Electric Vehicles (Short Musk-Related Noise; Long Technology)

This is not a fangirl ode to Elon Musk. We’ll leave that to the Twittersphere. The trials and tribulations of everyone’s favorite Marvel-character-inspiring eccentric billionaire may be distracting from developments far bigger and far badder than Tesla’s ($TSLA) balance sheet: the advancement of electric vehicles.

Last week, California’s state legislature approved a bill that requires the state — subject to Governor Jerry Brown’s signature — to get 100% of its electricity from carbon-free sources by 2045. Yes, 2045 — 27 years from now. Sure, it might be hard for you to be impressed or to care. If PETITION is even still around by then it will likely be written by artificial intelligence bots. So, we get it.

Still, California ALREADY gets 29% of its electricity from zero-carbon wind, solar, biomass and geothermal energy — in part to dramatically reduce greenhouse gas emissions and in part, no doubt, to flick off the President of the United States. Indeed, greenhouse gas emission levels have decreased such that they now rival those of the 1990s.

Yet, emission levels related to transportation in California have barely moved. Nevertheless, consistent with what we wrote previously about advancements in the auto space, Nathanial Bullard notes that that appears primed to change. In a piece entitled “Electric Vehicles’ Day Will Come, and It Might Come Suddenly,” he wrote:

In the first half of the year, vehicles with a battery were more than 10 percent of new vehicle sales in California. The model mix includes hybrids like the Toyota Prius that have no electric charging plugs, as well as plug-in hybrids and pure electric cars with no combustion engine at all.

The data reveal three trends. The first is the steady erosion of hybrid market share, which is down from seven percent of new sales in 2013 to four percent in the first half of 2018. That’s noteworthy, and so is the fact that battery electric vehicles are now more popular than plug-in hybrids.

In 2017, the plug-in electric car market is now more than six percent of new car sales in California. It’s not a big number — but it will get bigger, and it’s worth asking, “how much bigger?”

Looking at Norway, Bullard posits that it can get substantially bigger. He notes that:

It took Norway about a decade to reach six percent electric vehicle sales but then only five years to go from 6 percent to 47 percent. 

Is 6% some sort of magical inflection point for electric vehicles? Debatable. Norway is super-progressive when it comes to the environment; it also offers extensive incentives to encourage EV adoption. But with a statewide push towards zero-carbon electricity, a push towards zero-emission electric cars may not be far behind. Californian car sales are pushing towards 2 million in 2018. And selection is about to improve: everyone from Audito BMW to Porsche are coming out with all-electric models in the next several years. Tremendous growth may not be too far off. The OEMs — Tesla’s competitors — are making sure of it.

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Speaking of technological advancement in auto (and auto distress), we find Andreesen Horowitz’s Benedict Evans’ musings on the topic to be thoughtful and thought-provoking. We previously wrote about him WAY back in January 2017 when he wrote about mobile eating the world. The piece is worth revisiting.

Last week, he released a new piece with questions right up our alley. He asked:

…what happens when ‘software eats the world’ in general, and when tech moves into new industries. How do we think about whether something is disruptive? If it is, who exactly gets disrupted? And does that disruption…mean one company wins in the new world? Which one?

He seems to conclude the following: not Tesla.

One narrative surrounding Tesla in the post-Solar City acquisition world is that it more than just a car company: it’s a battery play. Musk’s powerwall feeds this narrative. SolarCity, to some degree, feeds this narrative. But Evans begs to differ; he thinks the battery — as well as EV components, generally — will become commodities. Commodities that spawn victims along the way. He notes:

It’s probably useful here to compare batteries in particular with the capacitive multitouch screens in a smartphone. Apple was the first to popularise these screens, and arguably still implements them best, and these screens fundamentally changed how you made a phone, but the whole industry adopted them. There are better and worse versions, but everyone can buy these screens now, and making a multitouch phone by itself is not a competitive advantage.

It’s pretty clear that electric disrupts the internal combustion engine, and everything associated with it. It’s not just that you replace the internal combustion engine with electric motors and the fuel tank with batteries - rather, you remove the whole drive train and replace it with sometime with 5 to 10 times fewer moving or breakable parts. You rip the spine out of the car. This is very disruptive to anyone in the engine business - it disrupts machine tools, and many of the suppliers of these components to the OEMs. A lot of the supplier base will change. 

This is not the same as disrupting the OEMs themselves. If the OEMs can buy the components of an electric car as easily as anyone else, then the advantage in efficient scale manufacturing goes to the people who already have a lead in efficient scale manufacturing, since they’re doing essentially the same thing. In other words, it’s the same business, with some different suppliers, and electric per se looks a lot more like sustaining innovation. (emphasis added) 

Likewise, he highlights how Tesla’s (i) software, (ii) data aggregation and (iii) efforts with autonomous driving may be leading now but they may not be as disruptive, in the truest sense of the term, to competitor OEMs as some might believe. That is, many OEMs are making progress of their own in those areas. The lead is not that wide. Tesla’s moat is not vast. Read the piece: he raises some interesting points — too many to note here.

He concludes:

…the history of the tech industry is full of companies where having a lovely product, or being the first to see or build the future, were not enough. Indeed, the car industry is the same - a great, innovative car and a great car company are not the same thing. Tesla owners love their cars. I loved my Palm V, and my Nokia Lumia, and my father loved his Saab 9000. But being first isn’t enough and having a great product isn’t enough - you have to try to think about how this fits into all the broader systems. 

Indeed. Many companies — many of which seem wildly successful today — will falter as that system develops.