What is going on with the commercial electric vehicle manufacturers and why are they not able to generate the same cash flow as the conventional electric vehicle manufacturers? In recent weeks, quite a bit of news has been published about commercial electric vehicle manufacturers who have run into difficulties or whose stock value has dropped sharply.
For example, the American ARRIVAL INC announced a temporary production stop for a re-examination of the cost structure. Even before that, the company announced a 30% cut in its workforce; The company ELMS – acronym for Electric Last Mile Solutions – announced about two months ago that it will go to the process of protection from creditors (chapter eleven); And the American Lordstown has been in difficulties for many months.
As expected, the story of the electric commercial vehicle also has an Israeli point: the REE company developed its own platform for an electric commercial vehicle, which is based on electric motors in each wheel. The company is getting close to serial production of its commercial models, but in the meantime continues to lose money and its stock is at a low ebb.
The company from Herzliya reported last week a loss of 25.2 million dollars in the second quarter, a deepening of 17% compared to the loss in the first quarter. The company’s coffers, which merged last year with American Spak and began trading on Nasdaq, have $206.8 million left in their coffers. The company submitted a shelf prospectus to raise an additional $200 million in a secondary share offering, but reports that the amount it has will be enough to bring it to the start of serial production.
REE for its part just recently presented a full prototype vehicle, meaning one that can drive, and is expected to present a special prototype vehicle that is also intended for marketing in Europe. But, this does not hide one simple fact: the companies that develop commercial electric vehicles themselves are in trouble.
Development of an electric commercial vehicle is divided between the large and old car manufacturers, such as General Motors, Ford and Tesla, and start-ups and companies that have arisen in recent years with the intention of changing the world of traditional transportation through a solution that the world has not seen before, see the entry of the Israeli REE.
In an interview that REE CEO Daniel Barel recently gave to foreign chains, he stated that the company’s main goal is to bring its cars as quickly as possible to end consumers, that is, the large marketing chains. In a conversation at the “Calcalist” conference less than a year ago, he stated that “Lately, we move less for a private vehicle and more for cooperative transportation, and what these two have in common is an interesting fact, that we ignore commercial vehicles. It is the backbone of the economy, of our way of life. A car takes us from place to place but a commercial vehicle is a completely different world. An electric vehicle is much more than a car, it has battery technology, charging technology, autonomy, information, fleet management, the ability to provide service.”
Barel also pointed out the fact that Amazon builds its own commercial vehicles and this is true, only that behind Amazon’s commercial vehicles is an electric vehicle manufacturer – Rivian, which is supported by Ford and Amazon. On the other hand, most of the companies that are currently developing an electric commercial vehicle and are in difficulties are not supported by major car manufacturers.
Why is it so difficult to develop an electric commercial vehicle? The answer lies in countless factors and also in the attempts of the new developers to be smarter and more innovative than the old car manufacturers, for example the REE solution that requires an electric motor in each wheel. The basic working formula that stands on the planning board of every electric passenger vehicle is that it can accommodate passengers, an electric motor, a drive system and of course all the systems required to support the living conditions of the passengers, from safety systems to air conditioning. On the other hand, in a commercial vehicle, the requirements are different: cheap maintenance, maximum cargo carrying capacity and a drive system that can meet the demands of consumers, who are usually retail entities, i.e. retail.
This means that a commercial vehicle requires no less thinking than a passenger car. probably even more. Take, for example, the problem of the battery case. In a passenger car it is a large and heavy case that usually rests in the center of the vehicle near the floor. The motor that is connected to the battery case is installed in the front of the car. In a commercial vehicle the situation is different – the nose is smaller and the center of the vehicle should be dedicated to cargo.
This is a critical point: a commercial vehicle has an authorized load capacity, that is, how much is allowed to be loaded on it. The heavier and larger the battery, the less goods it will be possible to load. That’s why you have to “exile” the engine to another place, produce a battery that will be smaller but no less powerful – and also take care of the weight issue.
Of course, all of these have to meet another limitation: the vehicle has to go to work in the morning, drive tens of kilometers at best or hundreds of kilometers at worst – and return to charging at the end of the day, and all this while loaded. It is therefore understandable why there are companies that prefer to “reengineer the vehicle” in terms of battery and drive mechanisms. The problem is that reengineering is a matter of hundreds of millions of dollars, sometimes even more.
The manufacturers that develop the electric commercial vehicle are manufacturers that enjoy a rare “grace” period. It should be remembered that all the companies that entered this field a few years ago did so because there was a vacuum in the market – the major car manufacturers, from Mercedes Benz to General Motors, did not bother to develop commercial electric vehicles. First of all because electric cars were not really common until five years ago and beyond that, because of the power of the retail industry. In other words, regulators in the US and Europe can perhaps require the car manufacturers to develop electric cars that will not pollute the air in the cities, but the regulator in Europe cannot order the commercial vehicle that brings the bread and diapers to the stores to stop driving. Therefore, the major car manufacturers had time to stop and develop vehicles.
The process was quite slow, but it is already evident that the major car manufacturers in the US and Europe are actively promoting the issue. General Motors, for example, is working on its own delivery vehicle service. Furthermore, according to publications in the US, from 2025 the giant manufacturer will no longer produce vehicles A vehicle with gasoline engines. Ford has electric vehicles planned, so does Daimler. These big manufacturers are going to pour all their research and development money into these vehicles, which may not be super innovative – but they will be reliable and with a good driving range, and in the end they will benefit from extensive support networks in the form of dealerships and garages, and also from the excellent relationships of the car manufacturers with Amazon, Walmart, Coca-Cola and every other giant retail body in the world.
This waiting period, in which the big car manufacturers studied the market, was supposed to be the golden age of the small electric commercial vehicle manufacturers. They were supposed to develop vehicles and maybe be bought by the big manufacturers, but that didn’t happen. The large manufacturers rely on the technological solutions at their disposal and the fact that they are developing passenger cars at the same time and are in a constant race to develop better batteries and more reliable and efficient drive mechanisms, stands in the way of the small manufacturers.
The solutions of the small manufacturers, as expected, come from attempts to cooperate with large car manufacturers (who are not in a hurry to respond) or to introduce collaborations with OEM companies (short for Original Equipment Manufacture), which are suppliers of parts to the large car manufacturers. Such a move also increases the confidence of investors, also allows savings in the cost of research and development, and also speeds up the vehicle’s arrival on the market.
REE is a good example: at the end of 2021, the company announced that it would implement systems from the AMERICAN AXLE company in its platforms and also announced last May about customer demonstrations of its platform. Last year, REE also announced a collaboration with the Japanese Hino, and the presentation of joint developments at the CES exhibition. However, there is no finished product yet. REE did recently introduce a vehicle, in collaboration with Morgan Elson, an American company that manufactures delivery vehicles, which is very far from being the largest of its kind or able to compete with the major car manufacturers.
This is the point where the small companies like REE have difficulty: will the customers choose a vehicle from an Israeli company or any other small company that will introduce their electric commercial vehicles very soon?
The answer is complex and depends on the relationship between the retailers and the car manufacturers. According to US publications, BRIGHTDROP, the electric commercial vehicle division of General Motors, will supply 2,500 vehicles to FedEx. Amazon, for its part, will be equipped with thousands of Rivian vehicles. The two giant companies preferred to rely on large car manufacturers.
This means that even if the small commercial electric vehicle developers have funding and manage to survive the next few years, it is not clear whether there are buyers for their vehicles or whether the big retailers will simply prefer to wait for the arrival of commercial vehicles from the major automakers.