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Electric dreams: How plug-in cars picked up speed and credibility
By John Reed Financial Times
January 8 2008, page 9

Silicon Valley start-ups are driving innovation in an area where big carmakers have been reluctant to invest, writes John Reed. Below right, he assesses the prospects for an alternative 'green' fuel: hydrogen

LARGE PHOTO OF TESLA; CAPTION: The Tesla Roadster, a battery-powered sports car that its manufacturer claims can accelerate from zero to 60 mph in under four seconds.

The place is Buck's of Woodside, a Silicon Valley cafe whose slogan is "flapjacks and tomfoolery". Executives from the area's technology and venture capital companies frequent the whimsically decorated restaurant, alongside characters clearly inspired by California's 1960s counterculture. Felix Kramer, an entrepreneur-turned-environmental activist, is expounding on his favourite topic: electric cars, and the big carmakers' reluctance to build them commercially until they are cheaper and more reliable. "If the cell phone companies had said they wouldn't make them because they weighed as much as a brick and would cost $1,000, we wouldn't have them now," he declares. "It's arrogant to say you won't build the version 1.0 car until it's perfect."

Mr Kramer's pressure group, the Palo Alto-based California Cars Initiative (CalCars), has been taking matters into its own hands. The non-profit group dispenses advice on retrofitting Toyota Prius cars to convert them into plug-in hybrid electric vehicles (PHEVs), which are capable of driving longer distances on battery power than conventional hybrid cars.

Toyota and General Motors, the world's two biggest carmakers, are themselves testing plug-in vehicles but delaying their commercial launch, mainly due to snags in developing the lithium-ion batteries needed to power them. Mr Kramer already drives a Prius converted into a PHEV, painted with the inscription: "This Plug-In Hybrid gets 100+ MPG". Outside the restaurant, someone has left an earnest note on his windscreen: "Do you know where I can buy batteries for hybrids or PHEVs?"

The scene is emblematic of northern California, where a passion for all things automotive is melding with the area's strong green streak and local "geek" knowhow, making Silicon Valley a hotspot for the developing field of electric cars. The push for zero-emission vehicles is becoming stronger as the US Congress, European Commission and local authorities around the world prepare legislation to force carmakers to make their vehicles cleaner and more fuel-efficient.

Down the road from Buck's in San Carlos, Tesla Motors is developing a battery-powered sports car that the company claims is capable of going from zero to 60 mph in less than four seconds, faster than a Lamborghini Murcielago. Shai Agassi, a former SAP president, recently raised $200m (£101m, €136m) for Project Better Place, an electric-car start-up. The company plans to develop a "smart grid" of battery-exchange stations that would allow drivers to recharge their cars widely and quickly and, if successful, remove one of the biggest obstacles to the widespread adoption of electric cars.

PHOTO OF FELIX HOLDING PLUG; CAPTION: Felix Kramer: "It's arrogant to say you won't build the version 1.0 [electric] car until it's perfect.'

Google, whose founders Sergey Brin and Larry Page are electric-car enthusiasts, recently made a $10m call for investment proposals from companies developing such vehicles, or the components and infrastructure needed to produce them, through Google.org, its philanthropic arm. The company also lent early support to Think Global, a Norwegian company that last year launched production of all-electric minicars after raising $93m in start-up funds, including from Silicon Valley investors.

At its "Googleplex" campus in Mountain View, the company is running a project to collect data for research purposes from retrofitted PHEVs such as those promoted by CalCars. "Silicon Valley is known for its innovation," says Google.org's Kirsten Olsen, who is managing the project. "People are tired of waiting around for Detroit, so we're thinking of ways we can innovate with the technology."

No one in the burgeoning electric-car field is suggesting that Silicon Valley, with its high wages and property prices, will ever replace Detroit, Stuttgart or Toyota City as a centre for car manufacturing. Away from California, car companies and industry analysts continue to emphasise the obstacles blocking the commercialisation of electric cars, including price, performance, and the battery technology and recharging infrastructure needed to make them viable.

What Silicon Valley can do ­ and is increasingly doing ­ is finance and launch small, pioneering ventures that incubate new technology. Executives at the area's privately funded start-ups say they have the advantage of moving more quickly than publicly traded car companies, which typically deliberate over product decisions and rarely pursue risky new niche vehicles at the expense of sure sellers, including the big, high-emission cars that dominate America's roads.

"Silicon Valley tends to be quicker about jumping on trends, and we can do [for cars] what we did with the computer, the internet, the mobile phone and electronic toys," says Stephan Dolezalek of Vantage Partners, a fund with investments in clean-technology companies including Tesla and Project Better Place.

Silicon Valley's strengths also lend themselves to the electric-car field, which requires both knowledge of cutting-edge technology and experience in financing and managing risky start-ups. "The technology is electronics and software, and we know how to do that well," says Ian Wright, the founder and chief executive of Wrightspeed, another Silicon Valley company that has built a prototype electric sports car.

PULL QUOTE: 'People are tired of waiting around for Detroit, so we're thinking of ways we can innovate with the technology.'

The field of electric cars is not new, nor is enthusiasm for them in California new. America's most populous state has long taken a lead in seeking to promote greener cars, going so far as to challenge the federal government in court for the right to regulate vehicle emissions. The state began requiring carmakers to sell some zero-emissions vehicles in 1990, lending impetus to the industry's first wave of electric cars. Toyota developed an electric version of its RAV4 sport utility vehicle and GM its EV1, later the subject of a documentary entitled "Who Killed the Electric Car." These early electric cars foundered on a combination of cost, demand, infrastructure and technological factors.

Since then, however, automotive and battery technology, legislation, and public opinion on global warming and energy security have all moved on. Petrol prices have also risen sharply, giving new impetus to the field, as well as to work on cars powered by biofuels or hydrogen fuel cells. Big car companies are now making commitments to electric cars: alongside the GM and Toyota plug-in cars being tested, Daimler, Renault/Nissan and Mitsubishi all plan to launch all-electric vehicles for commercial sale within the next few years. While electric cars will not overtake petrol any time soon, their number is expected to grow exponentially over the next decade. A significant portion of the financing, technology and market demand powering them will come from California.

Tesla typifies the emerging e-car field, with all its potential profits and pitfalls. The company was started in 2003 with $105m of capital, $37m of which came from Elon Musk, the engineer who co-founded the PayPal electronic payment service later sold to Ebay. While most early electric vehicles have been microcars with a prim "eco" look, the Tesla Roadster (left) will be a stylishly curvy, high-end two-seater derived from the Lotus Elise. Tesla plans to sell the Roadster for $98,000 and says that it has pre-sold its first-year production run of 800. "We're going to make electric vehicles that are beautiful, sexy and fast," says Darryl Siry, Tesla's vice-president for sales, marketing and service. "We are going to develop zero-emission vehicles that people will still want to drive."

Lotus will assemble the Roadster in the UK, with parts sourced from places as far-flung as Taiwan and Thailand. Its crucial, made-in-Silicon-Valley component is a battery pack composed of thousands of laptop-size batteries, managed by a system that will make it both reliable and safe. Lithium ion batteries have shown a tendency to overheat or even explode, a major safety issue for their use in cars. However, Tesla says that it has tested its cars extensively, including in crash simulations.

Safety issues aside, the cost of lithium-ion batteries is also a concern. While GM and Toyota say they can make plug-in cars profitable only if they can sell them in large volumes, Tesla's high-end business model should allow it to pass on more of the development costs to customers. As it builds production scale and the cost of batteries comes down, Tesla hopes to make vehicles in larger numbers, including a lower-priced sports sedan. It also hopes to sell its batteries to others. "We're going to look like the Porsche of electric-vehicle companies ­ or the Honda, where the business model is to sell not just cars, but motors too," says Mr Siry.

Despite its ambitious plans, Tesla has delayed the launch of the roadster twice, most recently due to problems with making a transmission durable enough to handle the car's high torque and revolutions per minute. Technological hurdles aside, Tesla will need to set up a reliable service and supply network ­ a doubly daunting task given the company's small scale and the fact that its cars, with their 220-mile electric battery-powered driving range, will be pioneers in their class.

Tesla initially plans to set up service and showroom outlets in Los Angeles and Menlo Park, and is building garages in Chicago and New York. To bring its planned sedan to market, however, Tesla will need a larger, costlier network ­ the kind of thing established carmakers have taken decades to build up.

Tesla's network concerns point to the obstacles any niche producer faces when taking on the big players of the established car industry. They also highlight one of the biggest roadblocks preventing the roll-out of electric cars on a large scale: the availability of places to service and recharge them. The plug-in cars now in development, such as GM's Chevrolet Volt, will be rechargeable from any electric wall socket. The model should work well in the US, where many car-owners have garages, but less so in Europe or Japan, where more motorists park on the streets. In a sign of the weightiness of the issue Toyota, which is testing PHEVs in France, Japan and California, recently announced an agreement with the French utility EDF to develop public recharging points around Europe, along with a system for billing drivers for the power.

Mr Agassi, the Israeli-born entrepreneur behind Project Better Place, is proposing a radically different solution to the conundrum of electric cars and recharging infrastructure. His idea is to develop a grid of charge points and battery-swap stations where motorists can have their batteries exchanged for fully recharged ones within five minutes. Early electric cars, he says, flopped in part because motorists were asked to shoulder the costs of the cars' expensive batteries, which they could not recharge quickly or easily. "Car-buyers were asked to pay more, wait as we charge and pay for all the energy costs," he says.

Under Mr Agassi's business plan car batteries would become the property of companies such as his own, which in time would bring down the retail price of the vehicles significantly. Much as telecommunications companies build the transmission towers needed to make mobile phones work, infrastructure providers would then roll out a network of battery-swap stations dense enough to make long-distance driving in electric cars viable. Electric car owners would pre-pay for charging plans for their cars, with different packages offered, comparable to those now available from mobile-phone operators. As with mobile phones, electric cars might over time even be offered to drivers for "free" as part of their recharging package.

"We're bringing something into play that no one has done before: we're bringing the market," says Mr Agassi. Vantage Partners' Mr Dolezalek, whose fund invested in Project Better Place, says: "If you can make recharging as simple as going to the gas station, you can change the theory on electric vehicles."

Since starting the company in 2006, Mr Agassi has travelled extensively to sell the idea to policymakers, carmakers, and oil and utility companies. Project Better Place will target "transportation islands" ­ places with dense populations where the large majority of drives are short. Renault, which is developing electric cars, has confirmed holding discussions with Mr Agassi. He has floated the plan in his native Israel, an effective "island" in the Middle East concerned about energy security, and gained support for the project from Shimon Peres, Israel's president. Mr Agassi is not discussing specific plans, but notes that the UK would also lend itself to the concept, as would China, with its many densely populated urban areas.

The group is in touch with officials in 15 countries, he says, and plans to establish local companies and raise further funds as it grows. "The feeling we're getting from carmakers is almost like Netscape's IPO," says Mr Agassi. "They're saying: 'We have to be there.'" Others in the car industry highlight technical barriers to battery-swapping, while more generally executives continue to stress the performance and other factors impeding widespread adoption of electric cars.

Mr Agassi acknowledges that his reputation is on the line with the new venture. Silicon Valley, he says, has a track record of driving innovation by coupling cutting-edge technology with new business models. "We have business-savvy technical people who are used to taking risks."