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New Flyer is the main supplier of transit buses in North America. It’s additionally the main supplier of hydrogen buses in North America, which is an issue for it, though it seems like a possibility. That’s the place the unhealthy technique is available in.
As at all times once I discuss technique — except I’m particularly speaking about Franco-Prussian conflict navy technique, which I attempt to keep away from — I begin with Richard Rumelt’s kernel of excellent technique. His guide, Good Technique Unhealthy Technique, is by far the very best guide to learn on the topic, and I say that as somebody who has been doing enterprise and technical technique for a few a long time globally, and as an occupational hazard has learn just about each guide on the topic. New Flyer’s executives, in the event that they haven’t already, ought to choose up copies and browse them fastidiously.
Rumelt’s place, backed up by a long time of prime stage technique work with firms and governments, is {that a} good technique has a kernel. First, it diagnoses what’s actually occurring. Second, it creates a simplifying and focusing coverage or set of self-reinforcing insurance policies that may allow the group to use the upsides and keep away from the downsides of the state of affairs. Third, a set of linked actions plans that reinforce one another is created.
That’s it. Actuality, coverage, plan. It’s exceptional what number of issues referred to as methods don’t meet this actually easy commonplace. And it’s exceptional what number of fad enterprise methods don’t have them both. Professional tip: if the technique guide has a metaphor at its coronary heart, for instance Blue Ocean, it’s a tenuous set of connections any person has noticed that sometimes fails the check of time miserably, and never a helpful prescription for a way to consider what you are promoting.
And so, to New Flyer. It’s on my radar once more as a result of it’s complicit within the mess that CUTRIC is creating of Canadian transit decarbonization. CUTRIC’s examine for Brampton led to that metropolis selecting to go down a path with about 700 battery-electric buses and 400 hydrogen gasoline cell buses. In concept, it was the most cost effective of three choices, beating battery-electric solely by $10 million on a $9 billion price ticket — an immaterial rounding error. CUTRIC can also be working with Mississauga on its hydrogen bus pilot undertaking and with Winnipeg on its hydrogen bus efforts.
Sure, there’s Winnipeg once more. I’m certain Winnipeg’s transit company is tightly coupled with New Flyer for higher or for worse, and certain will get advantages from having the manufacturing experience within the metropolis.
I’ve accomplished a deep dive into CUTRIC’s materials with Michael Raynor, creator and co-author of 4 books on technique together with The Innovator’s Dilemma and The Technique Paradox, and till not too long ago a managing director of sustainability and thought management with Deloitte. We discovered $1.5 billion in swings in favor of a battery-electric-only bus fleet, decreasing the price of that possibility by about $100 million and rising the price of the hydrogen facet by over a billion. This was based mostly on international knowledge on precise prices of shifting hydrogen round, battery prices, battery electrical bus upkeep prices, hydrogen gasoline cell prices, hydrogen refueling prices, and clear modeling selections that closely skewed the evaluation.
Maybe the oddest factor in regards to the examine is that they didn’t do a value profit evaluation, even ignoring Canada’s carbon worth on emissions from totally different automobiles and their worth chains. There was a $25 million swing in opposition to hydrogen simply based mostly on Canada’s carbon worth truly being utilized to manufacturing grey hydrogen. All CUTRIC did was an incomplete value evaluation with assumptions favoring hydrogen, leaving all the emissions as informative, non-costed materials.
It’s a fatally flawed examine and CUTRIC delivering it’s an existential risk to its existence as a helpful advisor on transit. CleanTechnica and I obtained discover by way of a PR agency that they’d engaged that they had been going to reply to the critique, and for these , I supplied some strategic PR steering for them in an open letter on LinkedIn.
New Flyer is a member of CUTRIC and has a seat on the Board, so this unhealthy report is an issue for New Flyer as nicely. Or possibly they suppose it’s fantastic as a result of they’ve clearly adopted the incorrect technique, one which isn’t of their self curiosity.
And so, to technique. Let’s begin with the analysis.
Globally, hydrogen buses have failed, simply as hydrogen vehicles have failed. Battery-electric buses have received, simply as battery-electric vehicles have received. Hydrogen buses value extra to purchase, value extra to take care of, and price much more to function. They’re much less dependable than the options. David Cebon, founder and director of the Centre for Sustainable Highway Freight at Cambridge, and I collaborated on a enjoyable little record of all the hydrogen bus trials which have delivered the identical reply since 1999, that they aren’t match for goal.
There are way more transit businesses that attempted hydrogen buses, ditched them, then pivoted solely to battery-electric buses than there are operational hydrogen bus fleets on the planet. And this has performed out in China, the place the check was run over the previous 15 years. The reply? Over 600,000 battery-electric buses and underneath 10,000 gasoline cell buses, principally in Foshan, a metropolis which made a nasty strategic guess on turning into the manufacturing hub for gasoline cell automobiles. Even Foshan needed to shut down its hydrogen tram not too long ago as a result of it was too costly.
However there may be governmental cash available from hydrogen, various it. Canada, for instance, will subsidize as much as 50% of capital prices for a tank-to-wheel, zero-carbon transit system, even one with grey hydrogen the place the emissions from manufacturing the hydrogen after which leaks alongside the best way present no carbon emissions discount advantages. The EU’s JIVE program has distributed $1.2 billion for hydrogen fleets and analysis previously 25 years, and per its standing stories, has just about nothing to point out for it. California, just like the EU affected by the hangover of being an early chief in addressing local weather change and therefore having bureaucratic, funding, and lobbying inertia, continues to throw good cash after unhealthy within the area.
On that final level, California’s hydrogen bus fleet prices 50% extra to take care of than diesel and double battery-electric. Its hydrogen refueling programs fail usually. The hydrogen heads try to cover the truth, issuing stories that aren’t lined in crimson ink, as an alternative claiming success with complicated numbers, however the actuality is seeping out.
Usually, shopping for a hydrogen bus system will lead to extra subsidies, despite the fact that outcomes for transit businesses might be a lot worse, and system greenhouse gasoline emissions might be a lot greater. Smart transit businesses are taking and can take much less cash from federal and state subsidies and get higher battery-electric programs solely. Unwise ones go down the hydrogen path and within the absence of exterior pressures ditch them and purchase battery-electric. If there’s exterior strain, they and their transit prospects might be poorer for it in actual {dollars} and repair high quality. The exterior strain will ultimately disappear, principally as a result of it’s based mostly on unhealthy assumptions or false hopes, and all transit businesses that had been pressured into hydrogen will go electrical.
Okay, so in the long run, battery-electric would be the winner in every single place, however within the meantime there’s numerous governmental cash being thrown round. What ought to New Flyer do?
Clearly, they’ve settled on one coverage now, which is that they’ll actively assist prospects shopping for hydrogen buses in addition to battery-electric buses, diesel buses, and CNG buses. It in all probability looks as if a greater one for them, nevertheless it’s a weak evaluation.
Why does it appear higher? As a result of they cost extra for his or her hydrogen gasoline cell buses than for his or her battery-electric buses, in all probability much more. And to be clear, that worth distinction is simply going to increase for the approaching decade as battery costs proceed to plummet, and gasoline cells with their attendant suite of air, water, and hydrogen, thermal, and high quality administration elements stay costly for the cells and costly to fabricate. Battery-electric buses are less expensive to construct and getting cheaper.
From New Flyer’s perspective, this looks as if a win-win for it. The corporate will get to cost extra per unit. And Canada’s subsidy insurance policies assist this waste of cash, so transit businesses are solely out of pocket for 50% of capital prices.
Nevertheless it’s a strategic entice for New Flyer, in a few methods.
Each buyer it sells its gasoline cell buses to are going to be sad prospects. Hydrogen buses are inferior merchandise from a transit perspective, coming and going. Transit businesses like London discover that they will meet 100% of route wants with battery-electric, however gasoline cell buses don’t truly meet all of the route wants. Fleets globally are discovering that their hydrogen buses are out of service usually, so they’re operating further diesel buses lots to make up for it. That’s because of gasoline cell failures, complicated hydrogen bus system failures, hydrogen refueling system failures — compressors particularly are extremely failure susceptible — or hydrogen shortages. These issues aren’t going away.
Transit businesses are going to take a look at New Flyer and surprise why it was promoting them an inferior product — a product that has been demonstrated again and again globally to be inferior — for a a lot greater worth, and never simply promoting them battery-electric buses. They count on that if New Flyer sells them one thing, it’s going to be nearly as good as or higher than the diesel buses they’ve been shopping for for many years, and so they count on New Flyer to steer them proper by way of choices.
Additional, all of that further value and complexity of producing signifies that New Flyer isn’t focusing absolutely on constructing as many battery-electric buses as it may, conserving a lock on the North American bus market of the long run. Whereas there’s some huge cash flowing round, constructing hydrogen buses reduces the whole variety of buses that New Flyer can construct. It’s complicated to have to take care of all the services, workers, operational procedures, and security for gasoline cells, pressurized hydrogen, and the like. Extra components for upkeep and totally different upkeep workers add prices. They want capital for the vegetation and the elements in opposition to future income.
BYD is already manufacturing battery-electric buses in a manufacturing facility in California. BYD is now the larger producer and vendor of vehicles and light-weight vehicles with plugs, and second solely to Yutong because the supplier of battery-electric buses in China and globally. It’s delivering battery-electric buses to Europe as nicely. It’s reserving orders for lots of of battery-electric buses within the USA. Notably, the Los Angeles Division of Transportation (LADOT) positioned an order for 130 of BYD’s K7M electrical buses, marking one of many largest single electrical bus orders in U.S. historical past.
New Flyer is dropping market share to BYD by promoting hydrogen gasoline cell buses. New Flyer is creating sad prospects by promoting them hydrogen buses. New Flyer is making itself a goal for future buyer wrath by being a part of CUTRIC’s failures associated to evaluation and thought management.
What different coverage may New Flyer select? It may deliberately cede the hydrogen bus market to ElDorado Nationwide California (ENC), a fairly big however distinctly secondary bus producer within the USA. BYD may get a slice of that market too, as they do supply a hydrogen gasoline cell vary extender, one which they’ve supplied for Hawaii.
That method, they might let rivals get the dissatisfied prospects and deal with making and promoting much more battery-electric buses. That’s a way more sustainable enterprise mannequin. It’s additionally good advertising, as they may lean into hydrogen’s systemic end-to-end emissions and international failures, saying that whereas the cash is nice, it desires to do proper by its prospects and the world. It could make its value of constructing battery-electric buses cheaper as a result of elevated models and amortization of mounted prices throughout them. Its complete value of capital can be decrease, as would its certification course of prices.
Is there some kind of unit cap on this that may be skewing their pondering? No. New Flyer at peak delivered about 6,500 models in a single yr in North America. That’s the utmost manufacturing peak when it was delivering no battery-electric or hydrogen buses in any respect, nearly completely diesel and a few CNG buses. It’s operating nicely underneath that, about 5,700 in 2019 and about 4,800 throughout all NFI manufacturers in 2022, per the info I’ve.
There are about 78,000 buses within the USA alone which have to get replaced as quickly as potential to decarbonize transportation, and extra in Canada and Mexico. They’re all going to be battery-electric. New Flyer may work flat out for the complete alternative cycle for city transit buses at 6,000 buses a yr and by no means run out of labor.
It’s doubtless that each hydrogen bus New Flyer manages to promote will value it three battery-electric bus gross sales. BYD might be promoting transit businesses all of these buses, creating extra glad prospects. If New Flyer persists with pushing hydrogen, in 20 years, it is going to be a shadow of its former self, BYD will dominate the North American market, and New Flyer’s very existence might be unsure.
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