether it's the hardest things or the biggest successes that you prefer to focus on, what are some technical and commercial milestones that we've discussed what stands out to you from the journey so far?

MOHAMED:

have to learn pretty quickly is the importance of humbleness. Especially when you're coming from academia or professor, everyone's going to get you like you can never do any wrong then. And then to go from there to basically talking to junior engineers in companies and try to understand the struggles and what are the things that you're looking for in a product and what are the main issues that you have with this powertrain and that powertrain and just try to get a sense of that. You have to really have a very high sense of handling this. So that's something I learned quickly. And with these oil guys, with our customer base, all of the deals that we made, it took anywhere between one to two and a half years in process before we signed something. Yeah, so a long sales cycle that requires humility too. you're coming to people with a deep equality or promising them better performance, lower cost, they have to be suspicious. And that suspicion drives them to ask a lot of questions and to engage with you on so many different levels, and to test you. So we have customers who came from Europe and spent one full week with us. And when we were in the Bay Area, We still have 11 in the Bay Area, but when I was located there, he spent one full week with us. And that week, they're just testing us, just trying to understand how deep we can go, how patient we are with their questions, and so on.

NICK:

Yeah, it's not just a matter of technical diligence. It's also kind of a social and soft skill, almost diligence of like, how collaborative is this team going to be with us?

MOHAMED:

And especially in the first stage, like that's not scalable, that everything customer you're going to have a very strong relationship with, but the first stage is very important. And the first set of customers are the ones who really believe in you, who like dealing with you, who like working with you. I was just telling one of our advisors, that when I look at all the agreements that we signed, every single one of these dates, I had multiple meals with a person of contact. Like, I had lunch with them, I had dinner with them, I text them. Like, it really takes time to develop these relationships and for people to trust you and also for you to trust them.

NICK:

That was the word I was going to come back to for sure is definitely trust. Yeah, building that trust. Yeah, I think there's a lot of great insight there for, you know, whether you're a founder or even myself sitting here as someone who spent some time doing venture capital work, does freelance writing, does a lot of decent amount of journalism and analysis about the space, like all of these things are resonant for the way we go about our jobs.

MOHAMED:

And then after that, you hope that this first set of customers is going to be the main reference for your second and third set of customers. So the process starts getting easier. But one of the things I'm working always with our team on is this soft skills, how to talk to customers, how to kind of build the trust with customers and partners as well.

NICK:

looking forward if you think: 2025

MOHAMED:

The main focus is moving from pre-production projects and pre-production sandpits, what we're focusing on now, into production stages, into full-scale production. That's really going to be the main focus over the next two to three years. Rather, we think some segments are going to be faster than others, but we're interested in all of them, because we really see that our technology is flexible enough and is modular enough that really almost the same hardware, almost the same tech that we're using, can be used across different settings and across different customers. So that's going to be the main focus, is how can we move from here to there. And in this process, the certification, wow, that was still the work. Sure. But you're talking like UL, solutions, tech, certifications, yeah, energy storage, buy certifications, mobility, etc. There is the testing required that is going to be different than what we're doing right now or that behind me. It is a different set of testing that's going to be required. There is partnerships that we already started forming, but we're going to see the fruits of it in the future. So there is still a lot of things to be excited about, to be aware of. But the main goal, the main theme of all this is to make sense.

NICK:

paying close attention to in: 2025

MOHAMED:

One of the things is the strong push for the climate agenda. On a macro level, I think when we miss a point and we look at the climate agenda on a micro level and start looking at the elections or this federal administration for pushing for this, it seems bigger than that. When we talk to our customers and our audience, they are not looking at that at all. They are not like, they're not affected by what's getting elected or they know that the trend is going and they know that even if the US is slacking here or even if electrification is going to be behind the curve here, it is going fast in other places.

NICK:

Yeah, long-term trends over short-term trends in some instances, yeah.

MOHAMED:

Yeah, exactly. And that's what we're focusing on. I'm very curious all the time about the kind of the migration of CAD and some new sectors from the U.S. to China right now. Like really for me, from my experience working with suppliers, really the Chinese expertise is way ahead of us. Way ahead of us. Like we're not working with them to save costs. We're working with them because

NICK:

Yeah, that was something that I was going to hit on the tier earlier to your point that you just made about there being sort of a global imperative for decarbonization. It's easy to look at China and say, hey, you know, their grid is still 60% coal fired, but they're making a lot of progress. And I think from my personal vantage point, I think they are quite serious about decarbonization, not because they inherently care most about greenhouse gas emissions reductions. I think the Chinese recognize that there's a lot of technological, economic efficiency benefits to a lot of the technologies that they're building manufacturing bases for, building expertise and developing and also deploying. It's like they are ultimately doing it because they see it as beneficial for their economy and their country and their populace. And there's a lot that we in the U.S. would do well to pay attention to that fact. And they are doing it very pragmatically.

MOHAMED:

Here in the US, for some reason, the automotive oil companies have this ego story. Do you want to be like Tesla? Or how can I be similar to Tesla in this? And they're in, when we talk with the Chinese OEMs, they're as pragmatic as possible. They're just about efficiency, cost efficiency, performance, et cetera, and speed to mark. These are the things that they're focusing on. And they really definitely missed the mark on the ICE vehicles. The US companies were able to build their brass, and they are now starting this to see happen again.

NICK:

Yeah, really interesting note to close on and sort of kind of a call to action for the United States, whether at the policy level or the OEM and auto manufacturing level. Well, thanks so much for the time, Mohamed. It's been wonderful to learn a bit about the business and a lot more about powertrains from you. As sort of a final open question to you, if folks listening in the audience are interested and Whether as a potential customer or a potential employee as an engineer or what have you, what's the best way to get in touch and what are some of the things that would be helpful or that you're looking for?

MOHAMED:

You can email us info at https://scalvy.com/contact-us/ or if they have access to my email, they can definitely reach out on LinkedIn. We're not a secretive sales company. We're open for partnerships, we're open for collaborations. Even though we're at full capacity now, but we're always looking for new customers and new partners in the future. And yeah, happy to be in touch.

NICK:

Excellent. Thanks so much. Thank you so much to everyone for listening to my conversation with Mohamed Badawi about his journey with Scalvy. If you would like to learn more about Scalvy or get involved with the work that we at Climate Capital are doing, you can check out our website at climatecapital.co, that's dot C-O. And thanks again for listening, for being here and lending us your attention, and we'll be sure to catch you next time.