Car startups need to rev up for revolution

(This article is reprinted from the July 25th, 2008 issue of the SF Business Times)

When Al Gore unveiled his challenge last week to move the U.S. to one hundred percent renewable power within 10 years, he made the car industry a key element of his proposal.

There’s good reason why. With the entire U.S. economy being weighed down by skyrocketing gas prices, Gore recognized that relief from the climate crisis, our national security crises, and U.S. job losses depends on moving the nation away from cars that run off fossil fuels, and toward electric or plug-in cars. He recognizes a new revolution in U.S. motorcars is necessary to cure the ills of the last.

The timing is fitting. October 1st will mark the 100th anniversary of the birth of the car that started it all: the first Ford Model T. Henry Ford’s groundbreaking new vehicle had a top speed of 45 MPH, and got about the same mileage as a modern day SUV, 13-21 miles per gallon. Debuting at $825, it was no bargain for workers earning an average of $2 per day.

Ford famously set his sights on lowering the cost and increasing production of his new horseless carriage through assembly line improvements. Within five years, Model T output went from 1,000 in its first year of production to more than 300,000 cars per year, with the cost of the car dropping to a low of $260 in 1924.

Though Gore envisioned that a new golden era of the automobile powered by electricity was achievable within a decade, strong evidence suggests that this revolution is already under way. And like much innovation over the past century, a lot of that innovation is occurring here in the Bay Area.

Tesla Motorcars, which opens its Menlo Park showroom on Tuesday and is based in San Carlos, is already in production on the “it car” of the moment, the all-electric $100,000 Roadster. Fisker Automotive, based in Irvine, California, plans to release a $80,000 four-door plug-in sports car in 2010 with a backup fuel tank that they suggest may only need be refueled once a year.

A Norway-based company called Th!nk which has backing from Menlo Park-based venture capital firm Kleiner Perkins plans to release a $30,000 all electric two-seater in the U.S. in 2009. If the lust-inducing Tesla is an automotive Gisele Bundchen, then the Th!nk is a spunky and precocious Hannah Montana.

A company called Project Better Place out of Palo Alto has proposed ambitious plans to set up recharging stations where electric cars could swap out battery packs quickly and get back on the road. The plan, modeled after cell phone contracts, would give consumers lower up front costs in exchange for monthly contract payments.

“The transportation industry is undergoing its largest transformation since Henry Ford built the model T,” said Ray Lane, a Kleiner Perkins managing partner and investor in Th!nk and Fisker Automotive.

Like Ford’s original revolution, this one won’t come easy or cheap. And early adopters will pay a premium that will enable others to follow. But increased production of these revolutionary green cars – just as with the Ford Model T – will drive down the costs per car and put them within reach of the masses.

Tesla, for example, has plans to produce 10,000 of its next model sedan at nearly half the cost of the Roadster within two years. And Fisker recently announced that they would produce 15,000 of its new eco-friendly car in their first year of production.

Five dollar per gallon gasoline alone won’t be enough to ensure these companies’ success. They will need to produce cars that are safe, reliable, and able to travel long distances on occasion. And most importantly, they’ll need to do it all in spades. If these companies hope to fulfill their promised intentions of helping reduce our impact on climate change and dependence on foreign oil then it will take more than delivering a handful of six-figure trophy cars to the super-rich.

The climate is right for a new American revolution in motorcars. Today’s modern car revolutionaries have a head start and a huge opportunity. The market is waiting.

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