Lean Business Model is AMP's Game

By AutoObserver Staff April 19, 2011

Amp-Electric-Equinox at 2010 NY show.jpg

Contributor Rick Popely is a former Chicago Tribune automotive writer.

Though his company lost $5 million last year, started this year with only $385,000 in cash and has just a handful of vehicles on the road, Steve Burns, founder and president of Amp Electric Vehicles, thinks he has the goods to take on Toyota, Nissan and other major players in the growing battery electric field. The company's already got one customer. It announced today that it has signed a definitive agreement to supply Iceland's Northern Lights Energy with 1,000 of its EVs over the next five years.

At present, Amp converts Chevrolet Equinox SUVs to full electric operation, and Burns said the company will announce plans as early as next week to convert SUVs from two other manufacturers – one domestic, one foreign – using the same batteries, electric motors and software as the Equinox. Burns said he couldn’t identify the new vehicles until plans are final but said they are "world cars."

By the end of 2011, Burns said, he hopes to be able announce that Amp has certified its electric vehicles as new, original-equipment models instead of conversions. That means they would have to meet all federal safety and emissions regulations and could be sold under the Amp brand name. In addition, as "original" EVs they would qualify for a $7,500 federal tax credit instead of the $2,500 credit Amp buyers now get for purchasing an EV conversion.

 "We’re going to sell validated (new) vehicles from then on," Burns said during a recent presentation to automotive journalists in the Chicago area. That would put Amp in the same category as major manufacturers like Toyota and startups such as Tesla Motors.

Farther and Faster
He believes Amp's vehicle has an edge over the electric version of the Toyota RAV4, co-developed by Tesla under a $60 million contract and due in 2012. “We don’t even have $10 million in our whole company, and we think we have a better car," Burns boasted. "We will beat the RAV4 to market, and our vehicle is faster than the RAV4 and will go farther.”

That's big talk from a tiny company that warns in its annual report filed with the SEC that "there is doubt about our ability to continue as a going concern" unless it can start selling in volume. Unlike major automakers, which define "volume" in the hundreds of thousands of vehicles, Burns said he means "tens of thousands” of Amps per year.

AMP chevrolet equinox EV _large thumb.jpgSo how can David compete in the same arena as Goliath? By continuing to piggyback on the millions of dollars that companies such as General Motors have invested in vehicles like the Equinox, Burns said. Instead of designing, engineering and building a car from the ground up, Amp takes an established vehicle and replaces the conventional gasoline powertrain with electric motors, batteries and other components that Amp buys on the open market.

Burns maintains that while GM, Nissan, Tesla and others are "reinventing the wheel" by developing all-new new battery electric vehicles, Amp can be quicker and more nimble by taking a proven and popular model such as the Equinox and converting it to electric power. "It's a proven commodity, and people like the looks and safety of that car," he said of the Equinox. "We went with the familiar, and it looks the same and drives the same. We're riding on millions of hours of (GM's) engineering that went into that car. This is a less-expensive way to do it."

Because Amp does not alter any of a converted vehicle's safety equipment or handling characteristics, Burns said he is confident retail vehicles sold under the Amp brand name will be able to pass all federal safety requirements.

First Impressions
The only visible change to a black 2010 Equinox converted to electric-drive by Amp and made available for brief test drives was an “Electric” badge on the front fenders. The interior was untouched, although what used to be the gas gauge now measures the battery pack’s charge status.

Acceleration was swift and linear, and aside from the pedal feedback and noise typical of a regenerative braking system, the electric SUV performed like a typical Equinox, only faster and quieter. Amp claims a range up to 150 miles, top speed of 90 mph and 0-60 time of 8 seconds.

amp remy motor.pngUnder the hood, in place of a four-cylinder engine, transmission and front-drive hardware is a battery pack containing two-thirds of the lithium-iron-phosphate battery cells that can store a total of 37 kiloWatt hours of energy. The remaining cells are in a smaller pack installed where the gas tank used to be. The split helps preserve the Equinox EV's weight distribution. Twin electric motors power the rear wheels (all-wheel drive is not currently available) - the same motors used in the dual-mode hybrid system offered by GM, Chrysler and BMW.

Amp has produced only a handful of vehicles so far, and the $50,000 retail price includes about $30,000 of conversion costs, including removing the gas powertrain. Most are test vehicles in the hands of fleet operators such as Dayton (Ohio) Power & Light and Detroit Edison. Amp recently shipped the first vehicle of its 1,000-vehicle order to Northern Lights Energy, a utility in Iceland, where gas is about $9 a gallon and electricity about one cent per kilowatt hour.

Growth Plans
The company now does its conversions in a 12,000-square-foot former Land Rover dealership in the Cincinnati area. Burns said Amp is looking for larger space around Cincinnati and Detroit to enable a boost in production.

While Amp or its individual customers now have to buy a standard Equinox from a Chevrolet dealer and then convert it, Burns' business plan calls for the company to start getting "gliders" - vehicles without engines and transmissions – from at least one major manufacturer. That would reduce costs and conversion time, which now takes close to two weeks per vehicle. "We have to get that down to a day or two," he said. "We’re trying to be quick and nimble."

For the short term, a company like Amp could be profitable serving niche buyers eager for a battery electric vehicle, said industry analyst Phil Gott, managing director of IHS Automotive. But trying to compete with established major auto manufacturers is a bigger risk, he said.

Challenges Ahead
"If I could buy an electric car (from a major manufacturer) with the comfort of a nationwide sales and support network, why would I want to buy a car from a startup," Gott asked, adding that electric-drive specialists Tesla and Fisker Automotive face similar risks. "That’s the Achilles heel of any new company coming into a market like this."

In addition, Gott said that in order to be competitive, small companies like Amp will have to continue to offer technology or performance that the big players don't, no easy task given the resources Toyota, Nissan, GM, Ford and other majors can bring into play.

Burns argues that under normal product cycles major manufacturers are locked into offering the same components for at least three years while Amp can change faster than that, switching suppliers as new technology becomes available. For now, at least, Amp holds a competitive advantage, he insisted.

'Guilt Free'
"Even though I’m not Nissan and don't have their advertising budget, our car goes twice as far," he said. Nissan claims a range up to 100 miles for the Leaf, but the EPA pegs it at 73 miles. Burns said he expects the EPA to rate Amp's vehicles, which are much larger than the Leaf, at 125 to 150 miles.

"It's counterintuitive that the bigger car goes further, but a bigger car can hold a lot more batteries than a small car," he said. The Amp Equinox battery pack is almost 55 percent larger than the Leaf's 24 kWh pack. "America loves their SUVs, and this is a guilt-free SUV."

Pointing to a Chevrolet Volt in a parking lot he said, “Unlike the Volt, I don’t have to reinvent anything, just focus on the drivetrain. We may not create the latest technology, but we will have it in our vehicles sooner.”

Burns recently hired former GM executive Jim Taylor, who ran the Cadillac and Hummer divisions, as Amp's CEO. Several other auto industry veterans work for Amp or serve as advisors, including engineers who worked on GM's EV1 electric car in the 1990s.

Tough Road
Amp has not received any assistance from GM in converting the Equinox, but Burns hope that changes. "We really welcome the day we can work directly" with a major manufacturer,  he said. He also envisions Amp converting vehicles to electric-drive for a major manufacturer on a contract basis, similar to how "coachbuilders" such as ASC Inc. assembled convertibles and specialty cars for car companies.

Amp executives are scheduled to meet with Energy Secretary Steven Chu this week to discuss the possibility of qualifying for loans under a $25 billion federal program for advanced vehicle technology.

“We think we can make a case for it,” Burns said, noting that Tesla has received $465 million and nascent plug-in hybrid maker Fisker Automotive $529 million under the program.
Both of those companies, though, got their loans with business plans based on designing and building electric-drive cars from the ground up – exactly the sort of thing Burns insists Amp doesn't need to do.

How that will affect the company's chance to snag an advanced technology loan is anyone's guess.

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