HOW THE AUTO INDUSTRY CARTELS KILLED OFF THE APPLE EV, DYSON AND OTHER
ELECTRIC CARS
Last month, James Dyson, the head of the company that carries his
name and is best known for its vacuum cleaners, hairdryers,
and Airblade hand dryer, explained in an interview with The Times
of London why the company pulled the plug on
its £500 million effort to build an electric vehicle to rival
the likes of Tesla
and Rivian.
That interview offered only a small peek at the abandoned project. Now
Dyson itself has pulled back the curtain and
gone into more detail into a car that will go down in history, even if
it never goes down anyone's driveway. EVs are expensive — The
short answer as to why the Dyson Battery Electric Vehicle failed to
come to fruition is the price. Dyson argues that conventional
carmakers lose money on electric cars, but that it doesn't matter
because those losses can be "offset against selling traditional
vehicles on which they make a good profit." It says this, combined
with it being a "non-automotive company" and not using off-the-shelf
components meant it would be too hard to build.
That's a shame because, as the video above and those below show, Dyson's
Range Rover-like effort was striking, to say the least.
A giant on wheels — Dyson's electric SUV, built on a
platform the company planned to use for other body styles in the
future, is over 16 feet long, with enormous wheels at each corner
that provided lower rolling resistance and a smoother ride on bad
surfaces, along with substantial ground clearance.
The company is very light on the specifics of things like battery
capacity, power output, 0-60 mph times, or any of the other figures
auto fans tend to enjoy pouring over, but then, if you spent half a
billion Pound Sterling on something, you might keep some of its
secrets to yourself, too.
No love lost for armchairs — According to Dyson, putting
each wheel "at the extremities of the four corners" allowed it to
have the seven-seater capacity of a long-wheelbase SUV "without the
disadvantage of the massive external body." James Dyson also says he
hates the "1930's armchair look that car seats typically have" and
bemoans their lack of "proper lumbar support," which explains why
Dyson's EV went for an admittedly attractive, high-end office-chair
look.
Not a complete waste — Despite the intensive capital outlay,
the hiring of "hundreds of engineers, scientists and designers," and
the acquisition of a wartime airfield to that will now be home to
Dyson's robotics, environmental care, and lighting teams, James
Dyson says he has no regrets about having tried his hand at electric
vehicles. But then, he would say that, wouldn't he? At least the
original owners of the farmland that got converted first into a
military facility and then the home of a technological pipedream got
paid a contemporary market-related rate for their property. Every
cloud, eh?
James Dyson, who recently became the richest person in the U.K., has
shelved his plans to challenge Tesla
with a high-end, all-electric SUV. Dubbed the Dyson Car, but officially
called the N526, the only pictures of the vehicle appeared in The
Times over the weekend, alongside an interview with Dyson, who explained
that despite sinking £500 million (~$612 million) and years of research
into the car, it won’t be coming to market.
Too expensive for this world — Dyson explained the final vehicle —
which looks like a Range Rover Evoque, but has dimensions nearer those of
a Hummer — would’ve needed to sell for around £150,000 (roughly $184,000)
for the company to actually make any big money off it.
While you can bet some people would buy one nonetheless and might
consider it over the similarly priced Porsche Taycan, at three times the
price of an optional extras-laden Tesla there’d be no hope of Dyson’s
vehicle being a mainstream success. Especially considering selling cars
and making money from them is a volume game, and Dyson would have to
create a network of after-sales support facilities that would further eat
into its already slim profits.
The news sucks, but Dyson doesn’t — Dyson is best known for its
vacuum cleaners, hairdryers,
bladeless fans, and iconic contactless Airblade hand dryers. It’s also
known for its obsessive engineering that results in outstanding products
that come with a similarly exceptional price tag. It’s also known for
taking fresh approaches to products that don’t always pay off.
The Dyson car isn’t the first product it’s had to shelve because of costs
— it also canned a washing machine which proved too expensive for
consumers, but not before it made it to market and sold (albeit poorly)
for five years. And earlier this year it spent millions on plans to produce
ventilators that eventually turned out to be unnecessary.
Fortunately, though, unlike
Tesla Dyson is a private company, so it isn't accountable to
shareholders for its decisions.
What might have been — The Dyson car is a seven-seater powered by
a pair of 200kW electric motors capably of 536 BHP and 480 lb-ft of
torque. Despite weighing 2.6 tonnes, it can do 0-62 mph in 4.8 seconds,
has a top speed of 125 mph, and can manage a staggering 600 miles to a
charge. Combine that with the futuristic interior and we’re very sorry we
won’t be seeing it at motor shows any time soon… or ever.
Then there is Apple's Electric car; The world’s most
valuable company appears to have failed on an extravagant project in an
embarrassingly public way. But it might not be the sign of decadence and
decline that it seems at first blush.
Since early 2015, it has been an open secret in
Silicon Valley that Apple
was building a car. Under the code name Project Titan, the company
reportedly assembled a huge team of engineers at an unmarked facility in
Sunnyvale to build what was rumored first to be an
electric car (or minivan), and later a self-driving
electric car. The excitement revved so high as recently as this
summer that Motor Trend devoted its June 2016 cover to
imagining exactly
what the Apple Car would look like.
Now it seems Apple has slammed on the brakes.
Following a pair of earlier reports that Apple was downsizing its car
project and shifting its focus, Bloomberg reported on Monday
that the company’s plan “no
longer includes building its own car.” Instead, Apple’s team has
pivoted to building an autonomous driving system—that is, the software to
power a self-driving car. The company has given Project Titan’s leaders a
deadline of late 2017 to “prove the feasibility of the self-driving system
and decide on a final direction,” Bloomberg writes. Meanwhile,
hundreds of team members “have been reassigned, let go, or have left of
their own volition in recent months,” while Apple has continued to hire
others with a focus on software and A.I.
As with most of the earlier media scoops on the
Apple car, this one is anonymously sourced, so it’s hard to say anything
for sure. But the claims are consistent with prior reporting by Bloomberg
and the New York Times and the documented departure of key
executives from the Project Titan team.
Assuming it’s true that Apple has given up on
building a car, at least for the time being, the project will go down as
an embarrassing misstep by CEO Tim Cook and company. It almost certainly
cost the company a pile of money and distracted from its core business. If
Apple
did peak in 2015, as I’ve suggested, history may record this as an
indicator of a company that was beginning to lose its touch.
Yet, in an odd way, it could be a sign of health
that the company was willing to cut bait on such a large and highly
publicized project at this juncture. One of Apple’s great strengths has
always been its focus. In contrast to a company like Google that seems to
pursue every idea at once, Apple does a few things, and it does them far
better than anyone else.
Cook, who is sometimes derided as a corporate
custodian who lacks his predecessor’s legendary vision, surely deserves
some blame if the car project turns out to have been misguided. Yet he
also deserves some credit, both for pursuing a bold new idea and for
cutting his losses when it seemed clear that it was not on the road to
success.
The worst possible outcome for Apple would have been
to continue pouring resources into a doomed project, whether due to
wishful thinking, an unwillingness to admit defeat, or sheer
organizational inertia. That would have been a sign of a company
in decline, heedlessly expanding for expansion’s sake. Building and
releasing an Apple car that flopped would have been far more than an
embarrassment. It could have been the company’s undoing.
Instead, Apple is shifting gears, redirecting
resources to a software project that is far less risky and
capital-intensive than actually mass-producing vehicles. It’s still risky,
and it could still backfire. But at least we now know that Apple won’t be
afraid to call it off if it isn’t working.
In the technology industry, staying on top can be
almost as hard as getting there. History teaches us that even the greatest
companies eventually lose their way by becoming complacent and missing big
trends, or by overextending themselves and losing focus. The car project,
from what we know, shows Apple remaining vigilant to both fates. Project
Titan may have failed, at least on the hardware side. But, to borrow a
Silicon Valley cliche: At least it failed fast.
You are not allowed to build a new kind of car. If it
competes with the Detroit, Tokyo or Google monopolies you are toast. Each
of those Cartel's will bribe their politicians at NHTSA, DOE, EPA, FTC,
etc. to block your funds, taxes, staffing and suppliers. They will put
moles in your company and force over-costs and staff issues. You won't
pull it off no matter how much money you have. Tesla Motor's got funded
because it's investors funded the Obama Administration and controlled
major U.S. Senators (Who also owned stock in Tesla).
Of all of the Department of Energy programs intended to advance the green
agenda while stimulating the economy, the Advanced Technology Vehicle
Manufacturing incentive to spur the development of cleaner, greener
automobiles is perhaps the most ambitious. But it has a downside.
The energy department has approved direct loans to
Nissan, Ford, Tesla Motors and Fisker Automotive totaling about $8 billion
out of a budget of $25 billion. The magnitude of this program dwarfs other
DOE campaigns like the $2.4 billion given to battery and electric vehicle
component manufacturers and the $4 billion disbursed for “smart grid”
projects.
To the recipients the support is a vital and welcome
boost. But this massive government intervention in private capital markets
may have the unintended consequence of stifling innovation by reducing the
flow of private capital into ventures that are not anointed by the DOE.
To understand this apparent contradiction, you have to
look at the market from the perspective of venture capitalists looking to
deploy investors’ capital and startups looking to attract it.
Venture capitalists evaluate a company on the basis of
whether they think it will succeed and generate returns for their
portfolios. While this evaluation is a function of many things, one key
question is how much more capital the company will need to get its product
to market or a liquidity event so that the venture capitalist can see a
return. The more capital it needs, the more dilutive it will be to the
early investors.
In cleantech, and in particular alternative fuel
vehicles, the capital requirements for companies bringing a car to market
in significant numbers can be extraordinarily high, reaching into the
hundreds of millions of dollars if the company wants to build its own
manufacturing facilities.
To a venture capitalist, this capital requirement can be
daunting. This is why government financing is so attractive. In the case
of the advanced
technology manufacturing loans, the DOE steps up for 80 percent of
the total amount needed. Private sources fund the other 20 percent. This
amounts to free leverage for the venture capitalist's bet, with no
downside. Hedge funds historically used massive leverage to generate
outsized returns, but if the trade turns against them, that same leverage
multiplies their downside and can lead to financial ruin. In the case of
the DOE loans or grants, the upside is multiplied and the downside remains
the same since the most the equity investor can lose is the original
investment.
The proposition is so irresistible that any reasonable
person would prefer to back a company that has received a DOE loan or
grant than a company that has not. It is this distortion of the market for
private capital that will have a stifling effect on innovation, as private
capital chases fewer deals and companies that do not have government
backing have a harder time attracting private capital. This doesn’t mean
deals won’t get done outside of the energy department's umbrella, but it
means fewer deals will be done and at worse terms.
According to Earth2Tech, venture capitalist John Doerr commented on this at the GreenBeat
conference earlier this month, saying “If we’d been able to foresee the
crash of the market we wouldn’t probably have launched a green initiative.
Because these ventures really need capital. The only way in which we were
lucky I think is that the government stepped in, particularly the
Department of Energy. Led by this great administration that put in place
these loan guarantees.”
Several sources within startup companies seeking DOE
loans or grants have admitted that private fundraising is complicated by
investor expectations of government support. None would speak publicly due
to the sensitivity of the issue and the ongoing application process.
Aptera
Motors has struggled this year to raise money to fund production of
the Aptera
2e, its innovative aerodynamic electric 3-wheeler, recently laying
off 25 percent of its staff to focus on pursuing a DOE loan. According to
a source close to the company, “all of the engineers are working on
documentation for the DOE loan. Not on the vehicle itself.” Another highly
placed source at Aptera told Wired.com many potential investors wanted to
see approval
of the DOE loan before committing to invest.
Startup companies that enjoy DOE support, most notably Tesla Motors
and Fisker
Automotive, have an extraordinary advantage over potential
competitors since they have secured access to capital on very cheap terms.
The magnitude of this advantage puts the DOE in the role of kingmaker with
the power to vault a small startup with no product on the market -– as is
the case with Fisker – into a potential global player on the back of
government financial support.
As a result, the vibrant and competitive market for ideas
chasing venture capital that has been the engine of innovation for decades
in the United States is being subordinated to the judgments and political
inclinations of a government bureaucracy that has never before wielded
such market power.
A potential solution to this problem may seem
counter-intuitive. The best way to avoid market distortion would be for
the DOE to cast the net more broadly and provide loans and grants to a
larger number of companies – which ironically means being less selective.
Subject to the existing equity matching requirement, this would allow the
private markets to function more effectively in funding a broader range of
companies and driving more innovation. Several innovative companies with
great potential have been in the DOE pipeline for many months. Perhaps it
is time for the DOE to stop playing favorites and start spreading the
love.