Sunday 8 February 2015

Tesla vs Dinosaurs, the new Apple vs Nokia

We recently argued that car manufacturers were essentially engine manufacturers, or more precisely, engine factory manufacturers —and that e-cars rendered  obsolete their core skills
  1. Designing petrol/diesel engines that deliver "acceptable" performance, fuel economy and pollution numbers, engines that are cost-effective to manufacture.
  2. Designing manufacturable vehicles around these engines, with the features needed to allow that engine to translate into movement: transmission, steering, braking, air intakes, exhausts, cooling.
  3. Having a cost-effective supply chain with 3rd party suppliers capable of on-demand supply of everything needed for those vehicles.
  4. A service chain capable of bringing in the cars & their motors for local service, with supplies available on a timely basis. Servicing and parts are a long-term revenue stream, especially pre-emptive annual services.
We also claimed the centre of the automotive universe had moved from Detroit and Southern Germany to Silicon valley

To back this up
  1. Ford announce their "innovation center" in Silicon Valley. Google is sucking them into a new orbit. 
  2. More press on the "surge" of electric cars, motor manufacturers saying "more must be done to encourage this". Except in the NL, where the number sold actually fell. In a city with safe cycling and functional public transport, electric cars are a distraction.
  3. Schroeders publish an investment analysis which argues that Peak Car has arrived in the west. Sales in the EU US and elsewhere will be replacements, especially to the (ageing) baby boomers, who will need autonomous vehicles to adapt to their age and to introduce planned obsolescence to vehicles that would otherwise outlast their remaining years.
  4. The Register review a Tesla Model D, a four-door family hatchback e-car that can out accelerate a Ferrari if desired. A car whose per-wheel motors under software control deliver optimal traction for the conditions and operation. A car whose large battery delivers range; a battery the car is built around for handling. The reviewer notes that a Nissan Leaf has an out and back "journey range" of 25 miles. The Tesla: 200. Out and back trips work. No more plugging in to recharge every night.
  5. The register compare it to the Porsche Panamera "c-zone exempt" hybrid and say you'd only choose the latter if you cared about the branding . Their Panamera view highlights how Porsche are behind in battery engineering, and have a convoluted mechanical transmission mode for performance alongside 
  6. The register review a "Renault Twizzy" e-car and sneer at its sheer uselessness.
  7. Tesla push-out an over-the-air software update their P85D cars that cut the 0-60 speed from 3.2s to 3.1s, While this number is fucking irrelevant except as a status symbol amongst the wealthy, the fact that Tesla can do this upgrade in software tells Porsche, BMW, Ferrari: this is the future. The fact that they push it out to all their existing customers adds insult to the injury. They also release a youtube video showing how their per-wheel electric drive delivers better snow traction than "all-wheel drive", just to let their competitors SUV units know that they are next.
Tesla have shown that the core skills of the future are radically different:
  1. Designing batteries which charge fast, hold charge across temperatures, can discharge on demand.
  2. Designing charging systems to charge those batteries fast.
  3. Building out the charging infrastructure. Whereas the existing motor industry demands more government concessions: free parking for e-cars, bus-lane access, etc. Tesla build performance charging stations as their solution to the range problem. With cars that can do 300-400 miles per charge, Tesla don't need that many, especially if a 15-30 minute recharge is all that is needed.
  4. Designing full size, everyday cars which make the battery an integral part of the vehicle, a vehicle built from the groundup around motors which can provide per-wheel traction and 0.60 performance on a par with even more expensive sports cars. 
  5. Integrating battery charge management with instrumented vehicles and wireless communications, so that giving all owners of the P85D car a performance boost is an automatic feature "Good morning! your car just got faster"
As a result, the Tesla model S wins the best ranking ever for a car by the US Consumer Reviews magazine.

The existing manufacturers, the dinosaurs, have a problem. Their existing plant is obsolete, their existing skill base obsolete. And they are not the cool places to work for if you want to build future transports. Would you rather help Renault do the Renault Twizzy 2 or go to Tesla, help build their next cars, and maybe earn a sabbatical on Space-X to work on space launcher management.

The existing car manufacturers are the new Nokias.
  1. They need to recuperate the sunk costs of those factories by continuing to build  and sell p- and -d cars. 
  2. They need to sell replacement cars to their declining customer base in the west
  3. They know that most cars are used daily for short-range commutes
  4. They know that pollution and congestion means that p-car and d-cars are being viewed as unwelcome in modern cities.
  5. They have to target the emerging economies with variants of their existing models, using the hand-me-down factories.
So they've all had the same idea: "let's sell electric cars as the number two car in a two-car household! One they charge up every night and use for commutes. We can then sell the "open-road-luxury tourer/crossover SUV" as the long-range toy!"

Except they've been so good at producing small petrol cars that they can't produce e-cars to compete. They have to keep costs down by (a) retrofitting the batteries and electric motors into vehicles that are built for combustion engines with transmissions, exhausts, air intakes and the like, and (b) skimping money on batteries.

Fitting small batteries keeps costs down, and while it meets the range of "most" journeys, it adds journey anxiety, —and is still very, very expensive. Furthermore, e-cars still have a key disadvantage. If you are driving one you still end up in stationary traffic wondering where you will park that day. Every evening you need to remember to plug it in somewhere to charge.

So what do the manufacturers do? They send their lobbyists to the government and say "we need lots of charging points for our limited range vehicles", "we need money to help build battery factories", "we need you to subsidise every e-car otherwise they won't compete with the combustion cars (dinocar?) we make", and of course "can we let them drive down bus lanes?"

Now consider
  1. Nokia's most successful phone. While it helped the developing countries, it did nothing for Nokia, which now only exist as a unit within Microsoft. 
  2. Apple, who in sheer volume of smart phones sold do not dominate the market, make 50-70% profit on an iphone, and the majority of the smart phone profits.
  3. Apple, despite selling only a fraction as many laptops as the PC vendors, take all the profit from that business.

Apple have shown that if you can produce the most compelling products —you can get the majority of the profits. And that technology and its packaging lets them do it in the markets they compete in.

Tesla have the potential to do something similar —especially if they can move fast, to be the rapid mammal against the lumbering sauropods.

You can talk about e-cars and people will say "they are too expensive", to which you can agree "yes, those 20-mile range leaf toys are useless all round." Irrespective of motor type, it's the wrong transport option for a city. And with such limited range, its useless outside of a city. Which makes them fundamentally useless.

There's always the hybrid option, "the best of both worlds". For today's car manufacturers, it leverages their existing skills in engine and transmissions, and adds a battery and regenerative braking to it. But go look at that Porsche Panamera review and think "nobody would seriously design a vehicle like this if they had a clean slate". A petrol engine and transmission, as well as a battery and motors? At least Toyota have pure electric motor transmission in their Prius designs. 

Hybrid cars like the Prius may compensate for the inability of the existing car manufacturers to produce compelling electric cars, but all they are doing is retaining all the limitations of a combustion engine (engine block, cooling, lubrication, fuelling, exhaust, pollution management, serviceability) and adding the problems of an e-car (battery placement and management, motor management, effective regenerative braking). And, by having both kinds of engine in the same vehicle, your luggage capacity is in trouble: the longer the electric range, the less stuff you can carry.

It's a stop-gap solution for companies that aren't in a position to go fully electric.

But it is all they can do while they struggle to catch up. They need to build the skills Tesla has, build the manufacturing plant and supply chain, the software for managing engines and batteries and the experience in building vehicles out of them —experience where Tesla are now three cycles ahead on a development process that is iterating far faster than modern "5-7 year" car model cycles. They also have a sales channel, the dealership model, that is no longer relevant in a world of online sales, apple-style direct sales stores and continuously instrumented vehicles. Yet that dealer channel is one of their assets they don't dare abandon, because without it, they can't keep reselling their existing models.

Which brings this article back to the subject of peak car.

Today's manufacturers, the dinosaurs, need to resell cars to their existing customers at a 1:1 rate. Households moving from two cars to one don't do that. They aren't in a position to make or sell electric cars at the price point they sell cars for today, low-end electric cars suck and hybrid cars are clearly stop-gap toys. 

They are in trouble. Nokia management holding an iPhone saying "what are we going to do now?", while a subordinate says "we still have the market share!"

Tesla don't need that market share.

Tesla don't need 1:1 replacement sales of the existing automobile fleet to keep their plant busy and repay massive government loans.

What Tesla need is what Apple has: the profitable bit of the business. 

Which explains how they are working.  They are producing cars that get great consumer reviews. Now, rather than go down to that "e-car for the commute" business, they've gone up to compete with the sports cars, creating a brand image. Tesla are making Tesla cars desirable, with the fact that they electric an incidental detail; no more relevant than whether its a petrol or diesel engine in a BMW 5-series. What you are buying the car for is not the ability to recharge it after 20 miles, but the ability to fill it with luggage, your entire family, then go for a long journey —overtaking those BMW 5-series cars you get stuck behind when needed.

Nokia: meet Apple
Dinosaurs: that little thing at your feet? It's called a mammal.
Combustion engine manufacturers? We've got some bad news

Incidentally, Tesla have two charging stations in South Gloucestershire. One close to the M4/M5 Cribbs Causeway interchange, one off the A4174 and in range of those north-fringe commuters who make the mistake of living somewhere in extended-M4/M5 congestion commute zone.

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