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CHINA: "The Insight Bureau: Is China’s lustre dimming?"

CHINA: "The Insight Bureau: Is China’s lustre dimming?". Article by Lois Dougan Tretiak, The Insight Bureau.

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backCHINAtalk June, 2012

China-EV.org Blog: Another PHEV powertrain company looks to U.S. for funding and China for customers

Seems China is becoming the Yellow Brick Road for U.S. companies with plug-in hybrid electric drivetrain technology. Or rather, it is becoming the hoped-for Yellow Brick Road. Will be interesting to see how many of the companies shopping their technology there actually make it to the Wizard’s castle. (Wizard of Oz reference. Those of us of a certain age watched that about a dozen times growing up. )

I recently visited with yet another U.S. company that couldn’t get U.S. Department of Energy funding and is shopping its technology in China. To be sure, ALTe LLC, based in Auburn Hills, MI, also has funding from other investors here in the U.S., and is seeking customers here.   But when I asked chief technology officer Jeff DeFrank which market would be bigger for ALTe he said: “We will launch in both more or less at the same time, but probably China will be bigger.”

That might be because of steadier government support for the EV sector in China versus the U.S. Like so many other companies with alternative powertrain technology, the DOE kept ALTe dangling for two years regarding its request for funding. “We made the decision we weren’t going to put all our eggs into the DOE loan basket,” said DeFrank.   ALTe has been able to find private funding—some angel investors plus investments from its founders, DeFrank, CEO John Thomas, and VP of Programs Nam Thai-Tang.   The amount ”wasn’t seven figures,” said DeFrank. But it has been enough to build some prototypes that give ALTe something to show potential customers.

The Ford F150 pickup and Ford Econoline F350 van with ALTe powertrains that were at an the Enterprise rental car office in an business park in the LA suburbs (Enterprise is on ALTe advisory board and likes to keep an eye out for new technologies it might want to include in its rental fleets, said Greg Tabak, director of EV Programs at Enterprise Holdings.) are a far cry from the previous electric vehicle that the three founders worked on, which was the Tesla Roadster. DeFrank, Thomas, and Thai-Tang are all Tesla alum, but they had a different vision from Tesla founder Elon Musk, said DeFrank. The trio figured there was a bigger market for electric vehicles in the commercial fleet world than the luxury world. Fleets are concerned with total cost of ownership, they calculated, so the additional cost of an electric vehicle would be justified over the longer term.   With that in mind, in mid-December, 2008 (December 19 to be exact; they remembered the date), the three quit their jobs at Tesla. Two days later they founded ALTe. Seven days later they put in the application for the ill-fated DOE loan.

ALTe likes to call its vehicles Range Extended EVs. Their powertrain is a series hybrid that runs on the battery for a certain distance, then switches to a gas engine which simultaneously recharges the battery and propels the vehicle. It must be plugged in to fully recharge the battery, however. “We recognized right away that with a series hybrid we would keep the cost down and maximize the effectiveness on routes,” said DeFrank.

The first prototype they built was a taxi.   They completed it in March, 2009, and used it to attract more investors. But the trio soon realized the taxi market was not where the big bucks lay and switched to a pickup. Ford was a natural choice—all three co-founders had worked at Ford (as well as Tesla). The model—the F150—is the best selling pickup in the world. Besides, DOE guidelines mandated that the EV had to be a certain size, said DeFrank.

The pickup helped attract more investors, including former Chrysler CEO Tom LaSorda (an ALTe board member until February 2012 when he became CEO of PHEV-maker Fisker, and current board member attorney Simon Ahn, ALTe’s largest investor. To date, ALTe has raised more than $20 million, said Baranik in a follow-up email exchange.

ALTe’s demo fleet isn’t large—it has four F150’s and one Ford Econoline F350. But it does have a big Fleet Advisory Board, as ALTe calls it, composed of dozens of companies such as Frito-Lay that operate big fleets. ALTe claims nearly 100 major fleets have driven an ALTe prototype vehicle. Ten are ready to do pilot programs of up to two dozen vehicles, said Baranik. Be that as it may, the survival record isn’t so good for companies looking to make it in the electric fleet and/or commercial vehicle world. Bright Automotive aimed to sell delivery van PHEVs; it folded in February of 2012.   Azure Dynamics, a producer of electric powertrains for delivery vehicles, filed for bankruptcy in March or 2012. Enova Systems, a producer of electric drivetrains for heavy-duty vehicles, reportedly has struggled to find funding.

ALTe is currently looking for more investors. But in this kind of environment, where many have failed, what makes ALTe think it will survive, I asked? “We have a different business proposition,” said DeFrank. Well, not totally different, but somewhat different. ALTe will modify used vehicles, unlike competitor VIA Motors, the Bob Lutz-backed startup that is converting new Chevy Silverado pickups at $79,000 a pop into Extended Range EVs (EREV as opposed to REEV….),    An ALTe conversion costs $30,000. That will come down into the mid-$20,000’s within two years as battery prices come down, said Baranik. Yeah right. Still, it never hurts to dream.

The ALTe guys also see their decades of combined auto industry experience as a big plus. Sure, lots of people can produce a few dozen, or a few hundred PHEVs, said DeFrank. But, “I can’t emphasize enough you have to understand how to make that work in thousands of units a year,” he said.   That experience may give ALTe an advantage in China. Chinese automakers are often relatively new to the car making business, and always new to the alt powertrain business.

DeFrank said ALTe has signed Memorandums of Understanding with two Chinese companies—he wouldn’t name them, but did say one is a bus company. Perhaps ALTe pitched the principles’ backgrounds with Ford and Tesla as selling points. There are a lot of U.S. companies with PHEV and battery electric vehicle powertrains shopping their technology around in China these days, so having that on a resume couldn’t hurt as a way to stand out.

Chinese government policy is also on ALTe’s side,   In April, the Chinese government issued new targets for the electric vehicle sector. The aim is for 500,000 battery electric and plug in hybrid electric vehicles to be on the road by 2015, rising to more than 5 million by 2020. That will be tough to achieve without relying heavily on fleet electrification. The government has recognized that BEVs are much more difficult to produce then it first envisioned, and the emphasis is now on PHEVs and regular hybrids in the near term. So ALTe is in a bit of a technology sweet spot as far as the China market is concerned.   A caveat: ALTe company admits that vehicles using its powertrain lack acceleration and speed. But in China, where traffic jams are the norm, that won’t matter as much, asserted the co-founders.   I’m not so sure that is true. Chinese consumers — even fleets — want it all, just like consumers anywhere. And there is a lot of competition, including from other U.S. companies that missed out on DOE loans!

Already planning expansion in U.S.

Back here in the U.S., ALTe has applied with Ford to become a qualified vehicle modifier. If accepted (the process takes 18 months), the modified pickups and Econoliners would be covered by the Ford warranty, if the vehicle was still within the warranty period. Since it is modifying three to six-year old vehicles, many may already be outside of the warranty period, said DeFrank.   ALTe offers a five-year, 75,000 mile warranty for now.

It has not yet completed California Air Resources Board and U.S. Environmental Protection Agency certification; ALTe is “in the midst of a major funding event” to help fund that as well as expand its current 185,000 sq ft building in Michigan and hire additional engineers (it may have to fight Coda for them; Coda is also hiring, said Baranik in his email. “We anticipate full execution of this funding this summer,” he said. “In the meantime, we are negotiating a bridge element with an investor that we expect to close very soon.” Seems there is quite a bit of uncertainty there, but like all of these start-up EV companies ALTe has big plans. If it completes the expansion, ALTe will have a 90,000 unit annual capacity (working two shifts). But ALTe can break even at only several thousand units annually, it says.

If ALTe’s technology is as good as it claims, the lower cost may make its product appealing.   But what about the latest challenger to fleet electrification, natural gas-fueled fleets, I asked Baranik?   “It is not all or nothing,” he said. “There are going to be some fleets where (natural gas) is an answer.”   Now he just has to hope ALTe’s powertrain looks like the best answer for some companies.

Source: China-EV.org - GAI

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