A Dutch startup has found a promising niche: fleets of battery-powered light commercial vehicles for short-range city deliveries
Soaring gas prices have focused attention as never before on electric cars. From Nissan's (NSANY) plan to sell zero-carbon vehicles in Japan and the U.S. to General Motors' (GM) efforts to develop a battery-powered hybrid, the world's top automakers are scrambling to introduce greener vehicles.
Some of the most interesting developments aren't coming from industry giants, though. Former SAP (SAP) executive Shai Agassi has made waves with his bold plan to introduce electric cars in Israel (BusinessWeek.com, 1/25/08). And a Dutch startup called Duracar is pursuing an ingenious plan to sell an eco-friendly light commercial vehicle roughly the size of a Mini (BMWG.DE) that could be used for deliveries and other short-range travel in Europe's bustling city centers.
Riding the Eco-Wave
This niche may lack the sex appeal of sports cars or SUVs, but it's a big business opportunity. Analysts figure that 330,000 new light commercial vehicles (defined as those weighing less than 3,850 pounds) are sold each year in Europe—a market worth hundreds of millions of dollars annually. Replacing even some of the gas-powered vehicles with electric models would cut noise, pollution, and carbon emissions in cities. And with oil topping $140 per barrel, it also would save money for fleet operators—whether government agencies, field service operations, or delivery firms such as FedEx (FDX).
"We're riding the wave of growing interest in eco-friendly cars," says Duracar Chief Executive Officer Wim Steenbakkers. "For this to work, the vehicle must be economically competitive [with gas-powered vehicles], and we think we've done that."
Duracar will officially unveil its electric car, dubbed the Quicc, at the Paris Motor Show this fall, but the Dutch company already has big plans for the pint-sized vehicle. Steenbakkers aims to book $7.6 million in pretax profits next year on revenues of $83 million, and hopes to sell more than 13,000 units over the next three years.
Innovative Modular Plant
The startup has recruited an impressive lineup of managers, investors, and partners to help hit its targets. It has raised about $37 million from backers including Dutch venture capitalists Ecoventures—a subsidiary of leading green investment firm Econcern—and is finalizing an additional $20 million in funding to expand production capacity.
CEO Steenbakkers worked previously at Dutch life sciences and materials company Royal DSM (DSMN.AS), some of whose technology is being used in the car. He's joined by Chief Technology Officer John Lodge, an auto industry veteran of 25 years who worked previously for Mitsubishi (MMTOF) and Volvo (F), and Johann Tomforde, the developer behind Mercedes Benz's (DAI) miniature Smart car, who consults eight days a month for Duracar.
The Quicc is being manufactured at an innovative "modular" plant in the Netherlands where all the suppliers work under one roof assembling their portion of the vehicle. Duracar's industrial partners include Siemens (SI) and German electric battery manufacturer GAIA.
Sharp Focus Key to Success
Key to the company's strategy is staying focused on the light commercial segment, which is especially well-suited to electric cars. The vehicles have a limited range—typically 80 to 100 miles—and need to be recharged overnight. "It makes it easier for refueling as the cars usually are brought back to a central depot each night where they can be recharged," says Steenbakkers.
Sharp focus also will allow Duracar to develop relationships with the most appropriate potential clients—whether energy and water utilities or logistics outfits such as DHL (DPWGN.DE). It also helps Duracar steer clear of the plans by global automakers to build mainstream hybrid and electric passenger vehicles (BusinessWeek.com, 5/15/08).
Like other startup electric car companies, such as Norway's Think, which sells the pint-sized Ox, (BusinessWeek.com, 6/16/08) the main challenge remains convincing customers that the rechargeable batteries are long-lasting, safe, and cost effective. That has been the downfall of previous attempts to mass-produce electric cars, says Anjan Kumars, a senior analyst at researcher Frost & Sullivan. Battery costs, for example, have typically represented 30% to 50% of an electric car's overall sticker price, which makes it difficult to compete with petroleum rivals.
More Durable Batteries
"The auto industry is based on economies of scale," says Richard Spitzer, global industry managing partner of the automotive and industrial equipment practice at consultancy Accenture (ACN) in Houston. "No company's going to make big bets that turn out to be losers."
Duracar expects to overcome this problem by using a new range of lithium ion batteries that are more durable and slightly cheaper than previous options. The battery cost in the first 325 cars will need to be subsidized, says Guido Boosten, the company's marketing manager. But by 2009, he figures, economies of scale from higher production volumes will allow Duracar to pass along the full cost of the batteries to customers.
Even so, the cost of a Duracar electric vehicle likely will remain higher than that for a gas-powered rival. The company will rely on third-party leasing companies to gets its cars into the hands of customers—the norm in the industry. All told, the cost for a five-year Quicc lease should come out to about $40,000, compared with $30,000 for a petroleum vehicle.
Possible Government Incentives
But with the cost of gasoline surging, the operating costs of a Duracar electric fleet could easily turn out to be less. Based on a gas price of $5.87 per gallon (the cost in Holland a few months ago), Duracar says a Quicc would cost $42,500 to run over a five-year lease, compared with $44,500 for a similar gas-powered car. Gas prices have risen more than 15% since the calculation was made.
Another factor that could help Duracar is government incentives. As national and local bodies take a tougher stance on vehicle CO2 emissions, the company could benefit from state subsidies that reduce the Quicc's sticker price. Some countries such as Norway also plan to waive import duties on eco-friendly vehicles to jump-start public interest. "The possibility of government help could be an import factor," says Frost & Sullivan's Kumar.
No question, Duracar is an ambitious play in a business that has seen its share of failed dreams. But the time has never been better for electric cars. If Steenbakker and his team play their cards right in years to come, European city dwellers could enjoy an improved urban environment while fleet operators enjoy lower costs.