Cleantech Market Intelligence
Shai Agassi’s EV Lessons for Big Auto
Shai Agassi, founder of the now defunct Better Place, has published two articles on LinkedIn offering advice to the mainstream automotive market on beating Tesla in the battery electric vehicle (BEV) market. In his first article, Agassi takes a bit of a jab at General Motors, which has set up a team to study Tesla’s success, ultimately offering four key lessons that the “Big Auto” manufacturers should be learning from Tesla:
An electric car is an object of desire.
This assertion is fairly easy to agree with, although, having driven a Mitsubishi I-MiEV and Think City, I think it’s safer to say that an electric car CAN be an object of desire, just as I’m sure Nissan believes its Leaf offers “more of a car for less cost than comparable gasoline cars.”
An electric car is a modern appliance.
Frankly, I bristle at the thought of a vehicle targeting “appliance” as a status, even if we are specifically referring to its ability to be upgraded. Having driven transportation appliances (a 1983 Dodge Aires K, anyone?), no “object of desire,” regardless of its upgradability, should be targeting appliance status. At any rate, Agassi points to the car as more similar to a smartphone than a refrigerator, claiming that EVs will see both hardware and software updates (though by “hardware” he appears to mean only the battery). But comparing a BEV to a cell phone is a double-edged sword: sure, they’re upgradeable, but ask anyone in line this fall for the new IPhone 5 S (or C or 6 or whatever they may call it) what they are replacing and you probably won’t find many (any?) first-generation iPhones. The first-generation iPhone came out in 2007 with 2G speed. A new battery and software update won’t make it comparable to the next iPhone. In other words, a 10-year-old Model S may age well from the curbside, but even with a new battery and software updates, it will still be a 10-year-old car, with worn seats, dinged doors, older processors, and an aging road feel.
An electric car is Moore’s Law on wheels.
In his second article, Agassi argues that because of this Moore’s Law effect on the battery costs, the batteries should not be included in the cost of the car. Although Moore’s Law is not really an apt comparison (I can’t figure out how a 8% price decrease per year is comparable to doubling computing power every 2 years), Agassi claims that batteries are more like gasoline and shouldn’t be part of the price. This leads directly into his final point:
An electric car drives – and sells – differently.
This may be his most important point. EVs require changes to consumer behavior, plus a sales force that understands the challenges in making comparisons to gasoline vehicles both in equipment and costs. This is truly a different selling proposition than most dealers are used to, and the deck is stacked against EVs because the goal of dealers is to move the metal. I agree with Agassi that the path of least resistance for traditional dealers is to push potential buyers to what they know (particularly as gasoline prices fall). Unfortunately, as Tesla has learned, the legislative landscape isn’t as accepting of direct sales as Agassi would have one believe. Additionally, manufacturers have dropped niche brands over the years at great expense, so it’s hard to picture the business case within Big Auto for building a new niche brand around a handful of products to sell directly to consumers.
Telsa has been on a roll with the Model S. It’s an amazing vehicle that is clearly causing consternation in Detroit (and Tokyo and Stuttgart, for that matter). But Agassi should recognize that Tesla’s success should not be confused with success for the entire segment. I have confidence that Big Auto can build an object of desire, upgrade it, and figure out the economics to make it attractive. What Agassi understates is that Tesla has done a very good job of identifying a niche that was open to new vehicle brand and product. Big Auto will need to do the same.