October 24, 2017 - From the October, 2017 issue

California's Electric Bus Market Going Mainstream

As California prepares to spend millions on electric vehicle infrastructure, and transit agencies across the state embrace “going green," Los Angeles-based manufacturer Proterra has seized the opportunity to put fleets of zero-emission buses on the roads—even challenging in the unlikely sector of heavy-duty electrification. In our continuing coverage of transportation electrification in California, TPR speaks with Proterra CEO Ryan Popple about the advancements that have taken electric transit buses from a niche market to an emerging mainstream competitor that he believes could displace diesel and natural gas as the dominant transit technology.


Ryan Popple

"If we froze the market today—if batteries never got any better than they are now—it would still be game over for diesel and natural gas." - Ryan Popple, Proterra

Give our readers a sense of Proterra’s mission in the electric bus field, especially in the California marketplace.

Ryan Popple: Proterra’s goal is to eliminate the need for, and the impact of, fossil fuels in transit applications. We think California is going to be the first market to accomplish that goal with electric technology, as well as being one of the markets that most desperately needs to do so. 

Where does the electric bus market stand in California today?

Proterra has more than 15 institutional customers in California. We did the first deployment of transit EVs in the state with Foothill Transit. We are now executing a low-and-no-emissions program with the city of Los Angeles, partnering with the LADOT fleet to deploy 25 heavy-duty electric buses through a grant from the Federal Transit Administration. We also have vehicles running in Northern California, and we’re shipping to the Central Valley.

The electric bus market is no longer a niche; it has definitely come of age. Most California transit agencies expect that, in the long term, they will run zero-emission vehicles. At this point, the majority use EVs or have them on the way, and at least eight cities have a 50 or 100 percent EV mandate by 2025. The laggards—the fleets that are moving slowly—run the risk of coming under regulatory pressure from the California Air Resources Board.

Recently, LA Metro voted to convert its entire bus fleet to zero-emission vehicles by 2030. What is the opportunity there for Proterra?

LA Metro has the second largest fleet in the U.S., with 2,500 vehicles. Every year, they need to replace around 200 vehicles. That’s a steady state, run rate opportunity.

The Metro Board of Directors’ decision showed very strong long-term thinking about environmental stewardship, as well as technology risk. They took the bold step of becoming the largest city in the United States to plot a course to a zero-emission future, where they could run their transit fleet on the electricity that they produce.

L.A., like many municipal entities, produces its own electricity through an embedded utility. Running on electricity gives the transit fleet independence, while also reducing its carbon footprint by 80 percent compared to natural gas, and eliminating noise and air pollution. As an area that’s associated with some of the worst air pollution in the country, L.A. is taking an important step to change the nature of transit in the county.

Metro is not the first agency to take this step, but they now are the largest agency with a zero-emission goal. L.A. has so much purchasing power that it and New York define this market. For L.A. to make this statement sends a signal that there is no long-term market for diesel or natural gas; manufacturers are going to have to develop zero-emission solutions, because that’s going to be the extent of the market by 2030. 

TPR recently spoke with SCE President Ron Nichols about the role of utilities in electrifying the transportation sector. What is the market opportunity for both EV owners and energy utilities to change today’s fossil fuel paradigm?

If I were running an electric utility, I would view the electrification of transportation as my No. 1 strategic priority. There are stronger synergies between EV technology and the electricity sector than any two industries I’ve ever seen. It’s incredible how well they come together to create environmental and economic productivity—improving the environment while lowering the cost of electricity.

First and foremost, electric vehicles provide demand and load-balancing to utilities precisely when they need it. Most utilities’ generation assets are underutilized at night. In other words, our plants are producing electricity at night, but the grid doesn’t need that power. People are asleep; factories are closed; stores aren’t running their air conditioners. Electric vehicles are likely to be parked and charging overnight, so they’re a great place to bank that surplus power.

Increasing utilization of, say, a wind farm spreads the investment cost of that infrastructure over more electricity production. That lowers the cost of electricity for everybody on the grid. So, even if you don’t drive an EV, over the long term, EVs charging at night are going to reduce the cost of your electricity.

Utilities are facing an existential crisis that experts refer to as the “utility death spiral.” Solar is a very popular resource, especially in California, where we have a lot sun and a fairly favorable regulatory climate. Every time a business or home puts solar on their roof, it reduces the amount of electricity they demand from fixed power plants. That reduces the number of customers needed to amortize a fixed power plant—exactly the opposite effect of putting an electric vehicle on the grid.

If utilities don’t find a new source of electricity demand, solar and LED lighting are going to reduce their market. If their market shrinks, then they’ll have to charge more per unit of electricity. And that will make LED lighting and solar an even better investment. It’s a vicious cycle that’s very difficult to break out of—but electric vehicles fix that problem.

I also think EVs will generate a lot of public goodwill toward the utility. A utility is an invisible presence until the power goes out, and then people get angry. In the future, we’re going to view our utilities as providers of transport—and specifically, providers of the cleanest transport available.

Let’s turn to Proterra’s new 40-foot Catalyst E2 max bus.

The E2 max bus is currently the longest-range electric vehicle in the world. That record was previously held by a small, one-seat hypermile vehicle. The fact that a 40-foot transit bus currently broke the world record for EV range shows how remarkably capable electric transit vehicles have become, even compared to other electric vehicles.

When Proterra first started out, many people assumed that transit buses, being heavy, would be a bit of a misfit for electrification. In fact, transit buses are excellent platforms for urban electrification: There is a lot of space to safely store batteries, and the energy ratio of the vehicle (how much of its weight can be energy storage versus other systems) is higher on a Proterra bus than even a Tesla or a Chevy Bolt. We have opened the market’s eyes to the possibilities of heavy-duty electrification.

Another important feature of the E2 max bus is its next-generation drivetrain, the DuoPower twin motor system. It has roughly 500 horsepower—more power than a comparable diesel engine. It can climb a 26 percent grade—twice the grade ability of a diesel engine. It can out-accelerate any diesel or natural gas bus on the market. It’s also 20 percent more energy-efficient than our last drivetrain, which was itself 500 percent more efficient than the diesel engine.

The average U.S. bus route is less than 350 miles; this vehicle did 1,100 miles on a test track. Clearly, it blows away any concerns around range anxiety, and it shows that electric has moved into the poll position for this category. It’s no longer about whether an electric can do the job of a diesel. Now the question is whether diesel and natural gas buses can keep up with electric. And at this point, I don’t think they can. They’re going to become obsolete. 

Comment on the battery storage component of this breakthrough, and the importance of the decrease in price of lithium-ion batteries in terms of production.

Advertisement

The trend in batteries has been almost as steep as in solar. Batteries have gotten roughly six to eight percent cheaper every year for the last 10 years. That’s a massive impact—an 80 percent decrease—and they’re forecasted to continue getting cheaper.

Lithium-ion batteries are now cheap enough and dense enough to convert the entire U.S. transit fleet, unsubsidized, over to EVs. In other words, if we froze the market today—if batteries never got any better than they are now—it would still be game over for diesel and natural gas.

But as a matter of fact, batteries are improving. The batteries we put in our buses today are four times more energy-dense than those we used five years ago. That has enabled us to offer long-range, high-power electric vehicles at a price that is cost-competitive with diesel, CNG, and hybrid on a total cost-of-ownership basis. Increasingly, they’re cheaper on an upfront basis than CNG and hybrid, when you take into account CNG infrastructure. That has been quite an economic disruption.

Last month, Varun Sivaram of the Council for Foreign Relations cautioned TPR about what he called the “lock-in” of first- or second-generation technologies. Talk about Proterra’s R&D efforts, and how you avoid “locking in” to old technologies. 

We design our products to be forward- and backward-compatible. This means that 10 years from now, when battery technology improves, we can put a new battery pack into an existing bus and it will be interoperable.

It also means that we have multiple generations of batteries in the field at once. Unlike with most of our competitors, transit agencies can pick different types of battery technology when they buy a Proterra vehicle.

The R&D effort at Proterra is more intense than any that of other vehicle manufacturer serving the North American EV market. That’s a major advantage for us. Since all of our personnel are located in the U.S., we’re able to send our engineering team to get early learnings directly from our early adopter customers. As a result, we can evolve faster than any of our competitors.

If we weren’t investing so heavily in R&D, we would probably have 50 percent lower SG&A expenses as a company. But our investors, board, and management team all believe that electrification is the long-term future of the market, so we are more than willing to outspend to make sure that we’re on the cutting edge.

The risk that many transit fleets are missing is that they could get stuck with obsolete technology. A city that, right now, is putting in new CNG fueling infrastructure is going to end up with stranded assets. The California Air Resources Board may not let them operate that equipment past 2030. And you may need 20 years to amortize a multimillion-dollar CNG refueling asset.

It’s a big risk on the bus side, as well. The volume for diesel and natural gas buses is going down. As that happens, suppliers will start exiting the market. Then prices will go up, and it may become impossible to get spare parts for diesel and CNG buses down the road.

Technology transitions aren’t easy, but it’s often lower risk to make the transition than to try to stick with a technology that will no longer be supported. 

Proterra seems to be perfectly positioned for an IPO. How is the company financed, and what are its plans going forward?

I think being private has served us really well. One nice thing about it is that we don’t have to put many resources into financial reporting. If I don’t have to spend time doing quarterly conference calls or investor roadshows, I can spend most of my time with customers and engineers.

Another major advantage is that we don’t have to disclose what we’re doing. Our competitors are often caught off-guard by our product announcements, and one reason for that is that we don’t have to publish any product strategies for public investors.

An IPO primarily is about lowering your cost of capital. We’re very well capitalized; our investors include some of the largest venture capital firms in the US, and we have a lot of strategic investors, like BMW, General Motors, Edison International, and Constellation. We have technical support on both the utility side and the vehicle side.

There are some big advantages to being private, and I think we will stay private for as long as we can. At some point, though, our investors may want the option of being able to trade in our security on public markets. 

As someone who left Tesla and the VC world to found a company, speak to what it takes to launch a new vehicle manufacturer in the 21st century.

Companies in the hard tech space—any physical products that solve real-world problems—are typically on a longer road. But if we succeed in getting to the end of that road, the rewards tend to be larger.

The barriers to entry are also higher. At Proterra, we can spend most of our time focused on execution instead of worrying about competition, because what we do is extremely hard. It takes a great team—people who are doing this for reasons beyond just the money. Nobody is going to build an electric vehicle company, or research a new cure for a disease, if they don’t feel personally driven by it. It’s rewarding; it’s addicting.

This is one of the hardest things you can do with your career, and I wouldn’t wish it on the faint of heart. But it’s worth it when I look around and see how many electric buses we have out there. It’s especially moving when cities decide to clean up their entire transit fleets. That’s really powerful.

To think: Five years ago, people thought transit electrification was impossible. And today, the largest county in the United States has said its whole fleet is going to be 100 percent electric by 2030. That’s just awesome.

Advertisement

© 2018 The Planning Report | David Abel, Publisher, ABL, Inc.