Post Dot-com Bust - The Rise of Motorpreneurs?

Elon Musk, chairman of Tesla Motors speaking to Silicon Valley author at TieCon.

I have been doing a lot of reading on EVs (electric vehicles) and the new generation of plug-in hybrids lately. Along the way, I realised a couple of interesting points - my previous experience in working for a typical MNC car manufacturer and my background computing gave me a rather unique viewpoint. Car companies are industrial age relics run by balding, beer bellied old men in grey suits - they are the VWs, Fords, GMs and Toyotas of this world. Internet startups are run by twenty-something geeks, who knew next to nothing about running a company but know they have created something special, took it public and somehow along the way hoping if they could make a big buck out of it, doesn't matter if it failed to make a buck. Just being on the cover of Wired magazine or even being the top downloaded software is good enough for many. Think facebook's creator Mark Zuckerberg. Nobody really knows how to make money out of facebook yet but that hasn't stop Microsoft from paying Mark USD 240 million for a stake in his "dorm-room project".
 Youngest self-made millionaire? Mark Zuckerberg
 
Google founders Larry Page & Sergey Brin.

Old men in grey suits don't get it, how startups work. They will never get it. The Gen-Y geniuses of this generation are not motivated so much by money, but by brilliant ideas and a chance to change the world, for the better. Google start out of a Stanford University post- graduate course project, not a business plan to out-Yahoo Yahoo, or even Microsoft. In fact, it didn't even have a business plan in the first place! Google's current commercial might are merely secondary effects of their motivation to improve things, to create something better, etc etc. As Google's co-founder Larry Page once said in an interview with Time Magazine, "If we were motivated by money, we would have sold the company a long time ago and ended up on a beach." And...Googlers awashed with their mega-dollar stock profits often drive either hybrids, or even a Segway. Not a flashy BMW or Bentley - they are really not that cool in the eyes of Bay-area geeks.

In contrast, the work of the previous baby-boomers and Gen- X generation has always been marked a deep greed / ego to be the richest, largest, etc etc. And along the way the social and environmental price that we are paying today. But that's something for another post in another blog. Why is are these dot-com darlings related to an automotive blog? It has everything to do! The problem is people don't really see the sweeping change that is coming their way because, like I said earlier, they have a "perspective issue." A typical car industry executive is not able to notice the increasing parallel of the car industry's future and the previous path taken by both the PC revolution in the 70s and Internet revolution in the 90s. 


Unlike tech companies. traditional car companies are not trained to evaluate threats from start-ups, they are more likely to dismiss them as hobbyist, niche market items. In the last 100 years, car makers, through their strong political lobby groups (leveraging on job security and effect on country's economic interests) and to a certain extent, connections with Big Oil companies have pretty much control the pace of technological advancements in the auto industry. In the last 100 years they have never dealt with what we in the tech industry call "disruptive technology." iTunes and MP3s turned the entire music industry on its head, VoIP made fixed line IDD calls redundant, Internet affected print media and TV readerships, even governments have been brought down by the Internet, as shown in Malaysia's March 8 general elections. Up until now the auto industry have been shielded away from such volatile changes to status-quo due to a new technology. But as we approach a post-peak oil, the impending energy crisis threaten to send traditional car makers to the way of the dinosaurs.

 Image from Papercut Films.

Being big companies run by stubborn men with huge egos, they are more likely to fight and resist rather than embrace change. History have proven this - back in the 90s, the California Air Resources Board (CARB) created a Zero Emission Vehicle Mandate, aimed requiring car makers to sell EVs to willing buyers on a market. It's a simple Keynesian economic logic, left on their own car makers will never introduce such important but costly new technology to the public. In responce, car makers ganged up, brought their case to Capitol Hill and threatened to sue CARB. After some lengthy wrangle, CARB backed down from its earlier ZEV mandate. Car companies won and development of EVs were pushed back for another 10 years until recent USD 150 per barrel oil prices forced car companies to sit up and listen. 


The reason for car companies reaction is easy to understand - they have invested so much in the dirty internal combustion engine. Replacement parts for engines form a huge chunk of car companies' profits. What makes you think that they will back from their current model so easily? It's a classical case of successful companies having to tear down the very source of their current success to continue surviving. Nintendo experienced exactly this when it refused to move on to CD-ROM media, stubbornly sticking to its already successful magnetic cartridge based game consoles, subsequently lost the console war to Sony's Playstation, a relative newcomer in the industry.

Car makers will come out with fancy eco-friendly concepts to wow the crowds every now and then, but not really working to bring them to market as fast as the technology allows them to. Toyota's Prius is an odd case. It succeeded mainly due to the "motivation" from Honorary Chairman Eiji Toyoda, descendent of the founding Toyoda family. This provided a sort of consistent long-term leadership that was missing in GM, whose CEOs are measured on their current performance. Why would a CEO risk his fat bonus on something that will benefit the next guy in line? This is the reason why I think GM's EV1 failed while the Prius went from strength to strength. Thus, Toyota's leadership were willing to sacrifice short term profits for a long term well-being. But despite its promising start, actions of current Toyota leadership shows that it is not any better from the Americans. When US Federal government proposed to implement a mandatory minimum fuel economy to 35mpg be applied to all carmakers, Toyota joined other carmakers in repelling the bill. Read more at TruthAboutToyota.

This is the reason why I am very pessimistic in looking to car makers to provide us with a viable solution to tomorrow's mobility needs. I personally believe the next level of innovation and solutions will come from people outside the industry. People who can bring a different perspective to solve our problem. As we will see later, many of these solutions will have elements originated from the computer-Internet industry.
 Image from Papercut Films.

Tesla Motors is one such company people should pay attention. Named after late 19th century electrical genius Nikola Tesla, the company was founded by engineer-entrepeneur Martin Eberhard with seed money from Elon Musk, co-founder of online payment company PayPal. After high- drama, the company is now run by Silicon Valley veteran Ze'ev Drori. Tesla's latest investors include Google's founders Larry Page and Sergei Brin. And in true Internet fashion, Tesla's interacts with its customers via a blog, where customers who have placed their USD5000 deposit can get updates on their car's development. The companies showroom in Menlo Park nearby Stanford University and Palo Alto, two key locations that revolutionised Internet and computers as we know it today. A sedan plug-in hybrid model, called the Tesla Model S (formerly known as WhiteStar) will be added by 2010.
 
Tesla Motor's Menlo Park showroom.

Tesla's current ride of popularity have increased further by a series of high-profiling hiring including Ford's CFO Deepak Ahuja, Mazda North America's head of design studio Franz von Holzhausen, one of Chrysler's top engineers Mike Donoughe as Tesla's VP of engineering and manufacturing.

There is currently a one year waiting list for the Tesla Roadster. Click here to find out who are the A-list celebrities who have put their money on this EV roadster. For further reading, go to this article by Fortune - Tesla's Wild Ride.


 Detroit Electric CEO Albert Lam
Another notable EV startup is Detroit Electric, which has recently made headlines that it is currently in talks with Proton on collaborations to build an EV. Detroit Electric is a brainchild of Albert Lam, a British national with a Masters of Science in robotics and manufacturing. It is also understood that he is now a Ph.D student in Complex Knowledge Systems. Like the founders of Tesla, Albert Lam is not a typical auto industry execs background as his resume includes stints as MD of Apple Computer Asia and Sun Professional Services. More on Detroit Electric have been written in an earlier entry.
 Image from MTM.

But the one startup that everybody should really sit up and listen is this - Project Better Place, a startup run by Shai Agassi, an Israeli former SAP executive, one who made USD 400 million when SAP bought over a startup he created. Amongst all the EV startups, Project Better Place has the most carefully thought plan business plan, and whose ambition extends beyond selling cars and a million dollar IPO listing.



Therein lies the veiled threat, there is a saying a man with no desires is the most dangerous. Shai Agassi has achieved pretty much what he wants to achieve, afterall he was next in line for CEO of SAP prior to his departure to start Project Better Place. He could have easily retired to the beaches of the South Pacific. But this man have moved beyond such primal motivations. I like the two quotes below from his interview with Wired.

"Once you have a mission, you can't go back to having a job." 
When I ask Shai if he's worried about a competitor stealing his idea, he stares at me like I'm an idiot. "The mission is to end oil, not create a company."

Tesla's impact would be pretty much limited to USA, and maybe wealthier parts of Western Europe and the boulevards of Monaco. In other words, Tesla is only building the next generation of celebrity rides for the rich and famous, concerned of their public image in their carbon-sensitive society. Tesla's impact to Big Oil and the Big 4 car manufacturers is negligible. Project Better Place, meanwhile is already working with governments, policy makers, electric power utility companies and even takes care of charging and travel needs of EV drivers. 

Car companies always give the excuse of high cost, low demand and poor battery performance as the reason for not introducing zero emission electric cars. But judging by the efforts of these startups developing cars on a budget that Toyota throws for its cruise control, it is obvious that car companies are not trying hard enough, or more like not wanting to try. 

Shai Agassi deals with these supposedly "mega-complex" by adopting a similar business model used by the telco industry. Handset manufacturers don't really earn from selling you the hardware, whose market value depriciates extremely fast. Instead they earn from providing you the services, even by throwing in a cell phone free. Car industry executives can never understand this, all their live they only understand one business model - you build cars, you sell them, you maintain them. Sometimes you even lease them. Playing within this key parameters they make a handsome profit between them. Car manufacturers earn very little from selling cars in the first place, they earn more from offering financing packages, vehicle spare parts and servicing and throwing in all the fancy accessories that you don't need. 


Shai Agassi asks a very simple question - Why can't you sidestep the battery cost issue by adopting the same model used by telco companies. You lease / buy a car from a service provider, for a very low fee, who then charges you for the electricity the same way telco charges you for your talktime. That way cost of the car is no longer tied to the battery, which can be used by service provider companies as a very lucrative means of income. You charge / swap batteries on the go, as and when you need it. The same way you do with your cell phone. Driver's requiring additional travel distance can drive to the nearest "pit stop" and swap their batteries, which is then charged and put into another vehicle. I can imagine Tenaga Nasional operating such stations for a handsome profit, the same way Big Oil runs petrol stations. 


Overview of Project Better Place.

The other issue is intellectual property. Battery costs are not going to come down if each manufacturer insists on designing their own battery and keeping it for their own use. Costs are never going to come down as no decent economics of scale can be achieved this way. The IT industry on the other hand, have already gone to a level where giving away things for free is a business model to follow. Google charges nothing for most of its search, gmail, calendar, maps and a host of other services. In fact, within the tech industry circle, giving away things for free is the only way to move forward.


The OpenSource movement have shown an alternative way to manage development cost, and to leverage on the brains and feedback offered from users. Personal computers never really progress until the non-proprietary IBM-compatible PC architecture was released. Likewise, hybrid, EV or battery technology can never realise its full potential as long as it remains within the private intellectual property holder's domain. The auto industry should learn from the IT industry's open source movement in standardising design and specifications for batteries and control systems for EVs.   

Shai Agassi is already running "beta testing" not just on "beta users", but "beta countries." Project Better Place is already running in Israel, with Denmark - due to its clear oppossite of what Israel is like, is running as a "validator" country. He receives support from Renault-Nissan, which sees Agassi's project as a perfect opportunity for Nissan to leapfrog Toyota's hybrid technology which Renault-Nissan lacks. Good for them. Shai Agassi's further explanation on the details of Project Better Place can be found at his interview with Wired.

The last point of argument from car companies - low demand is the one that I find it most contradictory. When Karl Benz invented the Patent 1886 Motor car, was there any demand for motorcars? No it didn't. People were quite happy with their horses. On the contrary, people disliked the noisy motorised horseless carriages. Even fearful of it and calling it the devil's creation. You see, the whole invention of automobiles was never built to satisfy any existing consumer demand in the first place! It was built because one man saw a better way of doing things wanted to show the world. Isn't it ironic that now, 100 years later we are at another cross-road of personal mobility, and car industry executives are asking for demand to be proven before they want to start anything?

While there are certain needs for market potential analysis,such studies are rubbish at predicting the next big trend because people simply do not know what they want until they see and experience it.

Due to their "heritage" and baggage, car companies find it very difficult to work around such challenges. For almost 100 years, nothing much have changed since the invention of the first car - we are still using the same 4-stroke internal combustion engine, which only have 15% to 18% energy efficiency at best. When you think about it, how can such primitive, dirty, inefficient technology continue for 100 years is mind-boggling. Can you imagine if computers never moved on from vacumm tube ENIAC for 100 years?! The current energy crisis is a good shake-up to the established status-quo. 

Lastly, why electric power? Why not bio-fuel, hydrogen etc etc.? Did you notice that most of today's technopreneurs are putting their money in EV startups and not any fancy hydrogen powered concepts? The only ones who support bio-fuel, hydrogen power and the likes are politicians, oil companies, and some car manufacturers. And politicians are not exactly the most brilliant people. Oil and car companies have their own current interest to protect. Technopreneurs and IT whizkids, understandably have a far higher "average industry IQ." When they start putting their money on something, it's time to pay attention. 

Former Intel chairman Andy Grove summarize this very easily.

Oil moves to the highest bidder. Fleets of tankers carry it across oceans day and night. Natural gas can also move around, but with extra difficulties. On land, it can be transported in pipelines, but to carry it across oceans requires liquefaction and expensive, high-tech ships that can carry this liquid in strong, deeply cooled containers.

Electricity can be transported only over land. In other words, it is “sticky”: it stays in the continent where it is produced.

Equally important is the fact that electricity can be produced using multiple sources of energy. Petroleum, yes—but also coal, which is abundant in the United States, wind, hydroelectric, nuclear, and solar. Electricity is a multi-sourced form of energy. If one source suffers a shortage, we can produce electricity from another.

Because electricity is the stickiest form of energy, and because it is multi-sourced, it will give us the greatest degree of energy resilience. Our nation will be best served if we dedicate ourselves to increasing the amount of our energy that we use in the form of electricity.

Read more on Andy Grove's piece Our Electric Future published in The American.

Watch Andy Grove's keynote speech below at the 2008 Plug-in Conference in San Jose. 


Andy Grove even coins the function "distributed energy storage" units - EVs that returns excess energy to power grids when not in use, to support peak power demand periods. And also to store excess power from the grid during period of low demand, where power will other wise be wasted.

There are many other new EV startups like Norwegian startup TH!NK, Mindset AG which Volkswagen's former head of design Murat Guenak is part of, McLaren F1's designer Gordon Murray's latest city car project venture. Even Google got involved in plug-in hybrids with their RechargeIT.org project. I am very keen to a see a future where car companies no longer hold thestrangehold of motorized private transportation.

Click to enlarge.

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