EDI looks to China for buyers for its PHEV tech. Now China needs to push its EV policy.

Efficient Drivetrains Inc. www.efficientdrivetrains.com is charging ahead in China.  Now if China’s central government can only make those pesky local governments start ordering electric vehicles, things will really look good for the alternative fuel vehicle company.

EDI, as the company is usually known, is based in the northern California town of Dixon, near the university town of Davis.  Though it has been around for a while – it was founded in 2006 – EDI is still small and hungry just like a start-up.  Only recently, in the wake of finishing development of a new PHEV parallel/series drivetrain for delivery trucks, EDI has begun to grow.  Now, it is also about to seek more funding.  I spoke with CEO Joerg Ferchau to learn what’s new at EDI.  (Full disclosure:  I do some business development work for EDI and also write a short story each month for its company newsletter.  The newsletter is free – subscribe! http://www.efficientdrivetrains.com/newsletter.html And not just to read my stories.  It also has company updates and insights from Ferchau and EDI founder Andy Frank, considered the father of the PHEV.)

But I digress.  As I mentioned, EDI just finished work on a new PHEV drivetrain.  Usually, EV drivetrains are either parallel – switching back and forth between electric and gas propulsion—or series, using the electric drivetrain then switching to the gasoline drivetrain, but not back to the electric again.  (I hope I got that right.  I am not an engineer….)

Prof. Andy Frank, co-founder of EDI, attempts to explain the difference between series and parallel hybrid drivetrains to me at EDI world headquarters in Dixon, CA.

It usually costs less to develop a series hybrid than a parallel hybrid, said Ferchau, because the parallel control system is more complex.  But, a parallel system costs less to build.  Ferchau claims EDI’s new drivetrain is less expensive than many series hybrids because EDI already had a number of patented designs that it could leverage in this new design.  It has fewer components and smaller motors than a pure series, he said.   “Also we are willing to go minimum on engineering costs because product sales are what we are after,” said Ferchau.

EDI just finished a demo truck built on a GM platform using the new PHEV system. That truck is going to China.  While EDI has a handful of customers here in the U.S., including Siemens, China is where it sees real growth potential.  Now, China has been talking about becoming a big market for electric vehicles since 2009 and not much has happened.  But even less has happened here in the U.S., points out Ferchau.  “For EDI, China is high priority,” he says.

To be sure, China’s central government hasn’t given up on the technology.  In July, it issued the latest new energy vehicle policy.  http://www.gov.cn/zwgk/2012-07/09/content_2179032.htm   http://www.greencarcongress.com/2012/07/china-20120709.html  It placed more emphasis on PHEVs than in the past, and stated fairly strongly that China’s municipal governments should get started on electrifying their fleets. That is good news for EDI.  It is focusing on fleet vehicles – especially light and medium-duty trucks such as the small delivery vans that zip through urban alleys.   Besides trucks, EDI can design or work with partners to design drivetrains for SUVs, sedans, and even busses, says Ferchau.  “We can do PHEV, HEV, or EV but are most interested in PHEV opportunities,” he says.

EDI already has a Chinese customer, Ankai Bus www.ankai.com , a manufacturer in central China’s Anhui province.  The two have been working together since around 2008, says Ferchau.  They will launch a PHEV bus in the first quarter of next year, he says.  http://english.ankai.com/news/company-news/2012110601.html Ankai is already promoting the PHEV bus with EDI technology inside on its website.   And it seems the central government has already started more aggressively pushing for municipal fleet electrification.    Ankai reports on its website:  “In September 2012, the Ministry of Finance … issued a notice on promoting the hybrid bus demonstration cities to change from 25 cities to all over China.  And the promotion goal amount of the buses are (sic) 3,000 – 5,000 units.  The highest subsidy of a single bus can reach RMB 420,000 (US $67,300).”

Ferchau says EDI should be announcing several other projects in China in the next few months.

That’s one reason it is seeking new funding.  Up until now, EDI has gotten funding from a handful of sources:  Seed investors; a small low-interest loan from the city of Dixon; a venture capital group partly supported by the government of Wuxi, China; and revenue from customers.  But to meet its anticipated growth needs in the U.S. and China over the next year,  EDI will open up in the first quarter of 2013 for US $2-3 million in investment,  providing Preferred Series A shares in exchange, said Ferchau.

EDI is already ramping up its China presence.  In June, it registered a wholly-owned company in Wuxi, a small city east of Shanghai.  http://www.efficientdrivetrains.com/news.html#global  The company, New Energy Automotive Technology, or NEAT, is recruiting engineers now.  It is talking to two or three groups in China about forming joint ventures, says Ferchau.  “That is a big part of our strategies, forming JVs,” he said.

What about your intellectual property? I asked Ferchau.  How will you protect it?  Much of EDI’s intellectual property is contained in the software and controllers it provides, he said.  That kind of IP can be hard to copy.  Still, “you always have to be worried about intellectual property,” said Ferchau.  “I have lost three other products with other companies.”   But IP protection is an issue anywhere one does business, he says philosophically.  EDI hopes its joint venture partners and investors will show a vested interest in protecting the ventures intellectual property.

In any case, Ferchau is (not unexpectedly) optimistic about the future for companies such as EDI.  There are fewer companies competing for what he figures will be a surge in orders from companies and from the U.S. and Chinese governments and militaries, all of whom are committed to greater electrification of their fleets.   He predicts the market will really start heating up in 2015.

EDI has not grown too quickly, as did many companies that went under, says Ferchau. It still only has several dozen engineers.   “The last year and a half we have had our heads down to get the vehicle and drivetrain down,” says Ferchau.  But EDI has a demo vehicle now so it can more aggressively court new customers.  The new funding – or deals it now has in the pipeline – will allow EDI to scale up quickly if it needs to, he says.  I guess we will know if Ferchau is right in a year or so ….