We are a global producer and distributor of a broad range of high performance,
certified low-emission, power systems that primarily run on non-diesel fuels
such as natural gas, propane and gasoline, which are designed to meet emission
standards of the Environmental Protection Agency (EPA) and the California Air
Resources Board (CARB). Our customers include large, multinational original
equipment manufacturers (OEMs) of off-highway industrial equipment and on-road
medium trucks and busses, and we are a sole source provider of alternative fuel
power systems for many of these customers. Our industrial power systems are
currently used by OEMs in a wide range of industries with a diversified set
of applications, including, stationary electricity generators, oil and gas equipment,
forklifts, aerial work platforms, industrial sweepers, arbor equipment, agricultural
and turf equipment, aircraft ground support equipment, construction and irrigation
equipment, and other industrial equipment.
Our power systems are highly engineered, comprehensive systems customized to
meet specific industrial OEM application requirements and technical specifications,
as well as requirements imposed by environmental regulatory bodies. Our power
system configurations range from a basic engine block integrated with appropriate
fuel system components to completely packaged power systems. We purchase engines
from third party suppliers and produce internally-designed engines, both of
which are then integrated into our power systems. A substantial portion of the
components we integrate into our power systems consist of internally designed
components and components for which we coordinate significant design efforts
with third party suppliers; the remainder consist largely of parts that we source
off the shelf from third party suppliers. We are able to provide our customers
with a comprehensive, emission-certified or non-certified power system which
can be incorporated, using a single part number, directly into a customer’s
specified application.
Our alternative fuel power systems meet or exceed emission standards of the
EPA and the CARB and represent a cleaner, and typically less expensive, alternative
to diesel fuel power systems. While our power systems primarily run on alternative
fuels, we also supply EPA and CARB emission-certified standard fuel power systems,
and we are one of the largest suppliers of Perkins and Caterpillar diesel power
systems under 275 horsepower. We expect that growth in domestic sales of our
low-emission power systems will be driven by the substantial breadth of our
emission-certified products, as well as increasing domestic and international
demand for alternative fuel power systems given increasingly stringent engine
emission regulations. We are also experiencing increasing demand for our power
systems from international industrial OEMs that manufacture industrial equipment
for the U.S. import market.
The off-highway industrial OEM market represents a diversified set of applications
and industry categories that include both stationary and mobile industrial equipment
including, but not limited to: power generation, oil and gas, material handling,
aerial work platforms, sweepers, arbor, welding, airport ground support, agricultural,
turf, construction and irrigation. While the power system requirements for the
industrial OEM market bear similarities to the requirements for power systems
used in automotive applications, there are substantial application differences
between automotive and industrial equipment applications. Torque, start, stop,
low speed and, with respect to certain applications, indoor use requirements,
make direct use of an automotive power system impractical for use in most industrial
equipment applications. Recognizing these differences, the EPA and CARB have
issued distinct emission standards and regulations for industrial applications,
as compared to those for automotive applications. As a result, there is not
a direct crossover of available automotive power systems into the industrial
OEM market. Power systems used in the industrial OEM market must satisfy these
emission standards through a certification process with the EPA and CARB that
includes durability testing of the engine emission system at zero and 5,000
hours, production line testing on a quarterly basis and field compliance audit
testing. Given the level of engineering and financial resources that automotive
engine manufacturers would need to dedicate to supply emission-certified product
into the industrial OEM market, and given this market does not represent a core
business for these manufacturers, automotive engine manufacturers do not typically
compete in the industrial OEM market.
Industrial OEM power systems use internal combustion engines (both diesel and
spark-ignited), as well as electric motors. Diesel engine systems, which use
compression to initiate ignition to burn fuel, in contrast with spark-ignited
engine systems which use a spark plug to initiate the combustion process, currently
represent the dominant power systems, depending on the specific industrial application
involved. For example, diesel powered equipment is generally used in outdoor
industrial applications, while electric motors and alternative fuel, spark-ignited
power systems are used for indoor industrial applications where carbon monoxide
and air quality issues must be addressed. Both diesel power systems and electric
motors have significant limitations. Diesel power systems present unique emission
compliance challenges, while electric motors are often not feasible alternatives
in industrial applications as a result of limitations on battery storage capacity.
These challenges present opportunities to increase demand for spark-ignited
power systems within the industrial OEM marketplace.
Concerns regarding climate change and other environmental considerations have
led to the implementation of laws and regulations that restrict, cap or tax
emissions in the automotive industry and throughout other industries. In particular,
EPA Tier 4 emission standards, CARB regulations, and policies in Europe, generally
referred to as Stage I, II, III and IV regulations, are requiring a significant
reduction in the level of emissions and particulate matter produced by diesel
power systems. OEMs have experienced pressure to redesign their products to
address these emission regulations, as products that are unable to meet emission
standards may not be sold in the marketplace. However, we believe few suppliers
to industrial OEMs have been capable of providing, or are willing to make the
investments of time, financial, and other resources necessary to provide products
that meet these more stringent emission regulations.
More stringent EPA and CARB emission regulations associated with diesel power
systems have taken effect and are increasing both the cost and product footprint
(in other words, the size of the power system) of diesel power products. Internal
combustion engines generally produce emissions of carbon monoxide, unburned
hydrocarbons (organic compounds consisting entirely of hydrogen and carbon that
can be emitted as a result of incomplete fuel combustion and fuel evaporation),
and oxides of nitrogen (highly reactive gases formed when oxygen and nitrogen
in the air react with each other during combustion), and diesel engines produce
particularly high levels of these pollutants. In addition, diesel engines produce
particulate matter, which is among the areas of focus of these emission regulations.
By leveraging the deep industry experience of our engineering and new product
development teams, we are working to broaden the range of our power system product
offerings, including engine classes and the industrial OEM market categories
into which we supply our products. We capitalize on our technologically sophisticated,
in-house design, prototyping, testing and application engineering capabilities
to further refine our superior spark-ignited power system technology. We plan
to apply our experience and expertise in developing comprehensive, integrated
green power systems to expand our spark-ignited alternative fuel offerings.
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