Cleantech company Effenco poised to take growing chunk of $200-billion vocational vehicle market.
“Our early R&D years were driven by a two-part, win-win strategy: Providing operational savings and reducing greenhouse gas (GHG) emissions,” recalls David Arsenault, president of Montreal-based Effenco Development Inc. The cleantech company provides both hybrid-electric and 100% electric solutions for heavy-duty vocational vehicles, such as terminal tractors, waste collection trucks and dump trucks, to name just a few applications. Although essential, they contribute upwards of 20% of all transportation-related GHG emissions.
Effenco’s technology electrifies both the propulsion, as well as the onboard equipment, of vocational vehicles. In the process, it reduces fuel consumption by 20% to 35%. It also reduces engine hours by 40% to 50%, translating into substantial operational and maintenance cost savings. Add to these benefits, a 20% to 35% reduction in GHG emissions—not to mention a quieter functional environment—and you have the exact winning combination Arsenault and his team set out to achieve when the company was started in 2006. In fact, it’s the most cost-effective electrification solution in terms of dollars per ton of CO2 emissions avoided.
Today, Effenco’s hybrid solution is used in more than 400 trucks in 10 countries around the world. Although they’ve found traction in Canada, 90% of their sales come from international markets—primarily the U.S. and Europe. Vocational vehicles represent a market worth an estimated $200 billion globally and Effenco is poised to take on a growing chunk of that. They’ve doubled their team in the last two years just to keep up with the rising global demand for their patented technology. Along the way, they’ve garnered some impressive accolades, including the Solar Impulse Efficient Solution Label and being named to the 2021 Global Cleantech 100 by Cleantech Group.
A long and winding sales cycle
While Effenco’s technology might appear to be a no-brainer for vocational fleet owners, finding customers is still a hard sell, according to Shaun Parmar, the company’s chief financial officer (CFO). “You have to make two sales for every contract: First, we have to convince operators to move away from the status quo. Second, we have to demonstrate how our technology will help them do more with less. We’re developing the market as we go.”
Winning over a new customer typically involves a fairly long process. It starts with the delivery of one or two units for the customer to test. Once they see the positive outcomes, they’ll place another order for more units, but usually that number is still conservative. It often takes much longer before they feel comfortable placing a volume contract. When that happens, Effenco faces a long order-to-cash cycle.
Although they assemble in Montreal, they rely on inputs from global suppliers who are reluctant to provide payment terms to the relatively small company. Similarly, most customers try to avoid paying deposits on purchase orders. As with most small companies in their early stages, they had a line of credit in place with their financial institution (FI), but it was 100% personally guaranteed.
Looking beyond Canada
As Effenco looked to new markets, the U.S. was a natural choice given that both California and New York State have always been on the forefront of technology adoption. In 2015, they were able to drum up enough interest from a waste collection company in New York City to land a small contract. Now considered an exporting company, they were able to secure a line of credit through their bank that was guaranteed by EDC’s Export Guarantee Program.
Although Effenco had their eye on the European market, their breakthrough presented itself through a back door—back home. Part of The Derichebourg Group—an international player in environmental services based in France—Derichebourg Canada Environnement provides waste management services to a number of municipalities in Quebec. They were interested in Effenco’s clean solution, to the tune of a multimillion-dollar contract.
“It was a big deal for them at the time,” recalls Luis Torres, EDC’s account manager for Effenco. “They didn’t have the financial flexibility to cover the manufacturing costs for all those units, so EDC provided them with a direct loan. Although technically a domestic contract, you could see that it had huge export potential for the company, and supporting Effenco to scale up fit perfectly into our cleantech strategy,” Torres adds.
“There was no way we could have delivered on that contract without EDC’s support,” claims Arsenault. “It was that deal that eventually let us make the jump to Europe, by winning a contract for 85 units to the City of Paris.” Although The Derichebourg Group has operations in 400 sites around the world, they’d never been able to secure a contract with the French capital. But that changed when they included Effenco’s clean solution in their bid, yielding extra points in the green column, which ultimately tipped the decision in Derichebourg’s favour. The contract in France led to deals in Norway, Italy and across the continent. Expanding throughout the European Union has been made easier by the region’s commitment to GHG reduction alongside its uniform certification requirements.
According to Parmar, EDC has supported Effenco’s international expansion through a series of pre-shipment facilities which provide financing against confirmed purchase orders. “It’s not a typical line of credit, but it’s been absolutely critical to our company’s growth. Initially, the guarantee was at 90%, but since then, our FI’s allowed us to double the size of the facility and reduce the guarantee to 75%, which reflects how our company’s matured,” says Parmar.
The equity partner approach
Over the years, the Business Development Bank of Canada (BDC) has also played a key role in Effenco’s growth. They first invested in the company in 2018 through the Cleantech Practice initiative. “We re-invested in the summer of 2020—during the early days of the pandemic—when Effenco needed capital to fulfill significant orders from North American and overseas customers,” recalls Benoit Forcier, director of BDC’s Cleantech Practice, and now a company board member. “This funding enabled them to capitalize on opportunities at a time when many companies were really struggling,” adds Forcier.
As an equity investor, the BDC Cleantech Practice has been directly involved in two rounds of equity financing over the last three years. In addition, BDC has sourced, recruited and secured a new independent member to Effenco’s board with deep domain expertise, as well as the company’s CFO, who’s a financial executive with international experience.
According to Forcier, Effenco’s contribution to the adoption of best environmental practices in the transportation industry is impressive, delivering measurable results. Its ultracapacitor-based technology—coupled with their first-mover advantage—has positioned the company to become a leader in the vocational truck electrification market.
“Their technology is quite remarkable,” explains Forcier, “as it leverages artificial intelligence algorithms collected over 15 years.” The result is a unique, energy optimization solution with a proven track record of more than 5 million kilometres driven, using a proprietary power pack that can be charged 10-times faster than lithium-ion batteries. “We’re proud to be a significant equity partner on Effenco’s path to accelerate the adoption of hybrid technology—and eventually, the full electrification of heavy-duty transport vehicles,” adds Forcier.
Delicate balance of managing growth
Looking back on his journey, Arsenault reflects on his company’s growth as a series of steps. “Every time we’d hit a milestone that proved our vision was right, we’d get the financing we needed to build the resources to let us reach the next milestone.” The Paris deal demonstrated there was a market in Europe where large orders could be won, which eventually led to a substantial round of equity financing for the growing company.
The biggest challenge has been prioritizing markets and orders. It’s difficult to keep up with the flood of requests, but they hold fast to servicing their existing clients. Arsenault advises any company looking to expand internationally to pay close attention to after-sales service. “For us, our solution had to be sustainable. We needed local garages in-market and a virtual infrastructure that provided the very best customer service. And all of this has to be factored in.”
While COVID-19 has presented significant hurdles for many companies, Effenco was left unscathed, as their customers are all essential service providers. What the pandemic did achieve, though, according to Arsenault, was raise general awareness of how an invisible danger can have a massive impact on a global scale. “We’re seeing a huge push on the climate change front now, and that’s translating into major policy decisions around the world—ones that are good for the environment and our business.”
Find out more here: https://www.edc.ca/en/success-stories/effenco-cleantech.html-stories/effenco-cleantech.html