Electric cars’ second chance

New York, Friday August 27, 2010.

 

 

American history is full of second chances.

From serial losers Abraham Lincoln and Henry Ford to Frederick Rohwedder.

Indeed, had Mr. Rohwedder not persevered, we would not have sliced bread today.

Fortunately he did not give up after his factory was destroyed in a fire in 1917.

Breakfast in America would be very different if he had thrown in the towel.

 

Most of the time transformative inventions come unannounced.

However, sometimes, like the car industry in the nineteenth century, an invention does not have an immediate impact on people’s lives.

It takes many new innovations before it reaches mass consumption.

It also takes a lot of trial and error.

At first, it seemed like electric cars would be the norm.

In the year 1900, they represented as much as 40% of the US car market.

Then, gasoline took over.

A century later, however, it appears that we have hit the reset button.

 

But, how do major inventions come about?

Is there a pattern we can learn from?

 

First, there is the invention as a result of a accumulation of technological innovations.

Otto Frederik Rohwedder’s machine to slice bread is such an invention.

To make it work he needed electricity, uniform size loaves of bread, a plastic wrap and a toaster to build demand.

 

Some inventions are mere reinventions.

Think of the yo-yo.

It was introduced to the modern world by Pedro Flores in the 1920’s.

But Mr. Flores, born in the Philippines, only reintroduced a popular game in his native country to Americans.

In fact, the yo-yo is considered the second oldest toy in history – after dolls.

Some are even pictured on walls of Egyptian temples.

 

There is the invention one is ashamed of.

Consider the video game.

It was invented by Willy Higinbotham to entertain visitors to the Brookhaven National Laboratory.

He is said to have felt regrets about it.

As Head of the lab, he probably would have preferred to be known for his work on nuclear non-proliferation.

 

Often research leads to unexpected inventions.

In the 1920’s, DuPont Corporation had a $20,000 budget for what they called “pure science”.

The object of which was to discover new scientific facts.

The result?

Nylon stockings.

 

Nor is an invention always the result of a “Eureka” moment.

Sometimes it is just a “Dah” moment.

For thousands of years, man has walked through fields of weeds and arrived home with burrs stuck to his clothing.

Only in 1948 did the Swiss George de Mestral examine some cockleburs under his microscope to develop what became Velcro.

 

Emperors play a role in the history of inventions.

Tea, for example, is said to have been discovered by the Chinese emperor Shen Nung in 2,737 B.C.

He is said to have been boiling water one day when leaves from a nearby bush fell into the open kettle.

And, there the world was given tea!

Now, we are not sure about the accuracy of this story.

Some have a hard time believing the emperor would boil water himself.

 

Toilet paper is also said to have been produced for Chinese emperors as far back as the year 1391.

But it is the American Zeth Weeler who patented rolled and perforated wrapping paper.

Since he could not turn it into a profitable business, he transformed his original idea into toilet paper on rolls.

These were said to fit conveniently into American bathrooms – which were quite small at the time.

 

Another example of rethinking the use of an existing product is Sam Foster’s sunglasses.

For centuries before, Chinese judges used to wear smoked-colored quartz lenses to conceal their eye expressions in court.

But in the late 1920’s they quickly became all the rage on the Boardwalk in Atlantic City.

 

At the end of the day, greed is the best incentive for innovations.

Richard Nixon tried to explain that to Kruschev many years ago.

A ball pen could never be invented in a communist regime, the then-Vice-President told the General Secretary.

That certainly proved right.

With profits and private property made illegal, the communist regime have never invented anything.

Compare that to Goldman’s invention.

It was indeed greed that motivated the grocery owner Goldman to develop the first shopping carts in 1937.

 

Then there are the indispensable inventions.

Where one asks oneself “How did we live without it ?”

Like matches or the remote control.

Similarly, one wonders how long women could have continued to dry their hair with vacuum cleaners?

 

Sons tend to play an important role too in inventors’ lives.

For example, so that his son would be able to get a better use of his tricycle, the Scot John Dunlop came up with the first practical pneumatic.

 

However, a lot of inventions are made by accident.

Consider Ivory Soap.

One day a workman at a factory went out to lunch without turning off the machinery.

It resulted in air working into the White Soap mixture he was producing.

Not worried about such a minor problem, he poured the soap into the frames anyway.

A few weeks later, letters began arriving at P & G asking for more of the soap that floated!

 

Sometimes, rewards can be big.

Sometimes not.

The Belgian born Baekeland made a small fortune inventing and producing Bachelite, the first plastic to hold its shape after being heated.

Albert Parkhouse, the inventor of the wire coat hanger, was less lucky.

Or less savvy.

His employer, Timberlake Wire and Novelty Co, took out a patent on it.

Poor Parkhouse never got a penny.

 

Finally, the Italian Alllesandro Volta has been immortalized when the electrical unit was named after him.

And this brings us back to the electric car.

 

But first, let’s notice a trend in the random examples given above.

Europe was a major player in the 19th century and in the beginning of the ensuing one.

Then, European governments’ sizes ballooned and everybody wanted to get a secure, state-guaranteed job.

From then on, most important inventions were made in the USA.

Even Asia, at the end of the twentieth century, never became known for its transformative innovations.

Keiretsus and Chaebols are good at perfecting cars and TV sets, but it is not the ideal environment for real creativity.

Inventors seem to need a garage, independence from a boss and a chaotic jungle-like economic environment.

As well as a good education, of course.

Indeed, China could be the next center of major inventions.

 

The new revolution.

 

The electric car revolution has finally arrived.

All the required conditions are lined up.

There is political consensus, strong consumer demand and the technology.

Does that mean, however, that the electric car is ready for mass market?

I doubt it.

Rather, we are likely to see a gradual acceptance, starting with the rich early adapters.

GM’s Volt and Nissan’s Leaf may turn out to be expensive flops.

They have very little to offer.

How many people are willing to spend so much money for not-so-convenient cars just to make a statement?

 

Political consensus.

 

There is a political consensus and a political will globally to make it happen.

Some want to reduce the CO2 footprint.

Others want to reduce our dependency on unfriendly regimes.

Whatever the motivation, many countries around the world are using fiscal incentives to speed up the process.

In the US, one can get a $7,500 rebate when buying an electric car.

Other countries are more aggressive.

Consider Denmark.

That small kingdom has decided to waive the national automobile tax on electric cars altogether, starting in 2011.

Not a small thing considering that the tax is a whopping 180%.

 

Incentives are not the panacea, of course.

But they help.

Be it tax breaks or special prizes, humans respond to proper incentives.

Look no further than Napolean’s prize in 1795 for whoever would find a way to preserve food for his army.

It is the reason we have canned food today.

Similarly, tax incentives in permanently overcast Germany have led to the development of the largest solar energy industry in the world.

 

Consumer Demand.

 

Most people I know are eager to drive an electric car.

Hybrids’ success in America is just a harbinger of things to come.

But consumers will compromise only so much to drive a “clean” car.

For now, the size, the capacity and the price of batteries are still a hindrance for mass market applications.

 

Technology.

 

The technology has made huge progress.

It was only 20 years ago that Sony revolutionized consumer electronics by introducing lithium-ion batteries.

Progress since then is allowing the next revolution in the car industry.

 

Already, the Chinese-built Zonda Bus New Energy, an electric vehicle, can drive 500 km without recharging its batteries.

Daihatsu broke the world record, which is now over 1000 km.

Unfortunately, these batteries are still very expensive and very cumbersome.

A bit like IBM’s computers not that long ago.

 

Winners and Losers.

 

All the major manufacturers are working on electric cars.

So are the newcomers, the Chinese Byd and Geely, for example.

Entrepreneurs have entered the fold as well.

Tesla, Cona or Aptera could very well become houshold names in the near future.

 

The latter three should not be summarily dismissed as too small to succeed.

Entrepreneurial companies do not, indeed, have the formidable resources of Toyota, Nissan or GM.

But they have something else.

 

In his best novel, Stendhal made one of his characters explain why a prisoner has a big advantage over his guards.

The prisoner, he writes, thinks all day and all night about how to escape.

The guards, on the other hand, do not spend much time thinking about how to improve security.

Mark Twain stated it differently.

He advised people who wanted to become rich to put all their eggs in one basket.

Then watch the basket.

 

I am not an expert, but I would not pooh-pooh Tesla’s chances too quickly.

Many smart people do.

They like to compare it to the DeLorean failure.

Tesla’s CEO, Elon Musk, likes to say that “If [he] had a dollar for every time someone brought up DeLorean, [he] wouldn’t need an IPO.”

 

In fact, Tesla is doing a few things right.

The Tesla Roadster is a nice toy for rich boys.

It is also guilt-free.

Conspicuous consumption may be frowned upon nowadays, but this one is for a good cause.

 

Furthermore, the Tesla sedan, scheduled to be on the market in 2012, will do what no-one else has been able to do or announce so far.

It will seat 7 and have a range of 300 miles.

So what if it is expensive.

Mercedes and Porches are too.

The electric car market is likely to grow from the top, starting with rich early-adopters.

 

Another concept that looks attractive in the short term is the chic electric city car.

BMW’s Mini E or Mercedes’ electric Smart car could have real appeal for affluent city dwellers.

So could Renault’s coming electric Clio.

 

By contrast, I believe the Volt or the Leaf may lack specific appeal.

They are very average cars with low autonomy and small trunks.

The Byd and the Cona, both available in California by the end of the year, seem rather primitive.

There is only so much people will spend just to be a good citizen.

 

How is the industry likely to take off?

 

The answer is three-fold: taxis, car rentals and Better Place.

Better Place is a California company that is reviving an old idea: battery switch stations.

It is already building a network in Israel.

Denmark is not far behind.

 

As far back as 1896, the Hartford Electric Light Company already had such a network for electric trucks.

Not much is new under the sun.

In 1897, New York City also had a fleet of electrically propelled taxis.

 

Winners and Losers.

 

Once the revolution is in motion, change will most likely accelerate.

It means a lot of businesses will have to be rethought.

Oil prices could collapse, hopefully.

Component manufacturers will rapidly become obsolete.

The number of mechanics and garages will dwindle as electric cars will need little maintenance.

New companies will emerge, like charging station makers.

The battery market will grow to an estimated $37 biilion by 2020.

Electricity production will have to increase and the grid will need to be updated.

Etc.

 

This revolution will also have major geopolitical implications.

 

 

 

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