Electric drivetrain technology
The company pivoted with "the writing on the wall" for the gas-electric hybrid vehicle market, says Reeser, and began focusing exclusively on all-electric drivetrains in late 2017. In the process, it rebranded from Lightning Hybrids to Lightning Systems. (Editor's note: The company again rebranded to Lightning eMotors as part of a SPAC deal in late 2020.)
"Batteries got better," notes Reeser. "A lot of that was driven by the automotive space. . . . moving batteries into higher production, so the price was coming down, the power and energy was going up. Broadly, cities were saying, 'We don't want hybrids. We really want zero emissions for noise reductions and improvements in air quality.'"
Lightning's customer base -- medium-duty fleets -- remains the same as it was in the company's hybrid-focused days. That includes tow trucks, ambulances, fire trucks, last-mile delivery, and public transit, says Reeser. "It's a unique specialty, because that's where a lot of the complication comes in because of the customization nature of those vehicles," he explains. "When you think about an electric ambulance, there are a lot of nuances to that. It's not just a van anymore."
Rather than building EVs from scratch, the company takes base vehicles from Ford, GM, and other automotive OEMs and manufactures and installs drivetrains in Loveland. "When you look at the medium-duty space, [the company] really benefits from using products that are already out there," he says. "The fastest way to make an impact environmentally and energy-wise for customers was in this medium-duty space [with vehicles] that are already widely used."
He adds, "It's a very different scenario than what Tesla's done from the ground up with cars. People assume that's always the way to do it, but with trucks, it's a very different world when you get into this medium-duty space. If you buy, for example, a tow truck, all of the stuff that goes on that vehicle is a bit specialized. When we choose a platform that's already widely used, the rest of that ecosystem already exists."
The go-to-market strategy leverages "a pretty well-established standard network dealer system," he adds, with a Lightning electric conversion as a customization option. "We just plug into that system."
About 90 percent of the business is domestic, and 80 percent of that is California. "That's where the big growth now is," says Reeser. "Subsidies in California tend to be the dominant factor today, but the rest of the U.S. is growing very fast as well."
With Santa Monica implementing a London-inspired fee for freight deliveries with emissions in the fall and a mandate for zero-emission vehicles in the state fleet, the Golden State market is increasingly ripe. "It's a way to clean the air," says Reeser. "Many other cities are looking at following London's example making zero-emission zones."
That translates to $32 million in pending orders as of July 2020 -- about 10 times the total for all of 2019 -- as it ships 20 to 30 vehicles a month, and that rate continues to accelerate.
Reeser says there's a reason for the spike in demand. "People are starting to see these vehicles are fundamentally better," he notes. "When you get in a shuttle bus that's electric, it's eerily quiet. You can talk on the phone as a passenger. You can listen to music as a passenger. It doesn't jerk. Because it has a single-speed transmission, it's very smooth and you can actually read your email on it, versus you get on a gasoline-powered one, and you can't do any of that. The customers are beginning to discover they are better vehicles, not just more sustainable, not just better for the environment, but better vehicles. Then you combine it with the regulations and it's really creating a tremendous pull for commercial electric vehicles in our space."
Lightning also manufactures patented charging stations -- including "gas can on wheels for electric vehicles" Lightning Mobile -- that integrate with a proprietary software platform, Lightning Analytics, to help end users maintain and optimize their fleets. "It's very expensive to oversize your battery," notes Reeser. "You don't want to put in too much battery, and you don't want to put in too little. . . . That's what we built our analytics and telematics around."
To meet demand, Lightning expanded from 45,000 square feet to 142,000 square feet at its Loveland headquarters, a former Hewlett-Packard campus that has about 1 million square feet in all, with 800,000 of that currently available.
"One of the reasons we're very happy here and like being here is we can very quickly expand, if needed, almost on the fly," says Reeser. "We have capacity to double or triple our footprint again very, very fast if demand continues to rise."
The company has manufactured powertrains since its founding. With the expansion, it also brought most of the conversion process in-house, rather than outsourcing it to local partners; the entire process usually takes about a week. "We actually bring the vehicles here and install that [powertrain] in the vehicle," says Reeser, noting that the operation still relies on Colorado suppliers like UQM for motors as well as a local powder-coating shop.
For the entire EV industry, "Supply chain is still very young and has a lot of need to grow," says Reeser. "There's a lot of components that historically have not been made in high volumes, and there's only been one manufacturer that's made electric vehicles in high volumes, and they control a lot of their vertically integrated supply chain. Everybody new coming into the business has to a spend a lot of time. We've got two years now on the electric side developing the supply chain, and it isn't simple."
"In the internal combustion world, that supply chain is 100 years old," he adds. "It's quite mature."
Challenges: There's the "ongoing complexity" of an EV supply chain that's been impacted by COVID-19. Reeser points to long lead times for batteries and other components. "Some of our biggest supply chain challenges have been suppliers in Michigan," he says. "It's totally unpredictable, which adds to the complexity."
Another is the tendency to "understate scalability challenges," noting that he sees potential to grow by about 1,000 percent in both 2020 and 2021, meaning Lightning could be a $300 million company in two short years. "There's a lot of complexity on the people side of that," says Reeser, noting that rapid growth often overwhelms customer service without a plan.
Opportunities: Along with scaling production comes a better value proposition. Reeser says the current payback period for a conversion is about seven to nine years without grants or subsidies; ramping up an economy of scale could cut that in half by 2022 and make electric vehicles attractive even without subsidies and/or mandates. "We're signing supply chain contracts today to give us a very high level of confidence in that reduction in price and dramatic improvement in ROI," he notes.
Another sales driver: Public transportation has seen a microtransit trend with smaller, on-demand buses; Reeser points to a municipal customer, Porterville, California, as a model for a small city. "Where they don't have a lot of riders on the bigger buses, a lot of the city transit agencies are looking to replace those big buses with a few smaller buses and be more efficient and serve the community on an on-call basis," he says.
Beyond California, Reeser says he sees near-term potential in last-mile delivery vehicles in New York City and medium-duty fleets in Oregon and Washington state. He also says electric ambulances, RVs, and food trucks are in high demand, noting, "You can run an all-electric kitchen on a food truck now."
Needs: Automation, not only in manufacturing processes but also QA and administrative functions. "We think a lot about automating assembly lines and automating production lines, but it's just as important to automate some of the other aspects, like how you onboard people from an IT and human resources standpoint and create the culture you want in an efficient way," says Reeser.
"People are still the biggest bottleneck, specifically the software experts who know vehicle CAN bus and . . . and all the safety features," he adds, projecting about 25 new hires by the end of 2020. "The software team is growing fastest, and it's the hardest thing to find."