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Summary:

GigaOM Pro analyst Adam Lesser looks forward to what lessons can be learned from some of the recent struggles of the electric car startups.

The first shipping Coda sedan

This article originally appeared on GigaOM Pro, our premium research subscription service.

The last few months have seen the expected demises of a few major VC-backed startups in the electric vehicle game, including Coda and Better Place, not to mention the seemingly unending saga that has become Fisker’s fate. The reasons for each of these companies’ hard times varies. But in aggregrate, they tell us a lot about what can and cannot work in the EV market.

Rather than look back at what happened to each of these companies, something that was well done by others, I want to look forward at the changing landscape that has become car ownership and where EVs fit in that world. Here are lessons that we can take forward:

Better Place Israel1). It’s a technology product, not a car. I’ve long believed that the automakers must view the EV as a technology product, more akin to an iPhone than a V8. This sentiment was uttered again this weekend by Mimi Sheller, Drexel University’s Director of Mobilities Research and Policy Center, in a New York Times article trying to explain why driver’s license rates among 16 to 39 year olds have fallen so consistently from 1983 to present. The article paraphrases Sheller as saying “The Millenials don’t value cars and car ownership, they value technology – they care about what kinds of devices you own.”

If millenials are going to care about a car, they’re going to care about the car that most represents having the coolest technology device. One doesn’t have to look far toward Tesla’s extensive computer console and Coda’s lack of tech styling, to understand how thinking around this topic differs at different EV makers. Yes, most Tesla buyers are a bit older but if an EV is going to crack the mid market, as Tesla is focused on doing, it will have to contain great user interfaces, excellent connectivity, and next generation body design.

2). The realities of range anxiety. It’s hard to know how much of the Nissan Leaf’s tepid sales and Coda’s failure had to do with concerns over range. Clearly Tesla is concerned enough about it that it first built cars with 200 or more miles of range and just recently rolled out a battery swapping option for long distance road trips. Better Place showed us that battery swapping technology is still a difficult sell, maybe less so in markets like urban European cities where putting in a home charger is difficult.

The Nissan LEAFWhether battery swapping technology lives another day or whether Tesla manages to revive it for a single purpose is less the point. The point is that there’s still consumer sensitivity here. I do believe that drivers, particularly millenials, will be willing to sacrifice some convenience to own an EV. But I think the sweet spot for mass adoption of an EV will always be a $25,000 car that goes 200 miles on a charge. Yes, it’s irrational, given that most drivers drive less than 40 miles a day. But such a car would unlock the market.

The dark horse here is a battery innovation that revolutionizes range. Remember Envia?

3. The luxury car market will never be the same. I’m thankful that Fisker’s disastrous mismanagment and subpar engineering was paralleled by Tesla’s success, just so everyone understands that there isn’t consumer resistance to an EV. There’s consumer resistance to a poorly made and poorly marketed EV.

While there’s a lot of focus on Fisker’s rough times right now, the companies I’m more concerned with are BMW, Lexus, and Mercedes. It’ll happen slowly but I can see Tesla and the luxury EV becoming a status symbol with a sustainability twist that slowly creeps into the German and Japanese luxury automaker’s markets.

Green Overdrive: We ride a Tesla Model S Beta! Thumbnail

BMW, for example, sells around 70,000 7-series vehicles every year. Tesla will sell around 20,000 Model S vehicles this year. Those are major differences but not that major. What happens if Tesla sells 40,000 in 2015? Perhaps as problematic is that Tesla founder Elon Musk says he can do 25 percent margins on his cars, much higher than has been seen among traditional automakers and very attractive to investors.

By the time the major automakers decide they want to compete in the EV game, it’ll be late and Tesla the brand will represent next generation technology, not BMW or Lexus. Remember it’s a technology product, not a question of reputation related to a century of work on the internal combustion engine, which is what sets companies like Mercedes apart but which is no help in the EV market. Not to mention the fact that Tesla will have had a multi-year engineering and production head start.

There has been a fair bit of gloominess among investors as they’ve watched billions evaporate in the recent round of EV bankruptcies. But I see lessons here. Like many areas of cleantech investing, there’s likely an element of first mover disadvantage in electric cars that includes a slowly maturing consumer. But I don’t think one would argue that now is a better time to launch an innovative EV than it was even three years ago.

  1. I can’t help but wonder if this story was inspired by this video http://uk.ign.com/videos/2013/07/15/tesla-model-s-exterior-tour

    because I was thinking the same thing after I watched it

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  2. “If millenials are going to care about a car, they’re going to care about the car that most represents having the coolest technology device.”

    Interesting thought but I disagree. The issue I think is one that technology in cars can’t fix. I’m not sure how old Mr. Lesser is but I think so history is in order. When I was growing up (70’s) cars were our social network. There were no cell phones, no internet, no PCs in the home. Phone calls were expensive. ,We did meet up but you actually had to get to the hang out by car. No, Google did not invent hangouts and yes we used to meet up and check in, we just did it in person. Now folks can meet up, check in and generally communicate for hours without leaving their house. Tech in cars is not going to alter that dynamic. Cars were more affordable and you could fix them yourself if something went wrong. Now, you just get a new phone. As a car guy my hobby is still going strong, but I do worry that the passion is not passing on to the next generation. Thankfully my son likes cars ALMOST as much as his xbox.

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  3. Interesting thought but I disagree. The issue I think is one that technology in cars can’t fix. I’m not sure how old Mr. Lesser is but I think so history is in order. When I was growing up (70’s) cars were our social network. There were no cell phones, no internet, no PCs in the home. Phone calls were expensive. ,We did meet up but you actually had to get to the hang out by car. No, Google did not invent hangouts and yes we used to meet up and check in, we just did it in person. Now folks can meet up, check in and generally communicate for hours without leaving their house. Tech in cars is not going to alter that dynamic. Cars were more affordable and you could fix them yourself if something went wrong. Now, you just get a new phone. As a car guy my hobby is still going strong, but I do worry that the passion is not passing on to the next generation. Thankfully my son likes cars ALMOST as much as his xbox.

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  4. Millennials don’t get licences because they can’t afford to spend even a few thousand bucks on a decent used car while working at Starbucks for minimum wage.

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  5. There is a direct correlation between electric vehicle price and vehicle energy requirement. Complexity is also a factor.

    Until automakers get serious about vehicle energy requirement and complexity, price and range/recharge-time will not align with average consumer needs. Charging and battery-swap will not reach mainstream adoption, margins will continue to suffer, etc.

    This is solvable, but there must be a desire to shift the conversation to the energy requirement and complexity of our cars…especially for media and bloggers. If bloggers only cover car brands that pay travel expenses, we’ll remain on this conversational treadmill, talking endlessly about incremental efficiency improvements when we can – and must – be making significant leaps in efficiency.

    A 4,000lb electric car does not change the energy (& price) reality that it’s a 4,000lb car.

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  6. I think the entire EV industry has missed a big issue. Your typical urban Millenial, the “target market” everyone seems to be focused on, is still on a tight budget/ underemployed, and PROBABLY lives in a cheap apartment.

    Whether they like the EV, could maybe find a way to finance it, and can accept the <200 mile range or not — WHERE DO THEY PLUG IT IN?!?!?

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  7. Hi Adam,

    thanks for the article. I was very surprised to read that the efforts of the more traditional car manufacturers are still unknown to you. Here in Germany, BMW is currently preparing the market the introduction of the “i” EV models based on the 3 and 5 series and there is a huge discussion inside the company because so many ressources were withdrawn from the other projects to focus on the electric cars. BMW has placed a huge bet on their technology including the carbon fibre ultra-light frame.

    I myself work in power production. I believe the need of energy storage with an increasing share of green energy will also add to a positive business case for EVs possibly – because constant recharging currently diminishes the lifetime – with battery ownership by the local utility.

    Best regards
    Jo

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    1. @Jo

      Thanks, Yes, if there’s a luxury automaker that is most ahead of the others in EV development, it’s definitely BMW. Folks I know who have the Active-E have been very happy. I realize significant resources have been allocated and quite frankly were I a big automaker I’d have many reasons NOT to put additional cash into EVs given that for Tesla’s success there are many failures or mediocre rollouts.

      But I still believe as is the case in potentially disruptive situations, the issue remains that next generation technology and marketing that technology with full force is an issue. The latter is always a challenge for established companies where in some sense it’s a whole new brand that the company has to warm up to, one which goes against a century of marketing strategy.

      I think the luxury automakers aren’t out of the market. I just think that they’ve already ceded a lot of ground, something evidenced by the fact that fairly soon Tesla will be too expensive an acquisition for them to make, if they wanted to buy their way in.

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  8. I think the answer is not found in the Millemials but Big Oil & enrgy companies. Until there is a significant investment and or partnership with Big Oil and Big Energy such as Chevron, Shell, Texaco, Edison and PG&E, EV innovation and mass apeal will be slow & dismal.

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