This week’s show is finally a bit shorter as we get caught up.
Speedster Nippon went on a truck. This is one of the best builds we’ve ever done, and quite a pain in the ass to perform. It points up why we DON’T want to be automobile manufacturers, even on a small scale.
The issue was of course government and paper in nature. The state of Missouri, onerous in many ways, is a bit generous when it comes to automobiles. Neighborhood electric vehicles and scooters of 50cc or less require ZERO licensing or regulation within the state. You can just buy them and drive them on the street. Similarly, we have an EXCELLENT law on the books regarding historical vehicles. You buy a license plate and register the vehicle ONCE, for $25, and the registration is good FOR LIFE. This is probably a nod to some historic car collections that have been traditional in Missouri.
Registering the Beck Speedster replica is very interesting. The state actually registers it as a 1957 PORS even though it might have been manufactured 3 weeks ago in Bremen Indianna. They do actually moark the title REPRO several inches down the page, but they allow registration under the historic vehicles law.
Speedster Duh was registered in this way and delivered to DELTA FORCE last July. They purchased a follow-on build for November 1. We missed it rather badly.
Actually we made it – just. But along the way, they rather insisted that we were to register the second vehicle as well. There was actually a great deal of discussion regarding delivery dates at the meeting here in Cape and it was specifically decided NOT to register it here as it would add to the delivery date. I forwarded some e-mails reiterating this and they admitted it wasn’t in the original agreement. But they wanted it registered here anyway, at additional expense and delay. Why?
I can only surmise that it has something to do with registration in Japan. And similarly Japan, home to many car collectors, grants certain advantages to owners of classic vehicles. I can only assume that Delta Force found SERIOUS advantage to having the Missouri Title state that it was a 1957 Porsche.
And so it goes. Tesla at one point was fined $244,000 by the EPA for not filing a vehicle emissions certificate – on an electric car. There was no contention that it HAD any emissions, only that they had failed to file for the certificate. Regulatory madness.
And that brings us to a key element of EV-dumb. You do NOT really want to be a vehicle manufacturer.
Most car buyers are almost totally unaware of the business of automotive manufacture. Almost everything about it would shock you and indeed most of it would shock people IN the automotive industry. Let’s start with the basics: There business is actually NOT designing and building automobiles.
Actually about 80% of the engineering talent at any American automobile manufacturer do not design cars at all. They design a machine, approximately a mile and a half long, that makes cars.
This machine consists of people, robots, sprayers, and a vast logistics system to deliver parts from all over the world to precisely the right gate at precisely the right time and in precisely the needed quantity. It costs billions of dollars to construct and many hundreds of millions of dollars each year to modify. Stuff goes in one end, and cars come out the other.
The very tiny handful of employees who actually design and test automobiles are under constant edict to “design for manufacture” which means they don’t care how the car runs, they don’t care what is required to maintain the car, they are MOSTLY concerned with what has to be done to MANUFACTURE the car.
The PARTS that goe into this machine, are a tiny part of the cost of your car. GM can buy and produce ALL the parts for a $60,000 Cadillac Escalade for about $8,000. You of course, could also purchase all those parts from the local dealer and build your own Escalade, but the parts would total about $300,000. So you see the markup on vehicle PARTS is quite interesting.
The labor to build the car? Lost in the rounding errors. When GM was facing bankruptcy, they disingenuously pointed the finger at the Union workers who assemble the cars. The head of the Union was widely criticized for claiming that they could work for free with no benefits for the next 20 years and not have any effect on the bankruptcy at all. The media howled. The GM executives scoffed. And we all went along with it. But the Union leader was exactly right. The labor costs to build the Escalade get lost in the rounding errors. The assembly workers are a tiny part of the “payroll” which is mostly high dollar salaried engineers in the invory tower.
We see many estimates discussed as to how much it COSTS to manufacture the Nissan Leaf or the Chevy Volt. The automotive executives seem vaguely secretive and evasive about this don’t they? Actually, they are not trying to be either secretive OR evasive. They don’t precisely understand the question or what you are talking about. And while they know quite a bit about it, they don’t know the answer to the question as stated. They exist to answer very different questions.
The cars don’t HAVE a profit margin. If they did, you would be shocked to hear it. If you take the cost of the parts and labor to build the car, and compare it to the price the manufacturer receives, the “margin” is probably on the order of 600 or 700% – improbably large. But it’s kind of nonsense. The cost of the MACHINE dwarfs EVERYTHING. And so the way they think of profitability of a model is the break-even. If we introduce this car, it turns profitable with the 63,343rd vehicle produced and sold. In their world, if they sell 63,342, the vehicle model didn’t make any money at all. And that if they sell 64343, for each car after that, it is literally raining money. What each vehicle margin is or how much they made on it is almost nonsense. It’s burdened by the breakeven – the cost to build the MACHINE and the overhead just of having a corporation. Net/net/net, it is all about how MANY they sell. There is no specific margin on any particular vehicle except in historical review. At any point in time, you can calculate BACK but as sales occur each month, that almost doesn’t make sense.
Complicating THAT is that they are going to sell the SAME vehicle next year, and additional costs are a function of what changes have to be engineered into the car, and thence more importantly into the MACHINE. How MANY years they can sell the same model, and the degree that it changes year to year, are huge impactors to profitability.
And that goes to predictability. They have to forecast very accurately, for each model introduced, how it will be received, how many it will sell per year, and how long a life that model will enjoy. All rather impossible figures to come up with.
Now, if you have a financial CREDIT LOCKUP stop ALL financed vehicle sales entirely, as we had in 2008, can you IMAGINE what this does? That’s what really happened to GM, Ford, Chrysler et al in 2008. They were not only bankrupt, they actually had NO IDEA if they were bankrupt or HOW bankrupt they were. They were kind of suspended mid-air, with BILLIONS ticking off on the clock at a DOZEN of these machines in a surreal time warp where NO cars were sold but the machines kept eating like monsters.
This is why Bob Lutz proclaims the automotive business as one of the most complicated in the world, and curiously difficult for new entries, such as Tesla, to manage. Never mind titles and emissions certificates.
From my point of view, you don’t need to know any of that. It is unattractive on the face of it:
1. High capital costs.
2. High employee count/labor costs.
3. Extremely high government regulation.
4. Ultimately low margins.
It is a thoroughly mature thoroughly unattractive business. You could literally be much more profitable devising the ultimate bobble head doll to put in the rear window of the car, than you could manufacturing, at any size or any scale, the car.
Tesla has a couple of opportunities with NUMI and the Tesla electric car. It’s true it is a disruptive car. But it is more important that it be a disruptive MACHINE with a disruptive technology to DESIGN the machine. That means very high tech very silicon valley techniques to computer design cars and robots and assembly procedures. Annoyingly for Musk, the actual production of the car got down to humanoids working overtime into the night in December to put cars together and fix problems. It’s not really going so well there. The supplier logistics do NOT lend themselves to new age techniques. In fact, GM kind of has THAT part down to an art form – beating up vendors. If some 80 IQ truck driver shows up at the wrong gate, out of the 26 available, 10 minutes late on ONE delivery, the vendor finds their profit for the MONTH gone entirely. Read the fine print. It’s clearly spelled out in 4 point type in the purchase agreement. And the vendors are NOT unaware of it. They know ALL ABOUT IT.
Once you are aware of this, you understand how thoroughly annoyed I am with absolute rank amateur CLOWNS when they inform me in unctiously superior, nay CONDESCENDING tones that “they only sell to OEMs.” They are TOTALLY CLUELESS what this sounds like to me. Or what an actual GM supplier might think of them.
A good friend of mine recently actually shut down a company he had taken over 20 years before – after his father’s untimely death. He layed off ALL his omployees, many of which had worked there since before he was born – beyond friends – essentially family he had known all his life. People who had NO PROSPECTS of ever having employment anywhere again for the rest of their lives. Sold off all the equipment for 10 cents on the dollar. The business was beyond “not fun anymore.” It was a brutish existence living as a menial serf on the GM and Chrysler landhold, eeking out an existence one day at a time. The spectre of what might have happened in the narrow escape from GM’s bankrupty clinched the deal. He managed a tiny pittance by selling his contracts to competitors. Maybe enough to live on for a year or two and start something else on a shoestring. Thanks enough for 20 years of 100 hour work weeks.
On a cheerier note we have NADA. The North American Dealers Association. You know them as the ill fitting plaid sport coat crowd with the patter selling you the cars and going to see if management will approve the negotiated price. You rest easy in your career knowing that if all else fails you can always get a job in a car lot selling Buicks.
Here too, the business has almost nothing to do with selling cars. They have to sell cars to keep the franchise. And often they make $300 on a sale. Chump change. It barely keeps the plaid suits employed. But it does give them kind of an ironbound lock on YOU as purchaser of the car.
Out back, behind the acres of shiny new cars, are eight “service bays”. Depending on vehicle line and geographic location, EACH bay can generate as much as $2.5 MILLION in annual PROFIT, not revenue. Once they sell you a car, they own you. THe automaker pays them for what’s covered under warranty. And you pay them for what is not. They get it from both directions.
Ergo Elon’s tearful assertion that it is wrong to profit on service in the automobile business. While charging $600 per year essentially for software upgrades himself.
All of that goes to a prediction I made 20 years ago that the Internet would absolutely and INEVITABLY lead to the collapse of distribution networks. It has taken a long time, and it will take decades more. I am astounded at how resistant and persistent those distribution networks have been. But in many products, alcohol, wine, vehicles, they are cast into stone with protective legislation usually at the state level. That said, they are an act of gravity defiance, and ultimately all will tumble to the ground. The advantage of selling direction, both to the manufacturer and to the end user, are just insurmountably too huge to discount.
Ironically the BEST example of the collapse of distribution networks IS itself a distribution network – WALMART. It will first eliminate all other distribution networks, and finally eliminate itself. In demonstrating how much more efficient it can be than the existing networks, it will ultimately demonstrate the absolute efficiency of no distribution network at all. In the interim, in a very strange way, they give us “buying power.” The ability to drive manufactures to bankruptcy on price.
Sounds pretty gloomy Jack.
Actually not. Mature industries drive toward zero profit and zero opportunity for new entrants and employees alike. But disruptive technology is, ….. well… disruptive. When an airplane is invented, it gives rise to a LOT of needs, airplane tires, and airplane lights, and wire, and fabric, and runways, compasses and airports and airport beacons and the BULBS in the beacons that were never needed before at all by anybody. It’s a great invention, but it needs ALL the infrastruture to support it. These needs initially run both wide and deep in all directions. After about 110 years, it becomes MATURE with all the little holes of opportunity filled in, and wiht a century for our brilliant leaders to figure out how to milk it to the uttermost farthing with taxes and regulation.
When Henry Ford first massed produced the automobile, there was a sudden need for EVERYTHING related to automobiles. Imagine how much was made and how much opportunity in such esoterics as ROADS, and gasoline stations and spark plugs and spark plug wires. Bill Lear, inventor of the Lear Jet, made his first fortune by developing an AM radio that could be installed in a car, allowing radio reception in spite of tne noise from the ignition system. He called this new venture MOTOROLA and it had NO relationship to cell phones at all.
Today, we have two very strong areas of disruptive technology. Let me be clear. There is no if. There is not really a when. It is inevitable as sunlight and rain. Electric cars will subsume ALL of the automotive industry, in its entirety, and world wide in the coming few years. Not hybrids. Not market share. It will EAT IT ALL.
And similarly solar power is not going to be an adjunct to the production of electricity, it will subsume it ALL in coming years. Scoff as you might, about 1350 watts of power fall on each square meter of the earth. Photovoltaics allow us to harvest it with no moving parts and almost no maintenance – anywhere the sun doth shine. After that, it’s all about cost and efficiency. How much of that 1350 watts can we harvest and at what cost. Intuitively, comparing it to a monstrous abomination that eats coal, spews sulphuric acid, and costs hundreds of millions to build, what’s the question?
These are disruptive innovations featuring ENORMOUS opportunity. Probably NOT in the actual manufacture of the cars and probably NOT in the actual manufacture of the solar cells.
In this weeks’ show, I used two graphs to illustrate recent history in the Solar Industry.
This graph shows you the solar module pricing and the INSTALLED solar costs from 2000 through 2012. You will see that the modules have fallen in price from about $5 per WATT in 2000 to about $0.74 cents per watt now. I actually priced some Korean panels this morning in small quantities at $0.63 cents. The INSTALLED cost, which includes the labor, the panel racks, the wiring and the inverters has similarly fallen from $12 per watt to $4 per watt. Both of these are EXPONENTIAL curves of declining price. There is actually a hypothesis, similar to Moore’s law, that has held remarkably accurate for 30 years, that with each DOUBLING of cell manufacturing capacity, we will see a 20% decrease in costs.
Existing panels are about 16% efficient, meaning we get 0.16 X 1350 or 216 watts per meter peak. In the lab, we are already over 40% efficient. That’s 540 watts per square meter. How efficient can these black monoliths whose job it is to lay there be? Well historically we can pretty much bet not 100%. Beyond that, it’s all about innovation.
This graph shows installations, in Megawatts, of Solar Power in the U.S. by year. Note first that it is NOT cummulative. Each of those numbers is the combined utility, commercial, and residential installed capacity for THAT YEAR.
This curve is also exponential in growth. And out of context, when you look at this graph, it would appear that as an “adoption curve” we have missed the boat and widescale adoption is already underway. Don’t you wish we had gotten on board earlier in the game?
Actually, earlier there was no game. And a case could be made that there is no game yet. Small numbers look ENORMOUS compared to zero. And be careful with these charts. It’s all a matter of scale.
I didn’t include it in the video because it is too much of a horror for young ears. What do you imagine that 4200 MW of installations in the U.S. is as a percentage of total WORLD installations this year?
About 11%. We aren’t even one of the significant players in that space as a nation.
And let’s further examine, what percentage of all electricity produced in the U.S. would you imagine Solor represents?
Again the number 11. But this time 0.11% according to the U.S. Energy Information Administration. Our grossly vertical curve, in the big picture of electricity production, is so flat you can’t find it without test instruments. We don’t yet have both tinkerers AND innovators onboard yet, and we are HUGELY before early adopters. But as you can clearly see, on its own terms it is taking off exponentially. Can you predict the future here? And how did you do that? And how hard was it?
And how many of us use electricity and how deeply do we depend on and want it? And what if I told you that you could put a few panels on your roof, measuring about 12 feet by 12 feet, and power your entire house with it? And it cost $1500? Of course it would require inverters, and chargers and BATTERIES and any end of other things to operate.
Same question with regards to automotive personal transportation. And what effect would it have on our established utility industry would it have if significant numbers of 100 million households actually installed Solar? Or drove electric cars?
And what do we need? Infrastructure. Not just charging stations, …..EVERYTHING. These are totally disruptive technologies and we don’t have ANY of what we need yet. First, we don’t know what we need, and swecond, nobody has invented it yet.
The American adulation of invention and innovation ONLY works in arrears. This is why an IBM executive would predict that with six large computers they had all the computing power mankind would ever need. Why a patent official would announce ti was time to close the office as everything that needed to be invented HAD been, circa 1904. Along with many other idiotic predictions such as “If God had meant man to fly, he would have given him more money….”
Uh-Oh. Actually that one is probably true.
But you get the idea.
We can only examine innovation and invention with clarity in arrears. At that point, it was obvious. Looking to the future, it is never obvious at all.
But every generation has their frontier of opportunity. I would represent that electric drive and solar power, far from being passe failed techologies of the past, are actually the most globally important of the future, and we’ve hardly started yet. As these are BIG things they have had long development and adoption curves.
But you’ll hardly make your fortune in Solar Panels or manufacturing electric cars. Anymore than George Westinghouse manufactured railroads. He invented the airbrake for the railroads. Nobody knew we NEEDED an airbrake until we HAD railroads and had already killed several thousand passengers, and brakemen, with them.
Bill Lear did not invent the car, he invented the car RADIO. Later the 8-track tape player. And of course the Learjet. A personal sized jet. Which at the time made about as much sense as building your own personal sized aircraft carrier.
Today, we have pontoon boats. And they are for barbecuing, but not precisely for landing aircraft. They mostly haul beer and potbellied post middle aged guys in Hawaiian shirts. Kind of a red neck yacht club. Otherwise ALMOST identical to a personal-sized aircraft carrier. Better if electric.
At precisely the time that a signficantly large portion of our population is becoming absolutely UNEMPLOYABLE in any capacity, we face an absolute pinnacle of entreprenurial opportunity the like of which the world has NEVER SEEN, but only for entrepreneurs and only for those who can innovate. Those standing in awe of governments and large corporations inevitably fall into the first group – permanently redundant unemployable.
Elon Musk stands at the cusp of facing an $85 billion entrenched automotive industry, an even larger entrenched oil industry, and of course the legislators of all fifty states. How does he think he can win?
Simple. He has them surrounded…. And oddly you do too…
I see EVTV’s role in the future as Summit Racing to the EV builders. And I think you will very soon find irritation at all the things you CAN’T do with your store bought electric car because it still belongs to the manufacturer. Tesla has a patent on the CHARGE port for Christ’s sake. The batteries. The software. Etc. You will drive, care for, repair, and own that vehicle in exactly the manner Elon Musk decrees, or do without – even if you’ve already paid for it. The cars inherently become MORE proprietary and less accessible to the owner in some very strange ways.
As such, the custom car movement in electric vehicles will be MUCH stronger and more advanced than the Hot Rod community of the ICE engine sort ever was. I predict it will dwarf SEMA by a LOT. Conversion shops. Pimp My Rides. Race Teams. Car shows. It will be huge. WIHT LOTS of opportunities for jewelry, gadgets of all sorts, add-ons and improvements. A whole cottage industry in digging out scrap from the wrecked factory cars fo use in the shop.
Both fronts, solar and electric drive, offer opportunities so vast they are incomprehensible. Transportation and energy will be the hot topics for the remainder of my life.
On a housekeeping not, in a panic over the infuriating collapse of CA60FI cell stocks, I might have just overordered by a few. I have a thousand cells reserved due to land in LongBeach June 15. I should have them sometime between June 20 and June 30. Annoying as it is, they are probably going to want me to pay for them. I can. But it throws all our numbers out of their neat rows. All because of my fit of anger and shooting off my mouth.
You get to bring it back into nice neat little rows by purchasing cells at a 17% discount prior to noon Friday. NO dealers. Limit 100 cells. Not likely to happen again soon. You’ll save a slick $1500 which I could have put to good use, on a 100 cell pack. Party like shop dogs. http://store.evtv.me/proddetail.php?prod=CA60FI. Don’t forget I have a minority interest in your freakin car then, please. You can buy me back out with photos in our new database if I ever get it coded up. We’re going to publish the 100 BEST EV BUILDS WORLDWIDE, hopefully by the end of the year.