lighten up, everything's rosy, says DemersDeal a 'feather' in firm's (natural) gas cap
Alternative fuel technology pioneer strikes gold with joint venture
By Tom Keyser - Business Edge
Published: 03/17/2005 - Vol. 2, No. 6
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After years of persuasion, hesitation, frustration and negotiation, David Demers admits he was too exhausted to celebrate when the automotive fuel technology company he leads finally sold the world's largest diesel engine producer on a 50-50 joint venture.
"But we kicked off the first quarter of the joint venture with a profit," recalls the CEO of Vancouver- based Westport Innovations Inc. (TSX: WPT). "That was the best way to celebrate."
After a two-year "look-see" arrangement (during which Indiana-based industry giant Cummins Inc. reserved the right to walk away), Demers formalized the deal in January 2004, completing a leap forward for a company that had been seeking such a vote of confidence since it was spun out from the University of B.C.'s combustion research labs in the mid-1990s.
To say the least, this was a major feather in Demers' (natural) gas cap.
Bayne Stanley, Business Edge
Westport CEO David Demers sees big payoff for company as Kyoto Protocol is implemented.
"It's not often a little technological company comes up with an idea and the big guys buy in," he says. "It's a good deal for (Cummins) and a fabulous deal for Westport."
Put as simply as possible, Cummins bought into breakthrough processes for converting commercial industrial diesel engines to natural gas (cleaner and cheaper than diesel fuel), without increasing fuel consumption while maintaining torque and engine power.
The partners created a joint-venture company known as Cummins Westport to manufacture and ship new engines to customers around the world, including Beijing Public Transport, which placed an order for 450 engines less than two months ago.
Eventually, more than 2,600 Beijing diesel-powered buses could be converted to run on Cummins Westport natural gas engines.
"Cummins Westport says to Cummins, 'Here's what we want to do, you build it for us at cost,'" Demers runs down the drill.
"Then Cummins manufactures it, ships it worldwide and collects the money. Cummins Westport gets all the profit and the partners split 50-50."
Other major customers include transit companies in Manila, Los Angeles, San Diego, Phoenix, Washington D.C., and Boston.
Why are they buying in? Conventional diesels are big, tough, high- performance engines but, as everyone knows, they stink. They spew sooty emissions known as particulate matter (PM), which have motivated environmental regulators to clamp down hard.
Diesels also churn out nitrous oxide (NOx), a contributor to the stubborn brown smog that hovers over Vancouver's waterfront.
But Cummins Westport engines generate emissions that score well below the regulatory minimum, producing 90 per cent fewer PMs and 60 to 80 per cent fewer NOx emissions than top-of-the-line unconverted diesels.
"Our (public transit) customers are ... buying our products not only because they wish to comply with new emissions standards, but because they want to be even cleaner than the law requires," Demers explains.
On a global scale, such trends are the primary reason Demers believes the Kyoto Protocol will be particularly good for business.
Although Westport Innovations reported a loss of six cents a share during its last quarter, that represented a significant improvement on a loss of 20 cents a share reported 12 months earlier.
The better numbers came on the heels of robust sales and Demers' word for the quarterly results was "encouraging."
That's an expression that hasn't always leapt to his lips since 1996 when he responded to a pitch from UBC's business relations office to assist with the production, sales and marketing of alternative fuel technologies from campus labs.
With a good-natured laugh, Demers recalls the proposal in these terms: "These (UBC) people look for people who are more enthusiastic than smart. They realize these projects take a long time (to come to market) and cost a lot of money."
In Demers' words, he listened to the proposal with a grain of salt, "then doubled it. But it's been an even longer and tougher process than they described."
That said, years of struggle have begun to generate returns.
"Over the past two years, our products have been selling well. We're making good margins and we have happy customers," he sums up.
In the meantime, Westport Innovations continues to attract new partners, including Ford and BMW. With such collaborators, the company is developing engines that run on fuel blends of hydrogen and natural gas.
"By means of these partnerships, we don't have to cut our R&D investment," Demers accentuates the positive.
"We're just getting other companies to pay for it with us. That lowers our risk and gives new investors more comfort that more people are jumping on the bandwagon."
(Tom Keyser can be reached at keyser@businessedge.ca)