Are trends electric?
The man behind Modec has bet £320m on the idea that electric commercial vehicles are the next big thing. But is Britain ready for battery-driven vans? Kurt Jacobs cross-examines Modec and our panel of experts give their judgments
No tax discs, no pollution, no congestion charge - no wonder Modec is causing such a stir with its new vehicle.
After two years' work and £320m of private investment with no income, the Coventry-based business has launched a battery-powered-vehicle that, it hopes, will be "the future of urban commercial transport".
Although the company only formally began production of the vehicle in March 2007 - with a grand launch attended by Conservative party leader David Cameron - it has already had orders from customers like Tesco, keen to put the vehicle through its paces and find out whether it can both help save the planet and save costs.
Modec's sales and marketing director Geoff Reyner says: "This is the world's first battery-powered light commercial vehicle designed from the ground up. It works and it looks brilliant: a lot of interest has come because of its style and design.
"This vehicle ticks three boxes. Firstly it is a proper commercial vehicle that will carry two tonnes over 100 miles. Secondly it's cost effective, costing roughly the same as a diesel powered commercial vehicle to buy and operate. Thirdly it's environmentally friendly.
"The killer punch is that it's cost effective and does its job, so customers are not paying to go green - the conscience part follows on."
If Modec's vehicles are powered by electricity, then up to now the company has been powered mainly on hope.
The business was launched in October 2004 by a former management team from Coventry taxi maker Manganese Bronze. It was working on a project for battery-powered vehicles called Electric Mercury, but eventually abandoned the project. However, those involved were so convinced of Electric Mercury's possibilities that they struck out on their own, led by Manganese Bronze's former chairman Jamie Borwick, who has invested £320m in the project.
Reyner says: "The company has been running for two-and-a-half years with no income, and we're now employing about 100 people, including a lot of former staff from Jaguar and Peugeot. But we are now at the point where we have stopped being in project mode and gone into production.
"Our plans are to make about 400 to 500 vehicles in 2007, and boost annual output to about 2,500 by 2009.
"However, our production line could handle up to 5,000 vehicles a year if the demand is there. Considering that there's a market place of about 300,000 vehicles in the UK alone, we think that's not an unreasonable target."
Modec claims that battery-powered vehicles can now compete with diesel-driven rivals because of advancements in battery technology. It says its vehicles can travel up 130 miles a day on an overnight charge at up to 50mph and claims that the cost per mile is roughly equivalent to that for a diesel vehicle. However, its vehicles are exempt from road tax, operator licences and congestion charging in London.
The cost of the vehicles is £325,000 upwards, with batteries rented on a monthly basis.
Reyner says: "The other major step has been in performance. Electric vehicles are now not less responsive than diesel ones, but more so. The thing about an electric motor is that it gives instant power - put your foot down in a diesel or petrol there is a delay. You can pull out of a junction with an electric vehicle and you won't have other drivers shaking their fists at you."
Modec also says the new vehicle has the edge over other alternatively-powered ones like hybrids - "a sop in direction of alternative power - if you put your foot down the petrol element kicks in. Meanwhile the fuel economy of LPG (liquefied petroleum gas) is very poor and while LPG has been around for a while it has not really worked, even though the government has offered grants to encourage its use.
"Other electric vehicles are either souped-up milk floats or existing petrol vehicles whose guts have been ripped out and have been electrified."
Reyner says that the range of potential customers for the vehicle is huge. "We appeal to the Joe's Organic Sandwich shops as well as the big retailer networks," he says. So it plans to go down the dealer route and hopes to have a nationwide network established by the end of 2007.
Generally the company is looking to target fleet managers, but in larger businesses it believes that the key to orders could be through directors of corporate social responsibility.
Reyner adds: "We have done a bit of advertising but, to be honest, what I'm not short of is leads. To begin with we are focusing in London, where we estimate 80 per cent of the potential market is because of the congestion charge.
"We have two vehicles currently being tested in Holland, links in France and Belgium, and we're sending a vehicle to the US because of interest that has been expressed there too. However, to start with we're focusing on the UK market - we're not shutting our ears to exports, but we have more than enough to go for here. We have to get it right here before looking overseas."
Chairman Jamie Borwick said: "There have been all too many automotive factory closures in the Midlands in recent years. Isn't it fun to open one for a change? What we've done is to make it easy for a company to prove that they care about their customers' environment and health."
Dene Jones, relationship director, Lloyds TSB Corporate
Firstly, congratulations to the directors of Modec for the development and launch of a next generation of wholly electrical light commercial vehicles. This is a fantastic achievement not only for the company, but at a time when manufacturing is under sustained attack. It highlights how world-class research, development, innovation and engineering remains firmly in the Midlands.
With the impact of carbon footprint at the forefront of thinking, including the major vehicles manufacturers, Modec has developed a ground-breaking product that offers customers a real environmentally-friendly alternative. The fact it has already sold over 100 vehicles, including 15 to Tesco, prior to full-scale production, demonstrates the level of commercial interest for this type of vehicle. It has created a first mover's advantage, which it should capitalise upon by delivering a quality product on time. Repeat business will signify that Modec has met or exceeded its customers' expectations.
Looking further forward, the automotive sector is characterised by significant ongoing product development which keeps the product up to date. In Modec's case this creates a further barrier to entry for anybody else that will be looking closely at Modec and considering entry into its market.
Neil Grey, business services director, Tenon
The company is in the very early stage of its life cycle but decisions made now will have significant medium to long-term effects. Clearly there is a market for the product and it needs to continue to improve production efficiency in order to drive down costs.
Modec needs to look at improving the marketing of the product, which will hopefully drive up prices as brand value increases. Along with price rises and downward pressure on costs by efficiency it should increase future profits.
More PR is required to increase awareness of its technology and the considerable advantages that come from it. Modec ought to find a better route to market and could look at developing a dealer network to make the vehicles more accessible to the end user. Along with this it could develop a better funding package to make it more affordable and show the significant financial benefits that can be gained from buying a Modec.
There can be significant pitfalls that Modec could fall into during this early stage of its business life. It needs to ensure the transport is reliable and there is adequate customer service and backup for repairs, otherwise it could quickly gain a reputation for not having the necessary backup available - this would destroy the brand quickly.
The message is relatively simple - develop the brand!
Roger Wood investment director, Midven
While still in manufacturing, Modec is a good example of the large number of young companies within the Midlands that are embracing and developing technology that is moving the region away from its old manufacturing image.
The timing of the launch of Modec's vehicle is ideal, with the increasing prominence of green issues on the corporate and political agenda. This provides the company with a window of opportunity for it to focus hard on marketing to bring the product to the attention of potential customers. The short range of the vehicle means it will be most suitable to geographical areas with high population density, such as London.
In the longer term, however, potential customer's buying decisions will be driven by commercial factors rather than green issues. Customers will only buy the vehicle if it can be put to commercially viable use. The upfront cost is greater than a typical Transit van and the suggested cost savings against diesel are not huge. Therefore ongoing research and development focused on getting cost downs and performance improvements, particularly in the range and battery recharge time, will be key to widening the vehicle's appeal.
Provided the investors are able to maintain a long-term view on their returns, Modec has every chance of success.
