Smith Electric Vehicles called off an initial public offering in September, leading to speculation the Kansas City, Kan.-based manufacturer was near the end of its road. But CEO Bryan Hansel insists there is still a charge in the truck maker’s batteries.
“We’re looking to bring in some new investors, and I’m confident we’re on the path to getting this done, bringing in the full amount needed to get this company profitable and stable,” Hansel told The Journal of Commerce last month.
Smith Electric Vehicles company hopes to raise about $75 million in private investment, and expects to be profitable by mid-2013, Hansel said. Smith will open a manufacturing facility in its biggest market, New York City, by the end of 2012.
Despite the failed IPO, a $52.5 million loss in 2011, supply chain problems and partisan sniping at the electric vehicle market, Hansel is convinced his vision for electrified local freight hauling is valid, if not for today, for the near future.
If you operate a local delivery fleet, “You will be buying electric trucks,” Hansel said. “It is not an ‘if,’ it’s a ‘when.’ We will be the norm in the medium-duty niche.”
That’s a bold statement from a company that expects to build only 380 trucks in 2012 and had 444 trucks on back order Aug. 31. Smith sold 270 trucks in 2011, according to its IPO filing with the U.S. Securities and Exchange Commission. The company has about 700 trucks and delivery vans on the road worldwide.
Smith’s survival may be key to the electric truck market, especially in the medium-duty market for trucks with gross vehicle weights of 14,000 to 26,400 pounds, the gross vehicle weight range for Smith’s Newton. There are plenty of competitors in the smaller delivery van market, but Smith may be the only manufacturer offering a battery-powered, plug-in electric medium-duty vehicle, not a hybrid, in that weight range.
Hansel sees long-term trends working in Smith’s favor — if the company can address serious short-term financial challenges by attracting private investment. The future of medium-duty delivery trucks, he claims, is electric power. “We consistently hear, from customers, that this is the end game,” he said. “By 2017, you’ll see another $10,000 price increase for a diesel truck, while our prices will be coming down. What has to happen is the base vehicle has to be (price) competitive.”
Today, the Smith Newton electric truck sells at a hefty premium over a comparable diesel model, though energy savings over the life of the truck can be substantial.
The basic truck costs $75,000, and the battery, sold separately, costs from $25,000 to $75,000. The basic battery cost is $12,500 per 20 kilowatts, starting at 40 kilowatts, and running up to a maximum of 120 kilowatts. “You can keep stacking based on your route length,” Hanse saidl. “For a short route, use a smaller battery.”
With that kind of price tag, many of Smith’s customers are dependent on incentives from the federal and state governments to buy the Newton. “We do have incentives available today in certain markets, and our customers will chase those,” Hansel said. “We also have customers making five-year decisions. They’re willing to pay a bit more today to take advantage of the trends and the long-term fuel savings.”
Those fuel savings can be as high as 80 percent a year on a per-mile basis, he said. “That savings is what justifies the expenditure on the electric battery.” Customers need to think of the battery as fuel — the equivalent of a big block of diesel.
As part of its sales strategy, Smith compares the low cost of the diesel fuel tank coupled with the volatile cost of diesel with the initial higher cost of an electric battery and its lower and more predictable energy cost over the long-term.
To lower its vehicle price tag, Smith needs to reduce manufacturing costs and rework its supply chain, a process the company began last year. The unique components of an electric truck, and Smith’s small initial production volume, make that process difficult, Hansel said. “We started out building 10 trucks a month. You can only attract certain providers at that volume,” he said. To reduce manufacturing costs, “you have to move from boutique to more mainstream suppliers.”
Smith has to upgrade its manufacturing processes as well if it wants to move beyond the “boutique” label. For example, the company makes the metal enclosures for its battery management system by plaster casting. “It produces a beautiful part, but they’re very expensive,” Hansel said. “You hand pour one casting at a time into a plaster mold, and then break the plaster mold when you’re done. The alternative is die casting, where you shoot the molten metal into press, and every two minutes you get a part. It’s a permanent tool that produces a permanent part.”
But die casting comes with a higher upfront capital cost — much like Smith’s trucks. “That’s a $300,000 investment that can move us from low-volume to medium-volume production. It’s much more efficient over time, but the initial capital expenditure is greater to get that first part,” Hansel said. That kind of capital investment is what Smith and Hansel want from potential partners.
“Any supply chain transition is risky," Hansel said. "But we’re confident we’re going to raise the capital to make that investment and get the supply chain issues behind us.”