Navigated to EV Finance: $63M for Electric Fleets + 40% Lower Fuel and Maintenance - Transcript

EV Finance: $63M for Electric Fleets + 40% Lower Fuel and Maintenance

Episode Transcript

So the other thing that's important I think for for listeners to know is like we do see purchase prices coming down over time, right?

Like that's a global phenomenon as volumes increase and there's just more availability of battery packs and other suppliers if he's become cheaper.

So how we're looking at it is this cost curve coming down And you know that's what we want to help accelerate by creating the volume 32100.

What if the next 45 minutes or so could unlock the business strategy, funding, playbooks, and mindset to scale climate solutions?

Welcome to entrepreneurs.

For impact.

We're EFI.

As the cool kids say, this is a master class for builders who turn ideas into impact for planet and profit.

I'm Chris Wedding, ACEO coach, investor, founder and professor.

Each week I interview CEOs and investors in climate, tech and clean energy.

If this sounds good, hit follow on your podcast app and never miss an episode.

All right, let's get started.

My guest today is Fran Chillingy, Co founder and CEO of Seven Gen.

7.

Gen.

is a Vancouver based company that helps commercial fleets transition to 0 emission vehicles by providing turnkey solutions for electrification.

Their services include financing, procurement, charging, infrastructure and long term support to simplify the switch from diesel to electric.

They act as both a technology integrator and capital partner to accelerate clean transportation across North America.

Franz is a seasoned entrepreneur and investor with a track record and scaling sustainable businesses.

He's LED companies across sectors including renewable energy, transportation, and technology, with a consistent focus on impact and climate solutions.

His career spans Europe and North America, giving him a global perspective on the future of clean mobility.

OK, here we go.

Frans Chillingy, Co founder and CEO of Sevengen.

Welcome to the podcast.

Thank you for having me.

All right, from North Carolina to Vancouver, here we go.

E VS are now cheaper than gas vehicles for last mile delivery.

So you tell me.

So I'd like to believe where is that true?

Where?

Where may it not be true?

What?

What conditions allow that to be possible right now, friends?

Yeah.

I mean, I think we're seeing EV is, is a very efficient new technology, right?

Like so just from a technological perspective, it will take over from gas vehicles as long as the price, the purchase price becomes down enough.

So that's the operating savings that you have by driving the EV offsets the cost differential of the purchase.

And that condition is starting to happen in more and more and more, especially here in Canada where we operate, where we have clean renewable energy and and a number of provinces, the cost of energy is low enough that that, that we are at total cost of ownership parity incentives to help.

But even in some cases when incentives are not there, even then we would be at purchase price at total cost of ownership parity.

All right.

So that means that when I buy an EV, it's still a bit more expensive.

But because I'm saving so much money over over time, yeah, I'm saving money.

And are you including lower operations as a maintenance in the calculation or only lower energy costs?

No overall, so maintenance energy and then you know counting in the the purchase price which has to be offset and we helped with doing that, right.

So because we convert the, the CapEx to OpEx.

So what we do is we come in and we help a lot of small, medium enterprise, but also large corporates with hey, we will procure for you, we will install the charging infrastructure for you.

We will help you through the incentive landscape, you know where that exists.

And ultimately you will have one monthly bill to pay.

So it's much easier to compare, hey, will this be my monthly bill for this service compared to what am I spending today on my gas vehicles?

Right.

And that's where I wanted to go.

I mean this is, this is part of the reason I think investors were so excited to provide 48 million bucks of new of new debt for this model.

In the cost parity math, you know what one of those approaches is as you first described, you get extra cost upfront for the EV, but then you save in operations and gas over to or diesel over time.

Therefore it's cheaper.

One question there, I know it varies, but how many years do you think it takes before those savings lower the upfront extra cost?

It depends a bit on operations, but we, but because if you, if you're working with us, it's from day one.

Exactly right.

Because we take care of the CapEx, Yeah, yeah.

So, so you're not, but if you would do it as a purchase on your own, yeah, generally between one and three years, but it really depends on your operations, where you are, your cost of energy, like a whole bunch of whole bunch of things.

So, you know, we've developed tools in house that allow us to calculate that with a customer relatively quickly.

So it's easier to say, you know, for you it makes sense, but for you it might not, not yet.

So the other thing that's important I think for for listeners to know is like we do see purchase prices coming down over time, right?

Like that's a global phenomenon as volumes increase and there's just more availability of battery packs and other suppliers if he's become cheaper.

So how we're looking at it is this cost curve coming down.

And you know, that's what we want to help accelerate by creating the volume, by helping our customers adopt this new technology and be ready for it and be competitive by using it, right?

So just as an example, we see that light duty passenger vehicles, in some cases in China, there's already purchase price parity, right?

So it costs as much to buy an EV as it costs to buy a gas vehicle.

And now you're just basically saving from day one, right?

Like why would you, if you can operationally make it happen, why would you still buy a gas vehicle and not an EV if you know you're going to save money?

All right, Like it's and for most of our clients they the the EVs that are out today have more than enough range for their daily operations.

Yeah, I'm glad you went to the place I was setting you up to go, which is total cost of ownership.

Parity is cool, but paying more upfront?

Still a pill to swallow, but it's not, I mean, you all get around that as as you said, turning a CapEx, a capital expense into an OpEx and operating expense is such a magical phrase in so many parts of and so many kinds of businesses.

But certainly in, in the world of, you know, clean energy and climate tech and such.

Because what, what I'm imagining is that the, I'll call it the, the, the lease rate you will provide is likely lower than the diesel plus O&M they're used to spending.

So it isn't like wait X years to get a payback.

It's a no month, one cash flow positive.

Please sign here right.

Exactly.

OK.

Yeah, you're welcome to sign me up as an ambassador anytime, Ron.

What parts of that pitch are still hard though?

Right thinking.

Oh well, I'm going to say money month 10.

It's it's not actually a no brainer sometimes.

Where is it still tough and how are you?

How are you tackling those remaining non dollar, if you will?

Yeah.

I'll give it a, a general answer and a more specific answer.

So the general answer is all change is hard, right?

So for people who are used to diesel fleets and, and, and maintaining them and may have a maintenance crew, you know, have an existing assets that they're used to, they're used to fueling it in a certain way and all those kind of things.

The shift is a big change, right?

Like it's a big change in terms of how do I operate my fleet.

So that's, that's the general answer.

And the specific answer is there's still risks involved in this newer technology, right?

Like, let's not kid ourselves, like the vehicles are becoming progressively better every year.

But if you were getting an initial like a first version of of a certain vehicle, that vehicle still had lots of issues, right?

Because they're still sort of ironing out the king the, the, the issues that that vehicle has.

So you're, you may have more warranty issues, you may have other things.

I'd say what's not helped the industry as well as we've, as you call it, new manufacturers come on the market that have since had to close their doors because of the shifting landscape and because of, you know, a bunch of things that also has the perception of risk to it.

Like so you know, it would have been great to see a lot of innovation and new OEMs come on the market.

But ultimately, if I look at our volume that we do today, it's primarily you're going to be a General Motors, Mercedes, Ford, Peterbilt, Volvo, Freightliner, Ken Worth, like it's going to be the names that that people know.

All right, like with a, with a few newer names thrown in that are backed by old names, right?

So that's sort of how the landscape is evolving.

So it doesn't mean that there is just you know, and, and as those brands are now picking up and add and making sure that they can fulfill the warranty requirements, getting their supply chains up and running and things like that, it will just become progressively better every year and every model year.

And given that you're, you're only because bought purchasing, you know, EVs from the kind of, you know, household names you just referenced, is it true that during the the term of the lease on the vehicles you own to your customers that those vehicles are still under original manufacturer warranties?

I presume that's true.

Yes, that's correct.

Yeah.

OK.

So you have, I mean, you know, OEM warranties it's always fine print, right.

But our our customers obviously benefit from all the OEM warranties.

Yeah, got it.

And I think the other thing to say is like, you know, we have a very knowledgeable team that works with our customers so that they understand what they're getting into the best we can.

And you have a partner that can work with you if you have any questions or issues or things like that, right?

So I think that's an advantage of working with someone like us.

And you also mentioned earlier that a kind of non whatever, non environmental or maybe non economic reason to do this is predictability, predictability in one's budget.

Maybe just say more about that as a driver for folks to say yes to your old solution.

I'm not sure if that's already valid, right.

Like I think we have still seen a bit of downtime in some of the the vehicles that sort of negate that.

So I think that that still is something that we're working to achieve.

But I think what it the direction is clear, right.

It's clear that that as we sort of iron out these kinks and get the issues resolved, that these vehicles perform extremely well and will extreme will likely perform extremely well over long periods.

So I think that, yeah, like the volatility, I think where predictability does come in is the volatility on energy rates are at the utilities is lower than the volatility of gas, right.

So that is that is where something really, you know, factors in a lot.

And I I think over time all we we do see that you have so many fewer moving parts that there's just no, there's just much less maintenance to be done, right.

Like you just there's not even things you can do.

And and give us some numbers, I've heard these before, but how many moving parts in kind of whatever internal combustion engines versus versus most E BS?

Yeah, it's like in, in, in total for the whole vehicles, it's in the a few hundreds versus a few thousand, right?

Like that's the difference.

Yeah, orders of magnitude great.

Yeah, you alluded to it earlier the the types of customers, but just drill down into the types of customers that are best suited for seven Gen.

Yeah, at this moment it's very much last mile and middle mile as we call it.

So and then drayage, school bus, micro transit.

So people who have a predictable range that they can do in a day and that they can if they have and that half time overnight to charge, if you have time overnight to charge, your cost per kWh of charging just reduces quite a lot.

So like if you're in last mile in in many jurisdictions and you can charge overnight, then it makes total sense to go easy.

And in many cases, yeah, right.

Like when you get into drage, if you're doing 2 shifts, you still have a a window for charging.

If you're doing 3 shifts, it's going to be harder, right.

So it's a bit of looking at the operations of, you can see my dog in the background.

I was just thinking this may be the second podcast out of 240 where a dog joins, quasi joins the meeting and.

Yeah, my wife's travelling, so the dog's coming to the office with me.

Nice.

Last mile and middle mile, maybe just kind of differentiate.

What does that really mean in terms of yeah.

So last mile is from a distribution center to our warehouse to the customer and the middle mile will be from one distribution center to a warehouse or a or a store or something.

Yeah, got it.

And drage is within ports.

Exactly, Yeah.

How many vehicles are are you typically financing for a particular customer?

I'm sure it varies a lot, but we just kind of characterize what it looks like.

Yeah.

So we do, we work a lot with small medium enterprise as well as with some large corporates.

But in Canada it's very much sort of bashed because of limits of certain incentives.

So I'd say between you know, 1 and 10.

So we can, we can on board a customer that just does one vehicle and 1 charger and 10, we can do 2.

I mean we can do hundreds, but it's it's less, less common that that happens in one in one order.

I like we do have follow on orders, but that yeah, that's the market we serve.

And what kind of not exact percentages, but most of your customers are in Canada or are they elsewhere front?

So at this moment, all of our existing customers are in Canada, but we did win one contract in the US that also set us up.

We did.

We did hire AUS team, but we've really focused on Canada for now.

So flash forward, I don't know, five years?

What do you guess that mixes?

4050% US and the rest.

Canada, OK, OK.

Yeah.

Yeah.

My expectation is that, you know, despite sort of the change in the political landscape, I think this this technology makes so much sense from an operational perspective and that that ultimately it will get adopted.

I like on the with the longer term view, this is this is the future.

Like you would not today come up with an, you know, with a gas vehicle as the solution to transportation and would be electric.

Yeah, Yeah, I totally agree.

Talk to us about the nature of funding of a company like Sevengen.

Imagine you'd got obviously some corporate funding, some more asset based, you know a funding maybe more maybe leaning more towards that.

What's that look like for listeners who are who are building similar kind of asset focused businesses perhaps?

Yeah, yeah.

So I think there's sort of two options or one.

One is more sort of private equity and projects equity type capital, which was our initial focus and then we shifted to a combination of senior debt and then more like venture equity.

So at this moment we're funded by more like equity in the corporate structure and then senior debt in for our asset financing.

Say more about why you switched from the PE model to to this this BC at the corporate and and debt at the kind of vehicle level.

Each model has its pros and cons, but ultimately for what we wanted to achieve this, this was the yeah.

I mean, you're, you're sort of between what can you get at what terms and what works best for us.

So, so I think, you know, overall, I think we were by now lucky, almost like it because this, this mix fits us really well and makes us very competitive.

But you know, it also has its downsides and, and, and project equity with the private equity sort of angle to it has lots of advantages as well.

So who knows?

Who knows where the future lies?

But I can imagine that, you know, most of your growth going forward is on the asset, not at the corporate, you know, team side.

So, so it seems likely, but tell me whether this is not right that most of the capital going forward is the kind of senior debt at the project, project, if you will do the kind of vehicle level that's not right?

Yeah, that's that.

That would be logical.

And those investors, those are typically have infrastructure debt providers.

Are they, are they kind of Canadian based global what, what, what attracts them to your business and your I guess in Canada so.

Our partner for this $48 million is a group called Zenobia out of the UK.

And so they've been fantastic to work with and they are a company that does more or less what we do, but then primarily focused on transit, transit electrification.

So they have a global presence, are backed by KKR and a number of other private equity firms and also raise debt to within their capital stack to be able to do this at scale.

Yes, I, I'm just putting two and two and together.

I believe I, I spent time with one of the one of the executives there at Climate Week last year.

A very interesting spelling of the of the name, as I recall.

Yeah, yeah.

How about the nature of your team, Franz?

What does the what does the talent look like to build an organization like this?

Yeah.

So I think it's a bit of a complex business because you need to be, you need to know a bit about a lot of things and you need to know it at the at the at the good level to be able to execute properly.

So it means we have, you know, obviously a sales team that works with the customer to figure out what solutions work for them.

And then we have an operations team that needs to do a vehicle procurement, charger procurement, charger installation, conceptual design of, of infrastructure solutions and you know, do the procurement of, of services to install a customer service in terms of OK, it where there's downtime or like solving that.

So, and then we have, you know, a smaller group of people that that looks at the software portion of it to make sure that we have reliable data and that we're able to serve customers well.

And then obviously we have a finance group that that helps us get the debt, get the everything up and running and things like that.

I mean, I can, I can imagine the answer to the following question, but I, I do like to ask podcast guest, who do you want to hear from?

Who who listens to this to this podcast?

What?

Who do you want to hear and why do they reach out to to you?

Did you have Jim Farley from Ford already?

No, I think that would be awesome.

There we go, we're good naming name.

I like, I'm putting a bit of a challenge, but why?

Because like, he's been very nuanced around the EV journey or like I'm, I'm not different from some of the other OEM CE OS, but I think we're, we're hearing so many different stories.

And there's, you know, the landscape has become so political around climate change or not climate change, right?

Like, I'm AI mean, I studied marine biology and, and you know, I do believe climate change is real, but even if you didn't, you should still be betting on EV, right?

Why?

Because this is the, this is the technology of the future.

So, so I'm hoping that that story gets told by, by as many credible people as we can.

And I think no more and more credible than someone with a vested interest in the petroleum industry.

And like in that way our petroleum industry in the instead of the the legacy car industry.

I love well, I love two things there, friends.

One is whenever I ask that question, it's rare if ever out of 240 shows or something that someone says this particular person first name, last name.

So that's pretty awesome.

The other, you know, we, we just started kind of turning the podcast into video shorts and your your quote just now is, is definitely suitable for one of those in a way.

Don't care whether you believe in climate change.

This stuff still makes financial financial really and performance can kind of sense as well that's.

Yeah, it's, you know, do you believe in sort of Jeremy Rivkins as a 0 marginal cost economy as the future, right.

Like that's, that's a question to ask.

If you do then anything that has, you know, then you would always be willing to sacrifice slight higher upfront CapEx for lower OpEx, right.

So that's sort of the bit of the premise, right?

Like ultimately with, with solar, you know, the, the dream is you install it once and it continues delivering energy forever.

And what we're seeing with battery longevity is, is, is you know, like predicted to be well past two decades, often outlasting the chassis.

So, so we're getting to an asset that you know, you buy it once, but then you can operate it at very low cost.

Over a long time, all right.

So I think that's sort of then what attracts me to the technology as a technology itself, right?

We can see this is the next wave of of where humanity will be.

It is happening, right?

Whether we in North America adopted or not, it's happening, right?

If you see countries like Mexico, Brazil, India and others adopting EV, that's not an environmental mandate or or or narrative or anything like it's purely an economic one.

Yeah, I mean, I could say, you know, driving a Tesla, the the ease of not going to a gas station there, the performance, the comfort, the kind of engineering, Yeah, for sure the the lower climate, you know, kind of impact.

But what you said too is interesting that the batteries are expected to last 20 years.

Just say more about that.

This is I guess this is light duty you're referring to perhaps or maybe it's maybe it's medium duty as well or.

I mean, there's no, there's not enough data for, for a medium heavy.

I didn't think so.

Like we just don't have enough vehicles on the road.

I think some of the stats that are coming out is Tesla as well as Nissan.

So Nissan on their early Leafs, there's a, there's a publication that they came out with, which is not, which is still relatively obscure, but it's they say about they expect for the early Leafs that the batteries will last about 22 years, just over 22 years.

I think Tesla came out and said something similar around 20 years.

So those are the two data points that I have for medium heavy duty.

There's not enough data.

Like there will be heavier use for sure, right.

Like on the other hand, I think here there's a difference between when you talk to a battery chemist and how they approach battery chemistry and the modeling of battery chemistry versus what happens in practice.

So, you know, there's lots of theory that in practice promise proves to be a lot less, a lot more robust than than the theoretical models are saying, right?

Like we're seeing that, you know, there's a lot of talk about, hey, you should never charge 100%, right?

They should always keep it between 20 and 80.

I mean, with my idea, I try to do that.

On the other hand, like there's also, you know, more data that is not as bad to every now and then do it to 100% or even sort of more regularly do that or even using fast charging and things like that.

So I think we're really sort of still in the in the midst of learning what will actually happen with these assets.

But like I'm not saying don't be careful with it, but I'm also saying is I think we'll all be very surprised about how good these assets from a battery chemistry perspective lost.

Do you happen to recall, and this may be reaching here, but do you happen to recall on those Nissan and Tesla studies when they say the battery still working 20 years from now, like what percentage of the original capacity is still there?

I, I don't recall, I mean, it's also a prediction, right, because none of these vehicles have been around for 20 years.

So this is what they they predict.

And, you know, there's, yeah, predictions are always inherently fraud.

Fingers crossed, I think.

Yeah, fingers crossed.

Yeah, I think, I think the prediction, I think the main take away for me is it's a lot longer than most people think.

True.

Right.

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All right, back to the show.

Well, Franz, let's let's go as we do, from the the business part of the podcast to the person part of the podcast.

What's some advice you'd give your younger self to build a career of impact?

And don't be afraid, right?

Like I think I've had a long corporate career, but I think at least in part of it, I've always felt like there has to be more than this.

I like being able to make an impact and being able to be more of my own.

Yeah, just just being an entrepreneur.

Like go and do I think what happens is when when you set out to do something meaningful, especially an impact that there are there are others that come and help you and join you, right.

Like you.

Yeah, it's it's always initially scary to think about an entrepreneurial journey and and career, especially an impact at this time.

On the other hand, once you are and and you can start sort of exploring without giving up the comfort of your everyday job, right, You don't need to immediately dive in completely.

But I think there is many different ways to get to that understanding that you can take a lot of lot more risk than you initially think, right?

Like I think, yeah, I didn't consider an entrepreneurial career until quite late in my in my life, right.

So I think if I would have sort of considered that earlier and also had the risk appetite career that I might have, you know, been able to create impacts for longer.

I think that's.

Yeah, Well, I, I would say for the folks who who are watching this versus listening to it, they're going to think, friends, I don't think you're super old.

I think you're good.

I think you're you're good.

I think when?

You start.

I'm a I'm a I'm a quite a bit older than I look.

Those those anti aging creams are working at night friends clearly what what helps you take more risk when you did.

I think it's sort of, you know, embracing the worst case scenario, right?

Like you sort of think through financial runway, what would I do if this happens?

Am I still employable, right?

Like in my case, I had a, a relatively good career and I'm, I sort of had the confidence that I could be able to get back into a job or I had sort of, you know, some, some options and thoughts around that.

But I think just making sure that you can visualize and walk through, OK, what's the worst thing that can happen and how would I manage it if that are that occurs, right?

I think that's sort of that helps.

Yeah, I think the the the the Stoics had a had a similar practice of imagining the worst and then realizing, Oh, well, I guess if that's the worst, what about so worried about?

Exactly.

Nice, let's go to the next one.

Talk to us about habits or routines that keep you healthy, sane, and focused.

Building 7 Gen.

Yeah, I think I must say like this is still a hard journey, right?

Like I can sense my stress levels every now and then if that is is still something.

But I try to meditate every day, not super long, like, you know, 10-12 minutes.

I try to commute by E bike, which really I love.

I try to row three to three times a week, you know, walking the dog in the in nature.

I think those are those are definitely and very important things to keep me healthy and sane.

And are you are you rowing on the water?

On a machine?

On the.

Water well in the winter when the when when it gets too tough outside and dark then we go to the ergometer, but otherwise it's out on the water.

It's a pretty good, it's a pretty good list.

I don't know where I've read it, but I feel like I've read that, you know, the 12 minutes or something like this around meditation is it's just that that hill you need to, to, to climb in order to start getting some of the, the better benefits.

From the well, one of the lessons I've heard is, you know, the busier if you're, if you're busy, you should meditate for an hour.

And if you're more busy, you should meditate double that, right?

But, but ultimately that is very hard to do.

Yeah, for sure.

For me, I find it hard to do.

Yeah, I'm, I'm, I'm a big practitioner for whatever for decades as as our kids have gotten older to be teenagers versus young kids.

Now I had this magical time where they don't, they don't need me as much.

So I'm like, oh, well, I can actually go to the Zen center before school starts.

And then and no one is things aren't falling apart.

Let's go to the last one.

Friends.

Tell us about a book or two you'd recommend listeners pick up or or more broadly to something in your information diet, let's say business or otherwise.

Oh my God, at this moment I am reading a book about signal versus noise, right?

Versus also all around prediction, right.

So we've thought which touched upon prediction a number of times in their talk.

And I think it's very interesting to think about, Hey, where are things going?

What predictions are people putting out there?

How likely is it?

How, how, how can you think probabilistically and outcomes?

So that's interesting, interesting to me.

Before that I read a book more about sorry.

What's the book called?

I think it's a signal and a noise.

Let me just get.

It for you.

The signal and the noise, yeah, that's perfect.

Yeah, perfect.

Great.

Yeah.

Before that I read a book more about dev OPS and software development.

It was called the Phoenix Project, which I also enjoyed more about sort of how do you do software development.

But you know, in general I like thinking about what do we need to do to get a better society from an economic perspective?

How do you create economic inclusivity, right?

So I'm just, I'm trying to understand things like you do universal basic income and, and how do we keep a society that's, you know, good for everybody or as many people as we can, right.

So yeah, I'm very interested in those topics.

Yeah, I like it.

Big, big thoughts for sure.

You know, the the other thing around your particular work in creating a better society, I think to to imagine more vehicles, let's say in urban areas being electric, The soundscape, right?

Like it just should be it.

It should be at some point, we hope, so much quieter from a, well, from a noise perspective that feels like a whole new kind of less stressful city to be in, you know?

I think the the health benefits are even bigger from a pollution perspective, right?

So the air quality is and there there have been studies about how many deaths can be prevented by going to EV or like it's huge people die or get cancer or get all kinds of other ailments, which has, you know, cost to society.

But also obviously just people dying because of the pollution that we throw in the air every year because of driving around, you know, gas and diesel vehicles.

So I think that one to me is maybe even a bigger driver like and then obviously this year to impact of it.

Sure.

Well, it's back to your earlier point.

Maybe we'll we'll we'll wrap with this and even for certain countries or or niche, I'll say niche audiences that don't quote a quote believe climate change is a problem.

There are tons of reasons why businesses like 7 Gen.

and your All's customers should and need and will thrive.

Hey Franz, rooting for your all's success at at 7 Gen.

Hope to have more you guys come visit bring the solution that to the US.

Thanks so much, Chris.

Thanks for having me.

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