Wednesday, August 26, 2015

Electric cars, the sharing economy and the slow decline of the car manufacturing industry

I've been thinking about this post for a while, it strikes me that we are seeing some very interesting and potentially fundamental economic changes in one of the key component of our nation's economic activity; namely the car industry.

The arrival of the Tesla changed to the electric car landscape, it went from a hippy Prius owner to the rich guy considering a BMW or a Tesla and picking a Tesla.  The reality of the electric car business remains a rich people issue; to date you need a garage(s) (in which to store your battery charger) and long distance driving can be anxiety inducing that still make electric cars a luxury item. However, my guts are that over the next 5 years this will change -- and the sharing economy will be a major part of the solution.

Musk & friends are working on replaceable battery packs here and self connecting battery system here.  Google is working on self driving cars and Drivy is "driving" the shared personal vehicle space (the Airbnb of the car business).  Individually these technologies don't add to much, but lets assume that you live in a big city and don't have direct garage access -- if you have a self connecting electric car that can drive itself to the garage where there are chargers (which can be many blocks away) then your car needs are met.  Lets assume further that you need the car occasionally (because 70% of cars life is spent parked), you don't believe me do the math!  50,000km per annum is about 1,000 hours on the road -- and assuming 365 days with 12 hours day gives you about 4,400 hours "usable hours".

Now lets assume a sharing program where there are 10 cars (Tesla & friends), that can be shared between 40 people.  Because lets be honest if you live in a major city you may need a car for far less than 1,000 hours a year!  You have self driving self charging cars that can be shared between a large group, suddenly the $100,000 Tesla doesn't cost you all that much -- that's a $25,000 capital cost per "club members".

As the electric car population grows so does the network of battery replacement stations (like gas station at the turn of the 20th century).  Moreover, with a GPS that insures you use the right route, and schedules your arrival time so that you don't wait at the battery replacement station (by slowing or accelerating the vehicle) you have a different transport experience. As the cars are self driving the actual driving, speed is of little consequence to the users.

So far the legacy manufacturer's solution has been to stonewall and try prevent consumers from buying Tesla cars.  Unlike the music industry (they may have learned something there), they are all "trying" to produce hybrid vehicles (I suspect to keep selling gas powered cars in California).  They are at heart "Petrol heads" that think that electric cars are "pansy-ass". The odds are poor that they will be able to adapt.  I've seen the sexy BMW i8 hybride that is that manufacturer's attempt at keeping rich guys from buying Teslas (good luck with that), it corny in that its really a weekend toy (you should see the size of the trunk...) but at $150,000 its priced right(ish) and it looks really fast. Although I understand that compared to a Tesla P85 it drives like a pig.

One thing that is often forgotten is how few moving parts there are in an electric car -- assuming a 2 wheel drive a Tesla has about 20 moving parts!  Compare that to about 10,000 for the average gas driven vehicle.  Wear and tear (aside from tires) is very very limited few things can break!

In reality, the "big Three" are poorly positioned to take advantage of the revolution in the transport industry.  Their engineers have been conditioned to make cars one way, and the best example I can think of their failure is the Saturn project -- where management quickly gave up the idea of a "new type of car company".  BMW is for ever trying to get into the electric car business, I wish them luck -- rumours are that Apple is looking at fuel cell technology and BMW could be a partner.

Tesla is hoping to sell 55,000 cars this year; that's about the equivalent to what GM,Ford and Chrysler produce in a day!  So the battle is far from over.  However, fundamental changes are on the near term horizon; there remains a lot of issues to resolve, but self driving cars will massively increase the load levels on our motorways.  They can reduce the number of cars/person dramatically, and reduce the parking issues of our cities.  The disadvantage of battery powered vehicles will quickly diminish as more battery replacement/charging centres are built (chicken and egg issue here). As the electric car population grows so will services.  The very small number of moving parts will make electric cars much more reliable.  So cars can last a very long time.  The sharing economy that has made bicycles, an apartments available to "strangers" is well developed and will also be a contributing factor.  Already in major cities there are many car sharing schemes that allow the occasional user to access a fleet of cars.  A self driving car can be even more efficient in that the location of the cars doesn't need to take into account demand flows -- for the car location.  The car can simply drive itself to its needed destination (think Uber without the driver!).

The sharing economy also means that the overall number of vehicle can drop.  If you assume that you can run an car for 1,500 per annum you then change the landscape for vehicle demand.  My guess is that eventually the GM, ford and Chrysler of this world will adapt (they will have little choice) but the real players will be the Google/Apple and Tesla of this world, the market seems to agree. Although GM sold almost 3 million cars in 2014 (98% more than Tesla) its market cap is only twice of that of Tesla -- its tells you something about the legacy car business.

Added;  Check this out, found this a few hours ago, long after I had written my note


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