Optimal Energy closes its doors

Joule relegated to the scrap heap of history.

Lezette Engelbrecht
By Lezette Engelbrecht, ITWeb online features editor
Johannesburg, 05 Jul 2012

The past few weeks have seen a blow to the future of electric mobility in SA, as the company behind local electric car, the Joule, officially closed its doors. Optimal Energy announced the shelving of Joule in April, after seven years and a R300 million investment - and despite trying to refocus its efforts on electric buses - it finally had to cut its losses and shut down.

The company has been on shaky ground for several months, as it battled to secure the R9 billion in funding needed to commercialise the Joule. Optimal Energy received strong initial backing from government, with the Department of Science and Technology's (DST) Innovation Fund (now the Technology Innovation Agency) and the Industrial Development Corporation (IDC), making combined investments of around R300 million, and holding 30% and 50% of the company, respectively.

Seven-year glitch: A timeline of the Joule's development

2005: Optimal Energy is founded by Kobus Meiring along with Mike Lomberg, Jian Swiegers and Gerhard Swart, made possible by investment from the Department of Science and Technology.
2006: Initial designs for the Joule are drawn up.
October 2008: The Department of Science and Technology's Innovation Fund contributes R35 million of its R50 million investment into the Joule's development.
October 2008: The six-seater version of the Joule debuts at the Paris Motor Show.
October 2009: The Joule makes a showing at SA Automotive Week in Port Elizabeth.
December 2009: The East London Industrial Development Zone (Elidz) wins the bid as production site for the Joule.
March 2010: In a revamped version from the Joule shown at Paris, SA's EV makes its debut at the Geneva Motor Show.
June 2010: A marketing fleet of Joules make the rounds in Cape Town during the World Cup to raise awareness.
July 2010: Optimal Energy applies to the DST and IDC for an additional R500 million in funding.
August 2010: Optimal Energy receives its last payment from the Department of Science and Technology, and the development of the Joule is handed over to the Department of Trade and Industry.
September 2010: The Joule completes its prototype phase and gets ready for mass production.
March 2011: The Joule marketing fleet finishes road testing, completing a total of 8000km on local roads.
November 2011: Science and technology minister Naledi Pandor notes that it will cost R9 billion to industrialise the Joule, and that the department is in discussions regarding future investments.
April 2012: Optimal Energy announces that the Joule has been shelved due to lack of funding. It states its intention to re-deploy Joule's technology into electric buses.
June 2012: The company holds a board meeting at which the major investors (IDC and TIA) decide to shut down Optimal Energy.

The DST handed over development of the Joule to the Department of Trade and Industry in July 2010, under the latter's second Industrial Policy Action Plan (IPAP2). This followed a substantial budget cut by the DST, which made its last payment to Optimal Energy in August. While IPAP2 declares support for cleaner automotive technologies, such as electric vehicles, government has ultimately decided not to continue funding the project.

Its support was largely dependent on Optimal Energy getting the backing of a big industry player for mass production, which it failed to secure. Director of sales and marketing Diana Blake said at the time that the company reached a point where it had to face reality.

“We tried for about a year to raise the funds and were very reliant on government support. We sat down with the IDC about three to four months ago and explained that we were in a state of limbo, and that we had to reconsider what to do with the technology.”

Tasked with channelling years' worth of intellectual property and R&D into a new venture, the company eventually decided on electric buses as a potential public transport option in line with the country's integrated transport plan.

Blake said the company examined 14 different strategies and did a mini feasibility study on each, with the bus industry emerging as the most promising opportunity for integrating the Joule's drive train system.

Despite the case for electric buses, the Joule's major stakeholders, the IDC and the Technology Innovation Agency (TIA), said at a special board meeting held recently that they had reviewed their support for the e-bus strategy. According to a statement, the management and board were forced to decide on the fate of the company.

“Based on the lack of the required funding available, the board made the decision to shut down Optimal Energy as soon as possible.”

This comes despite what Blake calls “overwhelming support” from the local and international press, along with industry: “I have a list of over 100 distributors worldwide who indicated they would like to include Joule in their sales portfolios.

“On the bus side, we had more or less secured our first order for 10 electric buses.”

But IDC executive for mining and manufacturing Abel Malinga says the venture no longer demonstrated any economic merit or sustainability.

“The project was not viable anymore, given the projected domestic and international markets for electric vehicles.” According to Malinga, the decision to shut the company down was unanimous from the perspective of the majority shareholders - the IDC and TIA.

Blake echoes CEO Kobus Meiring's sentiment in the official release, saying she is extremely disappointed that Optimal Energy was unable to realise its dream of establishing an electric vehicle industry in SA.

“I think this was the perfect opportunity to start a home-grown automotive industry and we are once again unable to commercialise a product that we as South Africans have developed.”

The closure will also affect the company's 90-plus employees. “This process has effectively left just under 100 people unemployed, most of them highly qualified and promising engineers, as well as a very talented and experienced management team.”

According to Blake, the offices closed at the end of June, while the official shut down of the company should be completed by end-July.

Road ahead

In a study released in June, Frost & Sullivan forecasts EV sales in central and eastern Europe to cross the 60 000 mark by 2017 and witness even stronger growth post-2017. It says the dominant approach will be “pragmatic enthusiasm”, as customers seek urban mobility solutions, which can support cost-effective total cost of ownership over the life cycle of vehicles. There is also still a 35% to 40% price reduction potential, which can be achieved in two to three years when it comes to battery technology, diminishing the cost impact on the industry's development.
The report adds, however, that lack of government support in the short term is expected to restrain industry growth potential. "The key challenge will be optimising costs of the charging stations' manufacturing, installation and operation in order to avoid transferring high costs onto the customer, which would negatively impact the demand," states the report.

It is unclear what will happen to the Joule's intellectual property and fully functioning demo models. Blake says they are busy discussing these plans, with nothing decided as of yet.

Stillborn dream

Since its inception several years ago, the Joule has been something of a poster child for local innovation, and was seen as a potential launchpad for SA's own auto manufacturing industry. Meiring, who also worked on the Rooivalk attack helicopter, founded Optimal Energy along with fellow local engineers in 2005, to develop Africa's first electric car. The team tweaked the design several times, with help from Italian design house Zagato, before eventually settling on the five-seater passenger vehicle.

Touted from the beginning as a “proudly South African” product, the Joule also received design input from South African automotive legend Keith Helfet, who spent 25 years at Jaguar. It was well received at both the Paris (2008) and Geneva (2010) Motor Shows, winning best on display at the latter, and prototype vehicles made the rounds in Cape Town when the company tested Joule's on-road performance. Final specs included a range of 300km, a maximum speed of 135kmph, and seven hours' charging time for its lithium-ion battery pack.

The Joule also came under criticism, however, when deadlines for its industrialisation kept shifting, from 2012 to 2013 to 2015, and for needing continual and increasing capital injections. Detractors argued that the money could be better spent on other social and economic development projects, and that there wasn't a big enough market for the 50 000 models planned.

In July 2010, Democratic Alliance shadow minister of science and technology Marian Shinn questioned whether the public needed to continue funding the commercialisation of the Joule. While supporting the development of a local electric car, Shinn said government should encourage venture capital funding as the project moved to its next phase.

Best laid plans

Initiatives to support the commercialisation of a locally developed electric car were set out in the Department of Trade and Industry's second Industrial Policy Action Plan, including the creation of a legislative and regulatory environment to allow for the operation of electric vehicles. This encompasses testing infrastructure; local manufacturing for domestic and global markets; the initiation of charging infrastructure; and educational campaigns on electric vehicles. The plan also recognises a number of challenges, however, such as economies of scale in assembly and the depth of domestic component manufacturing.

But Blake argues investments haven't been wasted. “The use of funding we received to date has been very closely monitored and managed by our investors, the IDC and TIA, and we have delivered on the conditions precedent as stipulated. We are ready to industrialise Joule, but cannot do so without the required funding.”

Although the IDC has decided against continued funding, Malinga says its previous capital injections weren't unwise. “At the time when Optimal Energy was started, the outlook was different. There was no global economic crisis and other alternative technologies. The investment has generated a lot of skilled engineers who can be used in other related industries.”

The Department of Trade and Industry still spoke promisingly of the Joule at the Johannesburg International Motor Show, in October last year, with deputy director-general Nimrod Zalk saying SA couldn't afford to remain behind the global technology curve, which was increasingly focused on low- or zero-emission vehicles.

The department is working on a position paper for electric vehicles (EVs) in SA, of which the key principle is “that SA should not simply become a passive importer of electric vehicle technology - as has occurred with a range of other technologies in the recent past - but rather that the country plays a key role in the production of electric vehicles and related technologies and componentry,” explained Zalk.

Prominent government officials also showed support for Joule as recently as the COP17 climate change conference, held in Durban, in November. Science and technology minister Naledi Pandor, minister of economic development Ebrahim Patel and energy minister Dipuo Peters all rallied behind the car, while president Jacob Zuma met with Optimal Energy's Meiring to discuss government's role in developing SA's EV industry.

Not the first time

South Africa has made waves in the electric vehicle market before, due to its advancements in battery technology. Sodium-nickel chloride batteries were created in 1985 by the Zeolite Battery Research Africa Project (ZEBRA), at the Council for Scientific and Industrial Research, in Pretoria, and have been further developed by several organisations since. They are used in electric vehicles mainly due to their stable systems and long lifetimes, ranging from 1 500 to 3 000 charge cycles.

Nonetheless, industrialisation proved to be Joule's Achilles' heel and, despite all the public support, the R9 billion was never forthcoming.

Carel Snyman, director at electric vehicle company GridCars, says the state of the electric car market in SA means the project was doomed from the beginning. “We cannot compete with the big guys, and the focus and approach was wrong. We have neither the will nor the muscle in SA.

“The same happened with Li-ion and ZEBRA (Zeolite Battery Research Africa Project) battery development. Originally developed in SA, at the CSIR, these batteries are now being commercialised by companies outside our borders.”

But Blake doesn't believe the problems facing Joule are unique to SA. “There are many developing countries that have successfully started and are now running automotive industries that contribute substantially to their economic development.”

She believes the only real obstacle has been to secure the funding to start the industrialisation process.

“In the last week, we had discussions with a delegation from Malaysia, as well as with BYD (Build Your Dreams), an extremely successful car company in China, regarding our technology and IP. Joule could most certainly still become a successfully commercialised product.”

Down, but not out

Despite the Joule's progress coming to a halt, the company remains optimistic about the electric car business.

Blake commented that both the demand and market for EVs are growing. “The more electric vehicles that come onto the market, the higher the uptake will be and we have no doubt that electric cars have a significant place in the future of transport.”

Pike Research anticipates that the annual market for hybrid electric and plug-in electric vehicles will grow to 2.9 million vehicles by 2017. Increasing fuel costs, fuel economy standards and vehicle availability, as well as government purchase incentives, will benefit both segments of electric vehicles to varying degrees, says the firm.

Countries around the world have recently announced plans to encourage EV adoption, with US president Barack Obama calling for one million plug-in vehicles to be on America's streets by 2015. China, on the other hand, plans to put more than a million EVs on roads each year by 2015, with government pledging investments of more than 100 billion yuan ($15.7 billion) over the next 10 years to stimulate production.

“Although there has been some negativity towards electric vehicles globally, it has mostly been as far as the infrastructure and additional costs involved,” says Blake. “Many countries all over the world are implementing subsidies, or increasing them, as well as rewriting policy to make the purchase of electric vehicles more attractive.”

Malinga believes the Joule was a bit ahead of its time, particularly taking into account the adoption of EVs in developed countries. “The introduction of a new technology in a more established market requires huge capital investment, particularly when one has one product to market.”

He stresses that the electric car market is still at an early development stage, both globally and in SA, and that it will take time for adoption to ramp up. “In 20 years' time, the cost of electric vehicles may come down, attracting more investors.”

Environmental and science correspondent Simon Gear, who also heads up the Kijani Green Energy consultancy, believes Joule didn't hit the right niche. “Market-wise, at the moment, green cars either need to be cheap urban runabouts or top-of-the-range statements. This car wasn't quite either.”

In another study, released earlier this month, Frost & Sullivan predicted electric vehicles would be at the forefront of sustainable mobility in central and eastern Europe. While the firm believes this potential could be realised as soon as 2014/15, it will depend on full-scale government incentives and significantly reduced EV prices.

Gear agrees that “green” technologies can't rely solely on their environmental attributes for success. “Anyone who can pay R280 000 for a car is not going to be swayed by the argument that there is money to be saved on petrol. I think the lesson here is that green technologies are not immune to the same market forces that govern all other products. Greenness itself is seldom a defining competitive advantage.”

With urban sprawl and changing mobility preferences impacting city living, planning and management councils are also trying to find ways to meet citizens' demands for sustainable solutions, notes Frost & Sullivan. While these challenges could help catalyse the EV market, it will also force cities to look “beyond the car”, says Gear.

“I think that as long as we try and build single driver sedans for a private buyer, we will always be investing in old technology. The future has to be in smart transport. The product needs to be a way of getting from A to B, not a thing,” he explains.

“If that way includes a mix of buses, trains and cars, or a single vehicle, it doesn't matter. But each 'way' needs to be optimised for the environment in which it operates.” While this world may not necessarily include the likes of the Joule, it will mark a significant shift in approach - to one of transport as a service.

“I would like us to try and think of ways that a city can move beyond car ownership.”