At the beginning of June, Aquarius Engines, a startup in the Tel Aviv suburb of Rosh Ha’ayin, said it had signed a giant 250 million euro ($281 million), three-year contract with the Finnish tech giant Nokia. The contract will be worth 600 million euros over five years.
In the Israeli high-tech sector, these are the kind of numbers that make a company a juicy acquisition target. And remarkably, the contract is not only huge, it’s Aquarius’ first.
Aquarius has designed an engine that can be used to bring power to remote locations across Asia. Field tests in the Philippines will start later this year, followed by mass production, according to a report by Bloomberg News.
The technology "enables us to open huge markets that were once totally off-limits,” Stuart Hendry, vice president of Nokia Enterprise, Asia Pacific, told Bloomberg. “We will have the ability to supply power to those residing in extremely isolated areas such as remote islands, high in the mountains or deep in the jungle.”
“When we came the first time, they scheduled a meeting for us at 12:20. Do you know what that means? That we have 10 minutes because at 12:30 the Austrians eat lunch. That’s what they thought of us in the industry.”Gal Fridman
To understand why a multinational company would commit hundreds of millions of dollars in a deal with a tiny startup, a short history of the engine is probably necessary.
The four-stroke internal combustion engine was invented by Nicholas Otto in Germany 150 years ago. Several years later, two of his employees, Gottlieb Daimler and Wilhelm Maybach, developed a four-piston engine. “And, that’s the engine that we have been familiar with up to now. Nothing has changed,” says Gal Fridman, Aquarius’ chairman and one of its three founders. “They’ve added a computer, added turbo, but the change is minor, and since the patent has already expired, all of the motor vehicle manufacturers are still using this combustion and gas exchange system.”
The four-stroke engine works in four steps: intake, compression, combustion (ignition) and exhaust. The combustion releases energy, with the piston pushed upwards again. This linear motion is converted into a rotational motion by a crankshaft, which drives the vehicle forward.
In a standard gasoline engine, the process requires valves and spark plugs. The conversion of linear to rotational motion creates much friction that must be reduced with oil. But the lubricant gets hot and emits smoke, coating the engine in soot. In short, it’s not an elegant process.
When Aquarius CEO Ariel Gorfung was first approached by Shaul Yaacoby with the idea for an innovative new engine design, he was suspicious. Gorfung was running a venture capital fund and is well-known in the Israel high-tech industry. He’s seen a lot of business proposals over the years. “I knew he was a genius, but I was still apprehensive,” he recalls. Yaacoby, who today is Aquarius’ chief technology officer, was not an engineer.
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Yaacoby’s idea for a linear internal combustion engine is conceptually speaking nothing new. The first patents for one were registered as early as 1940. There is even a Wikipedia entry on a free-piston linear generator. But the concept was tested and abandoned many times – it remained the elusive Holy Grail of the transportation industry.
Still, in recent years some 15 groups around the world have been working towards a smiliar thing, including big shots like Japan’s Toyota and the German space agency. The latter has been at it since 2002, but the idea hasn’t gotten further than articles in academic journals.
“The dream has never been abandoned. There are all kinds of serious groups with high hopes trying to build a two-stroke linear engine again. Aquarius is one of them and I wish them luck,” says Prof. Eran Sher, an expert on internal combustion engines. “They all feature a two-stroke internal combustion engine that has no crankshaft but moves freely within the cylinder housing. There are a lot of problems in this configuration related to engine stability, timing and consistent operation, which is why this idea has failed so far.”
Aquarius’ main competitor is the U.S. company Mainspring Energy, which was founded in 2010 by three Stanford graduates and is developing a linear generator that uses a low-temperature reaction of air and fuel to drive magnets through copper coils to produce electricity. It’s raised $133 million from investors that include Bill Gates and says it will have its first commercial engine on the market this year.
Could an Israeli autodidact have succeeded where a team of German Ph.D.s and Toyota have failed?
“A fair question,” admits Gorfung. “At the beginning we were sheepish about asking money from others. We used our own capital and went to a lathe workshop in Ra’anana, and that’s how we built the first prototype.”
Armed with that prototype, they raised $3 million in 2015 from local investors such as banker Leon Recanati and industrialist Zvi Yemini. But before they dared do that, the team decided to get a professional opinion about the engine, for which they had to go abroad. “There was no one to ask because in Israel we know about rocket engines for missiles, but there isn’t a lot of knowledge about internal combustion engines,” recalls Fridman.
They turned to the Austrian company AVL, which is known worldwide for its engine expertise. “When we came the first time, they scheduled a meeting for us at 12:20. Do you know what that means? That we have 10 minutes because at 12:30 the Austrians eat lunch. That’s what they thought of us in the industry,” says Fridman.
“They told us that what we are showing them is too good to be true, that it could never work, that everyone had tried and failed .... It took a year and half for AVL to get back to us, but today they are still conducting tests for us and one of our engines has been installed and is running at a factory in Gratz, Austria,” he says.
Aquarius still struggles to be taken seriously. “We had a hard time recruiting employees,” recalls Fridman. “The first engineer we hired was Pierre Detre, who was Formula One engineer for Renault and Toyota. He didn’t want to hear from us at all. Ariel had to wait for him outside his house to get a chance to talk to him. Today, he’s our chief engineer.”
Eventually, the AVL test results came back. Fridman and Gorfung were confident it would meet emission standards but they were concerned if it would meet efficiency benchmarks, in other words the ability to convert gasoline into mechanical energy. Worldwide, the rate is 20%, which adds up to a lot of wasted energy.
“When we talked among ourselves, Ariel and I, we said that if it reaches 22% efficiency, we’ll close the company. If we get to 27%, we’ve got a problem and if it’s over that – that was our dream. The first measurements showed 34% efficiency. That makes us a world champion of engines. Sometimes you hear about reaching 39% but that happens at certain points, let’s say at 8,000 rotations per minute. Our engine works at a consistent rate so it’s always efficient,” says Fridman.
The Aquarius engine is light, weighing 10.5 kilograms, compared with 120 for a conventional engine. It contains just 12 parts and only one of them moves, compared with 200 moving parts in a regular engine. It has just one piston where explosions are created inside a valveless cylinder moves the piston conductor right and left at great speed. The end of the rod is connected to a magnet that moves inside metal coils, generating electricity with each stroke. All this makes the engine simple to manufacture, and cheap and easy to operate. Theoretically, it should suffer fewer breakdowns.
As the engine has accumulated working hours and test results, Aquarius has raised more capital – a total of $40 million as of today from investors that include Marius Nacht, a founder of Israel’s Check Point Software Technology; Dr. Gideon Stein, chief scientist at the self-driving technology company Mobileye, Japanese auto parts maker Musashi Seimitsu and Hollywood producer Avi Lerner. Aquarius has also received a $5 million grant from the Polish government because most of its development team is based there.
Its biggest investor is Shlomo Elia, a well-known figure in the Israeli defense industry and the first outside to back the company.
Early on, Aquarius had approached the automobile industry certain that its engine would find its place under the hoods of the world’s cars. It never happened. Auto making is a conservative industry subject to heavy regulation and it wasn’t easy to convince companies to revolutionize. Like many startups, Aquarius had to undertake a strategic pivot into a different market segment, which turned out to be generators.
“If you think about it, to call it an engine is incorrect,” says Fridman. “It should be called a converter. You put in one kind of energy and take out another kind. We thought in terms of making wheels turn, but in the end we chose to convert gasoline to electricity.”
One big market is in the telecommunications industry, says Gorfung. Today, around the world there are 4.5 million antennas using for mobile communications, but next-generation 5G technology will increase that to 20 million. About 15% of them need to be powered by generators that sell for between $5,000 and $12,000 each – a $15 billion market. The entire global market for generators is worth $100 billion.
“In India there are about a million communication points, and if they’re powered by a generator you need to replace the oil after 250 hours of operation,” says Fridman. “What do you think they do with the burned oil? In Switzerland, they may dispose it properly, but in a lot of places they just pour it on the ground and put in new oil, which ruins the environment." Maintenance has to be done after every 1,000 hours.
“What do you think they do with the burned oil? In Switzerland, they may dispose it properly, but in a lot of places they just pour it on the ground and put in new oil, which ruins the environment."Aquarius Chairman Gal Fridman
“We chose generators because it’s a market that’s sensitive to maintenance and logistics, and that’s where we have an advantage. Even if competitors like Caterpillar and General Electric were to offer their generators for free to eliminate the competition they would still need to provide service,” he says.
Martin Hauske, the Asia Pacific Energy Segment sales leader at Nokia, calls Aquarius’ technology trailblazing in terms of operating cost and maintenance. It is a perfect solution when you need to install a generator, for example, on an isolated island or remote places in Australia. Nokia is already talking to customers in the Philippines, New Zealand and other countries.
Hauske sees a market of 55 million Asians without access to electricity that could benefit. When Nokia looks at the future electricity grid, it sees something like a communications network that combines generators with solar panels and batteries. The Aquarius generator is part of this value proposition, he says.
Gorfung says that assuming the field trials are successful, Aquarius will start seeing revenues from the Nokia contract next year. The company still faces the problems involved in mass production.
“The challenges of mass production are huge, so we’re going to do it by outsourcing with someone who takes responsibility to build the production line, undertake quality control and ship the product,” he says.
The Aquarius generator, according to its website, is a meter long and weighs 100 kilograms. Competing generators weigh six times that much and have to be brought in by truck. The company won’t discuss costs in detail, but they are about the same proportion to the competition as the weight.
The next goal for Aquarius is to develop an engine that doesn’t use fossil fuel. “Because of our engine is so efficient, its emissions are low. But we have undertaken a series of developments that could bring them to zero – and it would be a non-fossil engine,” says Gorfung. All in all, Aquarius amounts to a story of daring and ambition even by the standards of Israeli startups. Fridman acknowledges that but doesn’t express any hesitation because any challenge less than that wouldn’t interest him. That’s why he had sold an early startup he had cofounded.
“I was bored,” he says. “Have you heard of Transalp? It’s the toughest competition in cycling – riding through the Alps in eight days, 160 kilometers a day on average. I did it twice. When I met Ariel and we started thinking about the idea [of Aquarius], I told him, ‘I don’t want to climb Mt. Tabor. I want to climb Everest. Maybe we won’t reach the summit but it will be interesting.”