Tesla founder says previous electric cars "Pieces of Crap"
by Matthew Sparkes, London, UK 
on 10.15.07
Martin Eberhard, the Tesla co-founder who recently stepped down as the CEO, has apparently made some very frank statements about the reasons why some previous electric car companies have failed. In a video interview he is apparently quoted as having said that going against mature car companies to create affordable cars won’t work, and that not getting the economies of scale that they do has caused previous affordable electric cars to be “a piece of crap”.
The video is unavailable currently, but Auto Blog Green is listing a partial transcript of a video interview, where he is quoted as saying, "In general, it seemed to me that, the way all other people started electric car companies, got in the business, was wrong. They wanted to make a car that would save the world. So, they needed to make a car that everyone could afford and they tried to come in at the bottom end of the market. They try to go up against very, very mature companies in a very, very mature industry. Every single component they buy costs them double what Honda or Hyundai or somebody pays for that same part. So they wind up with a car that's a piece of crap. No one wants to buy it.”
He is said to go on to explain that an initial period of exclusivity is normal in many products, particularly technological ones, and that desirable electric cars are no exception. “No other industry does that happen. No other industry do you start in the low end and work your way up. Think about cell phones and flat panel TVs and camcorders and refrigerators and air conditioners. All these things start off as an expensive product and are sold to people who can afford it that are buying it not to save a lot of money but to experience the luxury of this new thing. That allows the companies to develop their technologies, to develop their supply chains and to drive the costs down, step by step as they reach a broader and broader market every time."
I think that this is a very practical point of view. Any other expensive new technology is released as soon as possible, despite costing a fortune. Eventually, economies of scale, improvements in manufacturing and cheaper parts bring the cost of the technology down to the point where the average person could buy it.
OK, I can't afford a Tesla now, but the fact that they are being sold means that they will become cheaper to make. Advancing the technology used in electric cars means that they are more likely to become practical to buy and run. Making a top-of-the-line electric car that costs more than most people make in a year is far from elitist, it's pushing the boundaries of what can be done, and I will personally be grateful when I can buy one, at an affordable price, in many years time. ::Auto Blog Green ::Image Source
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No other industry do you start in the low end and work your way up.
Perhaps the reason he got demoted is because he doesn't understand economics very well. Plenty of successful ventures start at the low end and work their way up. Japanese companies used that approach to take over industry after industry, and the Koreans, Chinese, and others are replicating that approach.
Even if the angle is supposed "new" technology, surely Mr. Eberhart knows that battery-electric vehicles are just as old as internal combustion vehicles. It's an extremely mature technology, and the thing that has changed is that a key component of it - batteries - has improved fairly substantially over the past decade primarily as the result of the growth in cell phone and laptop sales.
His strategy may or may not work (I wouldn't bet on it, personally), but the logic which informs it is fundamentally incorrect and should be a caution to those who believe Tesla has somehow triumphed over the automotive industry.
"Plenty of successful ventures start at the low end and work their way up. Japanese companies used that approach to take over industry after industry, and the Koreans, Chinese, and others are replicating that approach."
Actually, this isn't entirely accurate either. The Japanese realized success by producing like products more economically. Only once they gained a leadership position did they begin creating new product categories. The Koreans are just now reaching this stage, with companies like Samsung. The Chinese aren't even close.
In many ways, Eberhard's venture is an entirely new product category, not just an alternative within an existing category. In that context, his statement is accurate. By and large, companies don't enter the market with an entirely new category of product at an economical price.
I don't know that Solectria conversions were considered affordable in their time, but they certainly weren't crap.
Anonymous, I beg to differ.
All of the industries and nations that you just named had their industries started with heavy government subsidies and an existing manufacturing base. There were already economies of scale in place thanks to globalised supply chains for existing industries. A skilled workforce was already there. They also took advantage of undervalued currencies, cheap labor, lax environmental regulations, and too often poor enforcement of intellectual property rights. Also, many of these countries languished through 30 years or more of economic failures as their governments sought to build up the resources and figure out the right set of developmental economics to get their industries off the ground. And the sweetest part of it is that as those industries and companies mature, they quic kly rise up to close the gaps, such as lax intellectual property rights, that got them their start in the first place.
What does this story have in common with emerging technologies? Not too much. That is why the Asian miracle nations and other developing countries were able to quickly catch up to nearly the technological levels of Western industrialized countries. But once they reach this point their growth inadvertently levels off and the most advanced countries are still left to do the bulk of all cutting edge research.
And that is also why most inventions targeted at developing nations don't push the boundaries of science, but find a novel use for a pre-existing technology which is already cheap to produce. Or, a scientific breakthrough in materials or manufacturing makes an expensive technology all of a sudden affordable to all. In the case of things such as solar power, or batteries, a lot of those breakthroughs have to do with squeezing out economies of scale from prohibitively expensive factories that require - catch 22 - economies of scale.
So if the Telsa or anyone else pushes lithium ion battery manufacture up from laptop size to car size, the whole industry will benefit. And only then will the poor-man's industries of far off nations be able to take part and flood our markets with cheap electric vehicles.
Somehow this is reminiscent of scams that have been around forever. Pyramid Plans, Ponzi Scemes, anything that uses investor cash to generate a payroll for the first tier of 'executives' comes to mind. Albuquerque New Mexico is the site for this factory because the State has so little knowledge of economics, is cash flush from it's mineral depletion allowance and the fact that Bill Richardson is throwing around huge sums of cash from the States coffers to 'enhance' his prospects for President of the USA in 2008 or ? Beware!
Anonymous is wrong. The Japanese had a protected market in their home country to build up scale with.
Toyota sold some 2,000 cheap cars their first year in the US. It went badly, and they tried again and again. But at home they were selling hundreds of thousands. For decades it was virtually impossible to import cars into Japan.
The US did the same thing with many industries. You can start cheap and work up only with massive government support, either through subsidy or by the granting of some kind of monopoly. Subsidies can be indirect. For example military contracts are a form of subsidy, since they pay for R&D and guarantee profit.
Tesla has no subsidy and no monopoly. Unfortunately, no nation today is granting either benefit to electric car producers.
Plenty of ventures might start in existing industries and work their way up, but the first products to establish those industries are not coming in at the bottom- think mobile phones. Sure, you could have some startup churn them out cheaply now but you couldn't 15 years ago. I think Eberhard has a point. Whatever the arguments about how new the technology is, there isn't currently an established electric car industry to speak of and until there is there probably won't be cheap, mass produced electric cars either. Like everything else, the first ones will be pricey.
Those at GM who were responsible for the recall and crushing of the EV-1s showed by their actions that they shared this view of electric vehicles. Including their own.