As I have noted elsewhere in this blog, some in the car industry remain skeptical of Apple’s ability to make a great car. Their reasoning is essentially, since Apple has no history in making cars they can’t appreciate the difficulties in making a car. They are mainly software engineers and mobile phone engineers and won’t understand the important mechanical aspects and all other important things in making a great car. This 2013 talk by Marc Tarpenning, one of the co-founders of Tesla Motors, shows how a group of archetypal ‘Silicon Valley types’ did just that. Their cars have won many major car awards. Some interesting thoughts and statistics from the talk:
- Why he formed Tesla Motors: Tarpenning sought to solve a large world problem. As a firm believer in 'Peak Oil', he thought the electrification of cars would be a worthy problem to solve. Noting the failure of earlier electric cars, he reasoned that one issue was the misdiagnosis of the true market for electric cars. Rather than poor people seeking to save on petrol, the experience of the GM Volt and Toyota Prius was that the buyers were mostly wealthy people who were seeking a 'green' car as a type of status symbol. Thus, he diagnosed the 'job to be done' as being to provide wealthy people with a 'green status symbol'.
- Efficiency/Sustainability of Electric Cars: Early on he answers the question 'Why electric cars?'. Answer: They are much more efficient than petrol. Interestingly, he calculated that even electric cars recharged by coal power plants are better than petrol in terms of efficiency of resource usage.
- Batteries are getting cheaper (and better): Batteries have gotten 7% cheaper every year for many years. Near the end of his talk he also mentions this decline in price may accelerate due to the 'sheer amount of money they are putting into this thing.' By ‘thing’ he means, for example, the Tesla ‘Gigafactory’ and various other large manufacturing facilities that are starting around the World.
- Most car manufacturing is outsourced: In answer to the doubts about whether a newcomer can make a car, the obvious retort is that most of the car business as we know it today is outsourced. What most car manufacturers actually do is just the internal combustion engine - thus the car company's internal vested interests and politics against electric. The car manufacturers have mostly outsourced the rest. E.g. Transmission is outsourced. Styling is frequently outsourced, I already knew things like brakes, suspension, electrical, entertainment systems etc, are outsourced.
- Incumbent car industry inertia - It's 'worse than he thought possible': In response to a question asking how quickly he thinks the incumbent car industry will adapt to change, he is quite clear. He describes them being 'worse than he thought possible'. He explains the internal politics that occurs within such incumbent car companies. From the above point regarding outsourcing, we can see that all that remains of most incumbent car companies is the internal combustion engine engineers. Tarpenning argues that the internal resistance comes from car companies belated realising they sacked the wrong people. They got rid of their electrical engineers (through outsourcing), and now would have to admit they were wrong and rehire them.
- Battery companies reawakening by Tesla Motors: Battery companies such as Panasonic and Sony thought their addressable market was to sell 7 battery cells per person (e.g. one in the mobile phone, one in the tablet, etc etc). Tesla Motors advised them that their customers would need 7000 battery cells just for one Tesla car. What happened next is kind of funny.
- Tarpenning isn't always right: Tarpenning got the oil forecast wrong: He got the oil forecast wrong, saying we'd reached 'peak oil'. The oil price plummeted below the US$60-70/barrel he said it cost to drag this stuff out of the ground. He did not anticipate that about 2 years later, OPEC would slash oil prices to drive out US CSG oil production. The move by OPEC also might be seen as a prescient move against the electrification of cars, which would severely reduce demand for oil. In the US, they use 28% of their energy to move people and goods. Personal vehicles use 60% of that 28%, and buses and trains use 3% of that 28%.
- Where Tarpenning is putting his money: Note also where Tarpenning and his Tesla co-founder Martin Eberhard have invested their money – to an electric motorcycle maker called Alta Motors (formerly BRD Motorcycles) which they did in 2014 (Source: http://blogs.wsj.com/venturecapital/2014/10/01/brd-motorcycles-raises-4-5-million-to-ship-its-all-electric-racing-bikes/). Readers of this blog will already know that I believe disruption of the automotive industry will come from the ‘lower tiers’ of the personal transport vehicle, probably from a vehicle that the incumbents deride as not a threat. Of course, the more obvious play for Tarpenning and Eberhard is to simply do to the motorcycle industry what Tesla Motors did to the sports car industry. However, with the Redshift, released in October 2014, carrying a 5.2kWh battery weighing 70 pounds (approx. 32kg), producing 40hp (roughly 30kW) we are talking about a power plant that is already capable of powering a ‘disruptive’ micro car at acceptable performance specifications as we have envisaged in other posts (e.g. top speed of 110km/h, range >150km etc). Their bikes sell at US$15,000 so we imagine that the greater economies of scale achieved by a consumer motorcar, when compared to a luxury sports bike, it would be possible to bring the price of a ‘future car’ below the critical US$10,000 mark.