WAITING FOR GODOT-TOROTRAK TREADS WATER, NERVOUSLY AWAITING FIRST DEAL

Stock price languishes; will investors cut and run with remaining £20 million?

Revolutionary gearbox developer Torotrak is caught between a rock and a hard place.

All its research has been more or less completed. It has demonstrated that the concept, for an Infinitely Variable Transmission (IVT), delivering 20 per cent better fuel economy for cars with a cost of manufacture at least matching current levels, actually works.

The party is ready to rumble, but so far nobody has shown up.

General Motors, the world’s biggest car manufacturer, has agreed that the technology works, although it won’t commit to producing IVTs itself. If a big supplier company wants to make the device, GM would be happy to offer it as an option on its cars.

U.S. number two Ford, currently evaluating the IVT, has apparently expressed confidence in the project, although a final decision has yet to be made. Luxury car manufacturer BMW seems to like the idea of an efficient IVT transmission, and is testing a top-of-the-range 7 series with fellow German transmission manufacturer Getrag. There are rumours that Equos, a subsidiary of Aisin of Japan, and ZF Friedrichshafen of Germany are enamoured of the device.

PROMISES, PROMISES
But the IVT project has been dogged by timetable delays and deferred promises. The first IVT’s were to be on the road by 2004, now the promise is 2005 to 2007. The first deal was supposed to be signed and sealed, with LG Cable of Korea, believed to be for agriculture equipment, in 2002. Now the company says that developments are expected with the Korean company, but nothing more can be said now.

Early in September, Chief Executive Maurice Martin announced he was taking early retirement. That unsettled investors, and the stock slumped more than 10 per cent. Now Torotrak says this personnel change won’t make any difference. It signifies a change of focus for Torotrak from research to marketing.

And Japanese giant Toyota spurned the device.

But the way Torotrak tells it, this project is still the greatest thing since sliced bread. Not only does it claim that the gigantic Ford Expeditions it has fitted with the device produce 20 per cent better fuel economy, with development, this could reach 50 per cent in 10 years. The market for automatic transmissions is huge, but still has room for big growth as Europeans embrace computerised gear changing. The timing would seem to be perfect, with U.S. politicians making more noise about the need to curb the gas-guzzling and ubiquitous Sport Utility Vehicle (SUV), here is a device which elegantly and comparatively cheaply does just that.

WHY NO TAKERS IF IT’S SO GOOD?
So why hasn’t the automotive industry snapped up Torotrak’s IVT?

According to Torotrak, which has been briefing analysts and journalists recently on the project’s progress, this is because of the industry’s traditional fear of going out on a limb. If only just one manufacturer can screw up enough courage to go with the IVT, it will be like pushing on an open door, says Torotrak’s marketing and licensing director Geoff Soar.

But in an automotive world where cars are more and more like commodities, you would think a car manufacturer would jump at the chance to embrace anything which differentiated its product, particularly if this meant offering a state-of-the-art technology which produced something as attractive to consumers as improved fuel economy.

The Torotrak IVT, using what it calls a “variator”, produces a smooth, stepless transmission, improving on a belt and pulley system which using to whir away inside little Dafs and 3 series Volvos. Current automatics often produce a fussy driving experience with much pointless shifting of gears, according to Torotrak. They are big, heavy, complicated, and expensive to build.

Not so the Torotrak IVT which –

v Produces high fuel economy – improving the Ford Expedition test vehicle by at least 15 per cent but more often 20 per cent.

v Low emissions

v Improved smoothness and performance, with high speed cruising in “overdrive” giving about 70 miles per hour at 1,000 rpm.

v Scalable – trucks of up to 17 tons, buses

v Improve control, allowing safe, controlled descent on off-road hills.

Torotrak has ironed out some of the bugs which were apparent in the device a couple of years ago. A noisy and obtrusive whine from the transmission marred its earlier performance. That has been eliminated. The only problem now seems to be a tendency to produce uneven acceleration at low speeds; but that will soon be eliminated, according to Torotrak.

INVESTORS FED UP
But investors are becoming exasperated with Torotrak’s “we are almost there” mode and the stock price has been volatile in the extreme. The share price hit a high of 578 pence last year. Now it is languishing at around 32 pence.

Peter Rawlings of stockbrokers Charles Stanley & Co Ltd in Lewes, Sussex, is an investor in Torotrak, but his initial enthusiasm for the project has been tempered by the stock price’s rough ride.

“I’m feeling a bit chastened at the moment with high technology stocks like Torotrak. The market is wary of any company which is remotely speculative and can’t demonstrate an ability to make money,” said Rawlings.

“Torotrak is a classic “hope deferred” stock. But if there was any news of a deal, the stock would rocket up. I’m rapidly losing any confidence I had that this would happen,” he said.

TAKE THE MONEY AND RUN
Torotrak has spent about £30 million of the £50 million raised by investors in the project. Soar reckons that because Torotrak spends about £4 million a year, the company is under no financial pressure. But investors are likely to start thinking that perhaps, if there is no success in sight, it might just be better to save the remaining £20 million and just wind up the project.

A glorious failure, but a failure nonetheless.

Neil Winton, September 24, 2002

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