Wednesday, March 14, 2012

The Tunnel Vision of Electric-Car Manufacturers

In a Future Tense article today, Steve LeVine ponders the electric car’s troubles—low sales, companies shuttering—and wonders what the cause may be: Is the electric car a premature innovation? Is it doomed to fail altogether? Or is it stuck in the “valley of death,” waiting for the supply chain to catch up?

For another perspective, I spoke with Ron Adner, an associate professor of business administration at Dartmouth and the author of the new book The Wide Lens: A New Strategy for Innovation. In The Wide Lens, Adner discusses how myopic thinking can doom promising innovations. In the edited Q&A below, he discusses how today's missteps could hurt the electric car's future—and one interesting solution.

Future Tense: What will happen if this generation of electrical cars, like the Chevy Volt plug-in hybrid and the all-electric Nissan Leaf, fail to take off?

Ron Adner
: The electric car had a first coming back in the early 1900s, but it had its modern first coming with the EV1 [which GM produced from 1996-1999]. That generation of electric cars that was a dismal failure and essentially became a black mark on the innovation. So my concern right now is that we have a lot of companies investing very aggressively in the electric car. They are trying to offset the failure points of what we have seen at the turn of the millennium, but they are missing other critical pieces that have to be in place. My fear is, if they get burned again, it will be 20 years before they will dip their toes back in their water.

Future Tense: What are some of the other critical pieces that they are missing?

Adner: The way most companies are pursuing the electric car right now is they are trying to design an electric car. That is necessary but not sufficient. The Leaf and the Volt are great. Let’s take that as a given. The problem is that they’re not organizing the rest of the system in a way that will allow them to succeed where they say they want to succeed, which is in the mass market.

One thing that has to be solved for this to become a mass-market proposition is how to manage the charging infrastructure writ large, which is not just where you plug in but how you get the electricity efficiently and effectively to those places. The other problem with the electric car is that the mass market proposition is not about, "We want green vehicle." That’s the environmentalist position. The reason people argue [that electrical cars] should succeed on the mass market is because they’re cheaper to drive. But the cost of acquiring an electric car is really high. The Volt costs twice as much as a Chevy Cruise. You’re getting better fuel efficiency, but to make up the price difference, you need to drive an awfully long way. As long as you have battery issues that limit your driving range, it’s hard to get that value

Future Tense: Let’s talk about batteries. They’re going to get better in the coming years, right? How will that affect today’s electric cars?

You have to think about two buyers: [There’s] the person who’s buying the [new] car and the person who buys the used car. A very large percentage of the cost and value of an electric car comes from its battery. Now, battery technology is improving. That’s good news for the electric car in the abstract, but that’s not necessarily good news for anyone who owns the electric car, because the most valuable part of the car is depreciating faster than any part of the car has depreciated. The batteries available in 2016 [will be] better and cheaper than your new battery in 2012. Reselling an electric car is going to feel more like selling a used computer than a used car.

Future Tense: Are there any companies out there that you think are exploring interesting ways to the battery problem?

Adner: A Better Place has an approach that mirrors what we see with the mobile telephone operators. The same way AT&T can give you a really expensive phone and not have you worry about reselling it [because you sign] a long-term contract. … There’s gotta be a decoupling of the ownership between the car and the battery, and that’s essentially what [A Better Place] does. They put you on a plan where you buy the car and they provide you with the battery. You sign up for a mileage plan in the same way you sign up for a minutes-per-month plan [with a cell phone provider]. Because they have their customers on these longer-term contracts, they have the confidence to go and invest in infrastructure the same way mobile telephone companies do.

They’re reorganizing the ecosystem instead of taking the individual pieces. Unless you’re using this wide lens, unless you’re able to look at the entire ecosystem and how to align it, if all you’re doing is investing in a standalone piece, you shouldn’t be surprised if [that piece] doesn’t connect to [the bigger picture].

source: slate