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Time could be right for the takeoff of the electric car


What do screaming protesters at the G-8 and G-20 summits in Canada have to do with a battery service start-up that has received $700 million in investment capital from Morgan Stanley and Lazard? And what do they have to do with a planned initial public offering by Tesla Motors, an electric car company?

The answer has to do with hopes for an oil-free future that was building even before Deepwater Horizon. Now many innovative companies are counting on anti-BP fury to take consumers over the edge and adopt alternate energy projects that were already in progress.

Consumers may even embrace the product they have famously rejected, the electric car. Better Place, a car battery service start-up, begins with the wager that the old problem of recharging batteries is the big obstacle that stopped consumers from buying electric vehicles before. Using Israel as a test site, Better Place in the next year or so will open 75 stations where electric cars can simply swap an exhausted battery for a new one in the same time it takes to refuel.

There's an old business theory that suggests the electric car may indeed zoom ahead this time. That theory, called disruptive innovation, was developed by Clayton Christensen, a guru at Harvard Business School in the 1990s.

Disruptive innovation boils down to this: A big company makes something that consumers buy en masse, a group to which it is beholden. Paradoxically, a company's emphasis on good service can be an error. When management caters too extensively to extant clients, it forgets to develop new markets.

Meanwhile a smaller group has an alternate idea. But that alternate idea has serious flaws, and no one even knows if a market for it exists. Over time, the quality of this marginal product improves. Next, the new product finds a crowd that is willing to accept imperfect technology because it likes the item for other reasons. These are the legendary first adopters, the MP3 crowd. Suddenly the alternate product takes off. The big company product seems as irrelevant as a cassette tape recorder.

In the 1990s, long before Better Place and others like it had formed, Christensen laid out the reasons the electric car was failing, using as evidence the old Chrysler electric minivan. The vehicle required 1,600 pounds of batteries, which slowed acceleration. It cost five times as much as a comparable gas-powered model. It traveled less than 100 miles before needing to refuel, and recharging required hours.

The question is whether all the current events of recent years, from two wars to multiple oil price spikes to, now, the BP spill, constitute a permanent change.

The Tesla Motors public offering will test this idea. So will the success or failure of Think, a Norwegian carmaker that is building an electric car plant in Elkhart, Ind. Nissan is coming out with the Leaf, an all-electric car.

Under the Better Place business plan customers buy electric cars from Renault, then sign up for a subscription battery swapping network. A navigation system will help drivers find a charging station that's part of the Better Place network. Robotic tools swap an empty battery for a fresh one in minutes.

While governments loom in the background, capital is playing a star role: Consider Tesla's planned IPO and the private companies that have invested in Better Place.

In addition, this time is different because the BP disaster will loom for a generation ahead, however oil prices fluctuate. Already many voters trust brands as much as governments. And already, many brand companies promote political causes. As they watch the protesters in Canada and live video of the gulf spill, many voters are considering going green more seriously than they ever did before.

Amity Shlaes, senior fellow in economic history at the Council on Foreign Relations, is a Bloomberg News columnist.

Time could be right for the takeoff of the electric car 06/27/10 [Last modified: Sunday, June 27, 2010 6:37pm]
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