Azure Dynamics: building an electric future

By Jon Mainwaring

Both the US and Europe are seeing the decline of traditional industries as a result of the worldwide economic downturn. An industry that has suffered more than most has been the automotive sector, which has seen the bankruptcy of General Motors and plenty of other firms in recent weeks and months.

Earlier this month, UK van maker LDV went into administration, axing more than 800 workers. One of the ways that the new US president and, to a lesser extent, the UK’s beleaguered prime minister believe they can help stimulate their respective economies is through the development of new industries that “will harness the sun and the winds and the soil to fuel our cars and run our factories”.

But in the automotive sector, this drive towards new, cleaner technologies is already happening. While Birmingham’s LDV has gone bust, only a few miles down the road privately-held electric van maker Modec, whose customers include Tesco and UPS, is going from strength to strength, as is Tyne and Wear-based Tanfield Group, an AIM-quoted business that has just sold 50 electric delivery vans to supermarket chain Sainsbury’s.

Across the Pond, there are automotive firms pursuing electric dreams as well.

Toronto Stock Exchange-listed Azure Dynamics is a manufacturer of electric drives and hybrid electric drives for commercial vehicles. It targets niche markets within the automotive sector – such as shuttle buses, trucks and utility vehicles – where volumes are lower, so limiting the interest of bigger competitors who themselves target high-volume customers such as car makers and van manufacturers.

Azure’s Balance Hybrid Electric drive system is designed for use in Ford’s E-450 line of commercial vehicles, which includes trucks and utility vehicles. The Balance drive train system manages both a conventional 5.4 litre Triton gasoline engine and a five-speed automatic TorqShift transmission, making the vehicle up to 40% more fuel efficient as well as reducing maintenance costs by up to 30%.

Recently, the company signed a deal with Champion Bus – a subsidiary of major US bus builder Thor Industries – that gives Champion’s customers the option to select Azure’s Balance drive train in Ford E-450 shuttle buses that they order.

Azure has also developed its own hybrid electric shuttle bus – called CitiBus – that uses the Senator HD busy body manufactured by StarTrans, but which employs the company’s own hybrid electric drive train system. Like the Ford E-450 buses that use the Balance drive train, this switches the engine off when the bus is idling, employs regenerative braking and offers a fuel economy improvement of up to 40%.
Meanwhile, Azure sells a range of electric drive components – including AC motors, inverters and converters, controllers and battery chargers – designed specifically for use within electric vehicles.

Headquartered in Detroit, with offices in Boston, Toronto and Vancouver, Azure employs more than 100 people across its four sites. In years to come, these employees should have their work cut out because although the US has not been seen historically as a major cleantech market, interest in electric, and low-emission, vehicles is growing there.

Azure has already been joined in the US by the UK electric van makers mentioned at the top of this article. For example, Tanfield’s subsidiary Smith Electric Vehicles is working with Ford to launch an electric van, with a range of 100 miles, for the American market next year, and other US corporations have signed letters of intent to become launch partners for Tanfield’s vehicles.

Meanwhile Lord Borwick, the owner of Modec, told this writer recently that he sees the US becoming his company’s largest market after arranging to set up a plant in the Mid-West with a joint venture partner.

Azure itself has forged partnerships with well-known makers of trucks and buses such as Ford, Collins Bus Corporation and Goshen Coach, as well as automotive component manufacturers like Johnson Controls. Meanwhile, blue-chip names like AT&T and FedEx use vehicles that include Azure’s products.

Azure’s growth strategy involves using its partners’ distribution networks to help market and sell its products, while also pursuing customers that operate large fleets of vehicles. The partnership approach should also help it scale up its production capacity.

The company has won several awards in recent years on both sides of the Atlantic. These include Canada’s Deloitte Technology Green 15 award and the UK’s EAST (Environmental and Sustainable Technology) award.

In May Azure reported its Q1 2009 results, revealing that revenues had increased to $0.6m during the three months to 31 March 2009 compared with $0.4m in Q1 2008. The net loss for the quarter was lower, at $7.4m compared with $7.9m in Q1 2008, and the company had net cash and equivalents of $7.9m at the end of March (31 March 2008: $13.7m).

The first quarter is traditionally the weakest quarter for sales at Azure, which generated total revenues for 2008 of $7.7m (2007: $2.8m) while posting a net loss for the year of $38.9m (2007: $30.2m).

“Many companies have put the brakes on new spending until the economy shows some signs of recovery,” says Scott Harrison, Azure Dynamics’ chief executive officer. “But that hasn't dimmed their level of interest in our products. We continue to work with existing customers to fulfil orders and we’re talking to new prospects virtually every day to educate them on what our technology can do for their operations.”

On the TSX, Azure’s shares currently trade for 23 cents, after changing hands for less than five cents each earlier this year. The share price has been as high as a dollar in recent years, and it should head back up to that level once the company nears profitability. But potential investors may want to wait for news of further progress with contracts, increased revenues and a significant slowing of the company’s cash burn before they commit.

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