High-tech start-ups in the vehicle business face some tall obstacles, among them a skeptical, century-old automotive establishment and pragmatic customers reluctant to experiment with expensive new technology.
Azure Dynamics, a fledgling maker of hybrid vehicles based in Oak Park, Mich., is making headway by concentrating on the commercial and fleet customers that account for 30% of all new-vehicle sales in the U.S. "Our vehicles are 30% more efficient," says Scott Harrison, Azure's CEO. "Every time the price of gasoline increases by 50¢, the payback time on our vehicles is shortened by six months." He may be one of the few people in America rooting for OPEC.
Azure is selling more than efficiency in its $70,000 delivery vans. The uptime for a vehicle with one of Azure's hybrid power trains is longer than for a conventional truck, Harrison says. The wear and tear on the brakes is reduced because the regenerative braking system pulls the kinetic energy off the brakes and uses it to recharge the battery. Starter motors are eliminated completely, he says.
That's been enough to get companies such as lawn-care giant TruGreen and Southern California Edison and agencies like Western Piedmont Regional Transit Authority in North Carolina to buy some of Azure's trucks. "We're ideal for customers with delivery vehicles that operate on short routes," says Harrison. Azure's proprietary Balance Hybrid Electric Drivetrain, which can be adapted for a variety of trucks, small buses and shuttle vans, qualifies for special tax incentives in California and other states. The company is about to introduce a new hybrid power train that's lighter and more efficient, and it has also developed power systems for electric vehicles using advanced lithium-ion batteries.
Nevertheless, some analysts remain skeptical about the prospects for hybrid and electric vehicles. A recent report from J.D. Power & Associates concluded that it is still difficult to get customers to switch from conventionally powered vehicles without a significant increase in the global price of petroleum.
Azure produced more than 400 units in 2010 and expects to ship more than 1,500 in 2011 as the economics continue to tilt in its favor. Azure's backlog is growing, with new orders for school buses and shuttle vans for public agencies in California, Illinois, Ohio, Texas and Maryland.
For now, though, Azure is living the hand-to-mouth existence common among start-ups. It had to lay off staff and reduce spending on research and development when vehicle sales collapsed in late 2008, and it has been slowly rebuilding while searching for new capital. Revenue for the first three quarters of 2010 totaled $8.5 million, a 70% increase over the company's $5 million in revenue in the first nine months of 2009. The net loss for the first three quarters in 2010 was $17.4 million, or 3¢ per share, compared with a loss of $19.8 million, or 5¢ per share, during the first nine months of 2009.
Although located near Detroit, Azure operates like a Silicon Valley technology company rather than a traditional Midwestern vehicle maker. It outsources the assembly of both the power train and the vehicle to partners like AM General, which is now building the all-electric Transit Connect delivery vehicle with an Azure power system that will be sold by Ford. It also uses assemblers like Champion Bus to build specific types of vehicles. "We have 23 different patents. What we supply is the software and the controls that make the whole system work," Harrison says.
Azure has collected some influential members of the automotive establishment in its corner, including Ford, Johnson Controls one of the industry's largest suppliers and AM General, builder of the U.S. Army's Hummer. Azure gained additional credibility last summer when its technology was integrated into Li-Ion Motor Corp.'s Wave II, which won a $2.5 million first-place prize in the alternative side-by-side class as part of the Progressive Insurance X Prize, a contest to promote better fuel economy. The vehicle got the equivalent of 1.25 L/100 km.
That kind of prowess has helped the company attract more investors despite its losses. Azure closed an equity investment of more than $6.3 million from a Canadian subsidiary of Johnson Controls, which bolstered its cash reserves, and a $4 million line of credit from Silicon Valley Bank.
With GM releasing its Volt and Nissan its Leaf, electric vehicles are on the verge of a breakout. So is Azure. "We've had a lot of really positive feedback, and we're starting to see a lot of repeat orders," says Harrison. For those auto giants, though, electrics aren't a make-or-break proposition. For Azure, they're everything.