Smith Electric partners with another Chinese firm, to form U.S. EV company

I recently spoke with Bryan Hansel, CEO of Smith Electric, just as he was about to get on a plane to China. We discussed his company’s new joint venture with a Chinese partner, FDG Electric Vehicles Inc. This JV is very interesting for a number of reasons. For one, Smith Electric is still alive. I last spoke with Bryan in August of 2012. Many of the companies that I wrote about back then are now gone. More interesting, however, is that this JV will be based in the United States. And most interesting, to me anyway, is the nature of FDG Electric Vehicles, the Chinese partner.
Smith Electric, based in Kansas City, Missouri, manufactures and markets electric commercial vehicles. Its lineup is currently limited to two models, the Edison and the Newton. You can find out more about it by reading the company website.
When I wrote about Smith in 2012, Smith had announced a $25 million investment from Chinese supplier Wanxiang, and had signed a Letter of Intent to form a joint venture with Wanxiang to produce electric school buses in China. That clearly didn’t work out. I asked Hansel about the Wanxiang JV. “We spent a lot of time (but) we never got to a point where we thought it was a win-win,” he told me. I also asked a Wanxiang executive, who only said, “We invested in the JV. It did not get launched.”
In early May, Smith announced a new JV with another Chinese company, FDG. So why should we believe Smith’s latest joint venture will work out, I asked Hansel? He told me: “We spent a year and half getting here. FDG has already put investment in Smith and also in the JV. FDGs entire existence is based on electric vehicles. We are completely committed to making this happen. Smith also does only EVs. Our reality is we need to make this a success.”
A few details: The JV is incorporated in Delaware and will, according to the Smith press release, “offer a combined portfolio of all-electric vehicles and fleet electrification solutions for customers in the U.S. and its protectorates.”
Smith Electric is putting its core products i.e. its electric drivetrains and its U.S. customer base, into the JV. Hansel said he isn’t concerned that Smith’s intellectual property will be compromised. “None of our technology is going to China,” he said. “This JV is all about demand in the U.S. We are very comfortable about maintaining control over our IP.”
The JV will assemble the existing Smith electric van, the Newton, as well as a new truck-based van designed by FDG, said Hansel. The new van will be built on a truck chassis. Hansel figures it will meet what he sees as an unmet need in the market.
The vans on the market today, such as the Mercedes Benz Sprinter, are more consumer- vehicle based, he said. The new van that the JV will produce is really a truck, said Hansel, in “a weight category above Sprinter, and below Newton.” The Newton weighs from 14,000 to 26,400 lbs.
The chassis will be produced in China and shipped to the U.S. as semi-knocked down kits. Smith will be “putting the metal together then putting in the drivetrain,” said Hansel. How confident is he that the chassis is high-quality. I asked Hansel? FDG spent three years and $300 million developing the platform, he said.
Plus, “we have done a tremendous amount of due diligence making sure this is truly a global platform with both U.S. and European capability,” added Hansel.
The battery will likely come from FDG as well. It will be produced by Sinopoly, a Hong Kong-based battery company with plants in China. Actually, FDG is Sinopoly and Sinopoly is FDG. More on that below.
Hansel couldn’t say what the range of the new electric van will be, but “I don’t know that range is going to be an issue,” he said. “We can put a fair number of batteries on it. The Newton (range) is 120 miles per vehicle. This could get 150 or more miles.”
He didn’t have a cost estimate for van the JV will produce for the U.S. market. That is one reason for this trip to China, he said. “We will walk the shop floor for the first time,” he said. But, he added, “We’re confident that we can be very competitive in this space.”
Smith Electric wants to start selling the new van in 2016. But, “until I get through this week, I can’t be accurate,” Hansel told me.
Smith Electric isn’t currently producing EV here in the U.S. It decided to stop producing the Newton in April of 2014 because the cost structure wasn’t working, said Hansel. “Our strategic decision was to stop shipping money with every truck,” he told me.
There’s plenty of demand for the Newton, he said. Customers are still asking for it, he said, but at a lower price. Smith has sold about 800 in total. In the future, the battery for the Newton will also be sourced from China – probably from Sinopoly. That should start in the third quarter of this year.
If Smith Electric sells a few hundred Newtons this year, “we are happy,” said Hansel. “As we look forward, we know we can make money building the Newton with the battery from China and the Malaysia supply chain,” he said.
The new Chinese partner
Smith Electric was approached by FDG to form a joint venture, said Hansel. FDG saw opportunity in the U.S. market and figured working with Smith Electric would be a way to access that opportunity.
Listed in Hong Kong (729HK), FDG Electric Vehicles Ltd. was formed by joining various electric vehicle-related assets under one corporate roof. Those include two EV manufacturing plants in China, an R&D company in Beijing, and Sinopoly, which has two battery manufacturing plants in China as well as an R&D center.
Companies such as FDG aim to take advantage of China’s Central government push to expand the production and use of new energy vehicles, which includes battery electric and plug-in hybrid electric vehicles as well as hydrogen fuel cell vehicles. FDG’s new chairman and CEO (appointed March 2014) Mr. Cao Zhong has an excellent government pedigree including working at the NDRC. These kinds of connections are important for a Chinese company.
It is a good bet that the capital to form FDG came from provincial governments. Look at the company website. The two EV manufacturing sites, in Zhejiang Province and Yunnan Province, exist to help the provincial governments meet requirements to buy electric vehicles. And of course it’s always better to buy a vehicle from a company in which you are an investor.
Though FDG listed on the HK exchange in 1991, it was not FDG at the time. It has gone through many iterations, and got into the EV business in 2009 when it acquired Thunder Sky Battery, soon to be known as Sinopoly. FDG has operated at a loss for the last five years, but that isn’t a surprise as electric vehicle sales in China have been slow to take off. Investing in Smith Electric allows FDG to diversify into other markets. There is no guarantee that the U.S. market will prove any more fruitful, of course. But at least Smith Electric does have an existing customer base.
I think this joint venture will be more successful than Smith’s last effort because, as Hansel pointed out, both companies only do EVs and they need to make it work. And though PEV sales in the U.S. aren’t exactly burgeoning, I think the backers of FDG have deep pockets. I’ll follow its development with interest and my usual dose of skepticism.