[Tony Seba, thought leader, author and an expert in clean energy and transportation. Photograph by Abhijit Bhatlekar/ Mint]
By Indrajit Gupta and CS Swaminathan
Part 2 of an exclusive interview with clean energy and transportation expert Tony Seba focuses on how electric vehicles, self-driving cars and car sharing will change the face of transportation in as little as two years. The foundation of these new technologies is software. Can India take a leadership position given its strengths in software as these technologies converge?
This interview was done in Mumbai last week on the sidelines of an annual lecture in memory of former President APJ Abdul Kalam, organised by the Unifi Foundation. Edited excerpts:
What’s your sense of the incumbents in the transportation space who’ve finally woken up? Renault—and Carlos Ghosn (the chairman and CEO of Renault, Nissan and the Renault-Nissan Alliance)—did see the writing on the wall, but given the legacy, are they better placed now to at least make something out of the electric vehicle (EV) and self-driving car opportunity? Or do you reckon that Tesla has grabbed the opportunity?
Tesla has shown that this is a real industry, that it is a disruptive thing, that it’s happening…it’s going to happen. Tesla itself doesn’t have strength in manufacturing and so it has, because of that, allowed time for the industry to catch up. If the industry wants to catch up and develop great products, it can.
The only question is, will they disrupt their own business model? The answer is that a lot of OEMs (original equipment manufacturers), even though they are talking big about EVs, many of them are still living in an ICE (internal combustion engine) kind of world. You still hear Daimler talking about making 10 EVs by 2025—so 10 EV brands by 2025. Hello! By 2025 every car will be electric. If you make 10, then that’s all you are going to sell. So a lot of it doesn’t bubble up to the top that this is a disruption and this is going to happen really, really quickly.
By 2025 every car will be electric. If you make 10, then that’s all you are going to sell
Some companies get it. Nissan does and Carlos Ghosn got it a long time ago. But what Nissan did not do was build a 200-mile, a 320-kilometer EV [one that can drive that distance on a single charge], and that’s what you need to go mainstream. So Nissan saw the market as an eco kind of market (the eco mode in Nissan cars puts it into a more fuel efficient mode) and they built manufacturing capability and so on and so forth, but they did not build a 200-mile EV. So 320 kilometres is the minimum at least in the big markets, in the US and in Europe. Tesla got that. It understood that that’s the minimum that you need before anybody else. So Nissan now gets it and if you look at its Renault Zoe that was announced at the Paris auto show, I think it’s a 186-miles, 300-kilometres—so it’s getting there.
Nissan has the manufacturing capability. I’ve been there. I went to Nissan’s manufacturing plant south of Tokyo in Oppama and I saw it. I saw where they make the Nissan Leaf and they are ready. I mean they can scale like this (snaps his fingers). It has three plants like that one around the world: North Carolina, one in the UK and one in Tokyo. The interesting thing about that plant is that they make ICE cars and EVs not just in the same plant but in the same line. So you see the Leaf—EV—and then the ICE car, ICE car, ICE car in same line. So essentially when the EV market takes off it is ready to scale. So it can take the ICEs out and triple the manufacturing, probably quadruple it, and if it has two or three shifts then it can scale really quickly. Nissan can, but Tesla has to build all of this manufacturing from scratch.
But didn’t you also say that they made it a little simpler for themselves given the fact that the sheer number of moving parts is just about 18? And the others figured that out in terms of simplicity of design?
Yes, of course. But they know that. Making EVs is not difficult, it’s the business model. It’s like making digital cameras with Kodak. Making a digital camera was not difficult; they made so much cash from film that it was hard to let go of that cash cow. That is the issue, that is the crux. It’s not making them, it’s the business model and they can’t let go—it’s been a hundred years.
One would have imagined in the past 10 years given our deeper understanding of disruptive innovation, how it plays out, that incumbents would see the writing on the wall much sooner. As you look across industries, do you see that?
I do. There are companies that once they got it… like Ford. They got it. They understand that this is going electric, self-driving and shared. They are investing multiples of billions of dollars in new capabilities. They are hiring software engineers by the hundreds. They are dramatically shifting gear to service orientation.
So it’s not just that the world is going to EV, but also what’s going to happen is that because everything will be shared and utilization of cars goes from 4% to 60% or 80%, essentially it’s the sharing companies that will have the relationship with the consumer. So my relationship—I don’t own a car and I’ve not owned a car in 10 years, so I talk from experience—my relationship is with Lyft and Uber and Zipcar and so on, more than it is with a car manufacturer. Before that I drove a BMW and I drove a Porsche and so on. So my relationship has shifted that way and a lot of companies don’t realize that it’s not just about the EV thing but it’s also about the sharing thing. You are going to lose the relationship with the customer.
It’s not just about EVs, it’s also about sharing. Car makers are going to lose the relationship with the customer
Ford understands that and they are getting into that business also. They are investing heavily. GM invested $500 million in Lyft so they are not creating their own. BMW also is investing heavily in the sharing portion. So some companies get it that that’s where world is going.
I forget who said it, but there is the fear in the car industry now that they are going to be the “Foxconns” of the auto industry. Meaning that Foxconn makes iPhones and iPads but they don’t have a brand. If you look at the cost of goods sold for an iPhone, Apple is making a pile—a huge margin—and Foxconn is not. It works for Foxconn but it’s not a great business. So there is a fear in the OEM industry to be a Foxconn and it’s starting to sink in, but I don’t think it’s sinking in fast enough. Some companies are getting it and some companies are not.
What would be your advice to CEOs of incumbent companies in terms of helping them see what’s next? To figure out a strategic vision as it were?
Basically my advice is, the whole world is going electric, self-driving and sharing.
How do you develop the lens to see that?
It’s not difficult. It’s both a cultural thing and a business model thing. So, as a CEO you may get it conceptually but it doesn’t mean you will invest, that your money will go in that direction. Volkswagen is still investing billions in diesel, which makes exactly no sense. It doesn’t make any sense at all.
So, not having a shared vision really at the highest level of the company…?
Yes, it has to come from the top. If not, it’s not going to happen. Essentially my advice is no new capex to diesel and gasoline vehicles. Any new manufacturing has to be electric and self-driving, and so on. I get the fact that they need to invest to maintain market share and all that, but basically think of this as a support folio—maintain that cash cow and harvest it, but any new investment has to be in the industry that’s growing, it has to be electric and so on.
In terms of cultural barriers, what needs to change in the way they have been working?
Essentially they need to think of themselves as a high-tech company. This has been a hundred-year-old industry—both in energy and in transportation things don’t change that much. I mean cars are not that different really from the way they used to be 60 years ago.
OEMs say that, “Oh yeah, we have a lot of high-tech in cars.” But that’s not really true. Yes, there is a lot of semiconductors and blah-blah-blah, sensors and whatever, but essentially the way they think of cars is still the same way that it was 60 years ago. So if you are going to put a sensor then essentially you go to the lowest cost bidder and so on and so forth. You don’t think of cars as a living, breathing product. You have to do that just like Apple thinks of iPads and iPhones and Samsung thinks of products as living, breathing things. You give out the software and you download and you keep it happening on an everyday basis, you improve that quality on an everyday basis.
If you don’t think of basically transportation—of cars and buses and trucks and so on, and when I say cars I mean all vehicles—as computers on wheels… basically that’s the way they should think of vehicles from now on—as computers on wheels.
If they still think of EVs as a substitute, they are still going to lose
If they still think of EVs as a substitute, they are still going to lose. Because they are not just substitutes. EVs are computers on wheels and they are going to be living, breathing products, and if they don’t think that way then they are going to be disrupted—big time. And they may well be the Foxconns.
I was on German television a few weeks ago and I said this in a documentary there. One of their questions was, German car companies are great at manufacturing and I said, “That’s true. Guess what other countries are great at manufacturing? Taiwan. And how many Taiwanese brands can you name?” So what may happen if car companies don’t get it is that Germany may be the Taiwan of the auto industry. Nothing wrong with that, but essentially they are going to manufacturer stuff for somebody else.
What I mean by that is not Foxconn itself but the business model. Even today the OEMs don’t make most cars—most cars are made by third parties. So essentially they are going to become that.
One new, innovative company that comes to mind is Better Place which sold battery-charging and battery-switching services for EVs—a lot of ambition and disruptive model in some sense, but it shut shop. What are the learnings?
Like I said, Silicon Valley considers failure to be [a learning]. So we learned that battery swapping as a business model does not work. And partly, it doesn’t work because one of the assumptions of battery swapping for that business model was that batteries are going to be very expensive for a long time. I am sure that if they had been, [Better Place] may have found a way to make that model work, but that’s only a hypothesis. But if you look at the cost curve [where cost falls with higher volumes produced] of lithium-ion batteries for instance, even when Better Place got started, there was a 14% cost curve. So even if all you had done was take that 14% cost curve into the future, you would have seen that basically EVs were going to be cheap within the foreseeable future. I am not sure that it looked at that cost curve far out enough. So even if it had made that business model work, it would have been disrupted by EVs [having better] built-in batteries without the need to swap. And we are almost at that point of disruption in that way.
You talked about the convergence of all of this. For a country like India, we are not even in the realm of having reached some maturity in any of these. We are just getting into solar, we don’t have self-driving cars—I don’t know if that will work on these roads! Just about 10-15 years ago we started our auto manufacturing facilities and got some expertise in auto. So for a country like India, how do you think this will play out?
I really see that car sharing is big, with Ola and Uber and so on. So three dimensions—one is sharing, one is EVs and the other one is self-driving. Two of them are software and one is hardware. If you think about that then it would make sense for India to play in the sharing [space], which is already growing, and also in self-driving. And then the rest will follow because the market will take. Because EVs already are 10 times cheaper than fuel—to charge, to maintain. Then when you go all car sharing and self-driving and so on, by extension these companies are going to demand EVs because their cost are going to be far lower with electric than with ICE.
If all India does is the car sharing plus self-driving thing for now, then EVs will followed very quickly
So, if all India does is the car sharing plus self-driving thing for now, then EVs will followed very quickly because the market will demand it. Because Ola and Uber are going to say “I want EVs.” Even if it doesn’t come from below. The CEO of Uber for instance in the US, publicly said if Tesla would make 500,000 self-driving cars, they would buy them all. I don’t know if he said that in jest or seriously, but they are getting into self-driving in a big way and also EV.
Even if you compare self-driving together with sharing and ICE verses EV, it make a big difference in the cost of ownership per kilometre. But again, self-driving and sharing both depend on government regulation.
So, the government needs to get that this is going to happen and if regulation prevents competition and prevents sharing and so on, then all it is going to do is stunt the market and prevent Indian companies like Ola from making this happen. If the government regulates in such a way that it prevents self-driving for instance, then it’s going to prevent the Olas, the Indian Olas in self-driving, from both developing the software and getting into this market.
Again because of India’s strength in software, this is a natural way to go and EVs will follow.
I was speaking with a few entrepreneurs in this space just to get a perspective, who are attempting to be an EV player at some point in time. Their reading has been that given the working environment, the regulation, and user behaviour, they expect that it will be a gradual transition with a path to hybridization and then to full EVs. Do you see it panning out that way?
No, hybrids are not disruptive. Hybrids are an eco thing (like the eco mode in Nossan cars) and they are a product line extension of the internal combustion engine. We’ve had hybrids for 20 years or so and really they have not—with few exceptions—sold that well. Which leads people to believe, “Oh, hybrids have not been successful, so why would EVs be successful?” They are two different things. The pure EV drivetrain is disruptive. Eighteen moving parts—that’s what’s disruptive. The fact that you can charge at home—or anywhere—that’s disruptive. You don’t need to go to the same old gas station and that’s disruptive. The fact that you can charge your car with your house and you can charge your house with your car. So basically you don’t need to go through the hybrid path, you go straight to EVs.
An example of that is that at some point Kodak had a hybrid camera and not a whole lot of people know this. They had a combination—you took the film and instead of printing them you could basically [save them digitally]. That was their attempt to bridge but it didn’t work, as we know. Because hybrids in cameras, just like in EVs, are not disruptive but digital cameras just like EVs are disruptive. So I don’t see that path at all. It’s going to go from ICE to EV and that’s it—end of story.
And hybrids are going to be disrupted also, with few exceptions. But the hybrids that we are going to have for a little bit in some markets are going to be more range extenders—basically they are EVs but they can go another few hundred kilometres on oil—that might happen but essentially they are going to be EVs.
When it comes to mass transportation, in India a lot of people still don’t have cars. With sharing as you said, people are not going to buy. How do see the public infrastructure for public transportation? Your presentation talked about a self-driving truck on the road—that one is not EV. But Nikola Motor is building an electric truck…
Yes. I know other companies that are also.
Do you see trucks and public transportation leapfrogging automotive cars?
It depend on the market. In trucks I think self-driving will be, plus EVs. If you look at the trucking business, energy is a huge component of that. And people [cost]. So going electric and self-driving would be a cost cutting measure. It would be a natural thing to do for the logistics companies. So the market would make it happen when regulation allows it and it would be a regulatory thing. When those product exist, the market will demand it—the logistics companies, the UPSes, the FedExes of the world are going to demand those kind of trucks and vans because it is going to make economic sense to them. And if the regulation does not allow it, they are going to push for that to happen.
Going electric and self-driving would be a cost cutting measure for logistics companies
Self-driving in some ways is an experienced good. You have to see it, and feel it, and experience it. And then your fear of this thing driving itself (is gone).
How was your experience?
Awesome! Because I use Uber and Lyft, basically car sharing on an everyday basis and to me it’s an easy transition to make from that to self-driving.
You said in your presentation that the EVs that are going to come in 2018 are not going to have steering wheels built-in…
No, no, they are going to have steering wheels, but some of the EVs that have been announced are self-driving cars without steering wheels. Already the Google car has no steering wheels or pedals. No human needed. Now they have humans because regulation requires that. Basically for humans to supposedly grab the wheels. But you know there is the belief in some circles that having the human there might do more harm than good because they are going to be distracted and for the time it’s going to take the human to even respond, might make it more dangerous. So, many folks are saying, let’s just jump to level 4, fully self-driving.
But regulation being what it is, we still have that.
So, realistically when do you think it will hit the roads in the US?
2018. In 2018 you are going to see level 4 self-driving in the tens of thousands, maybe hundreds of thousands of cars. And certainly by 2020 you are going to see them in the millions.
The disruption is going to happen soon after that.
In 2018 you are going to see level 4 self-driving in the tens of thousands
In many ways the technology, it’s not a 100%, but it’s improving dramatically. And that’s because deep learning technology, Artificial Intelligence, learns from data. It learns from experience—if you can say that, that computers have experience—let’s call it data.
In all, Uber and Tesla are gathering a lot of data. Basically they are learning very quickly, and so their systems are improving dramatically and very fast. The more cars you have that are self-driving, the more you will learn, the faster it improves.
The US is the largest market still for cars. Do you see the US leading the adoption or are other countries doing that faster?
I see the regulation changing in many countries already. The Netherlands, changed regulations. New Zealand, Australia and Canada too. China is going that way too. Baidu is investing heavily in self-driving software and it together with Nvidia, their GPU (the graphics processing unit), they are developing end to end. So the car part like Google, and the cloud portion for the mapping, and so on.
So, I see a lot of countries going that way from a regulatory perspective—opening up and so on. The US is doing it too, but it’s not the only country doing it. This is not going to be about technology, it’s going to be about regulation. Technology will get there very soon and adoption will follow because it makes economic sense, if regulation allows it.
So the biggest thing that can stop this revolution is regulation.
It is only regulation, and that’s what I say to policy makers when I talk to them—in solar, in batteries, in electric vehicles, self-driving and sharing—in all of these disruptions, governments are in the way. So depending on what governments want, essentially their role at this point is to help enable this disruption by helping the market make it happen.
The government’s role at this point is to help enable this disruption by helping the market make it happen
And they can best do that by getting out of the way.
Solar is going to increase exponentially if the government gets out of energy. Batteries are going to increase exponentially, electric vehicles, self-driving, car sharing—in all of these. The role of the government that wants to see this happen, is to get out of the way, to regulate the way that the telecom industry is regulated.
So, if you look at India, in 1991 it had 5 million telephones; now it has a billion and the only way that could happen is, for the government to stand back.
Huge business model innovation happened to deliver a call at one rupee…
Yes, exactly right. And all of that happened because the government deregulated, because the government let go and broke up the monopoly. That’s exactly what it should do in energy and in transportation.
It’s a plus for the government as it doesn’t need to invest taxpayers’ money in this industry.
The government should not be in energy right now. It should unbundle in that market and make it happen.
Up until probably 2010, virtually every solar company out there was looking for subsidies to fuel growth. Now that the tables have turned—they have achieved scale, they have the confidence that they have the technology and the business model to take on oil and be more competitive—they don’t really need any more support or subsidy from the government...
Every major industry—biotech, the internet, semiconductors—these were industries that were created and subsidised by governments for a long time. And the government let go when it became financially viable.
GPS was that way too. Space was that way too.
But at some point when they become financially viable, they should let go, and they should know when to let go. The government should stand back and invest in other industries for the future.
So, it is at an inflection point that the governments across the world should let go.
Yes. Let the market make it happen. So deregulate, unbundle, don’t allow monopolies except only in limited cases like distribution and only in some cases—but let the market work it out.
So, in energy for instance, the electricity, the business model is going quickly, from central generation the totally distributed. When you have millions maybe billions of homes and even EDs (electricity distributors) are going to have solar built in, then essentially the business model you are going to need for distribution, is going to be more like Uber and Ola and Airbnb than like the existing business models.
The government should get that, and allow that to happen sooner, rather than later.
It is a software business, where India has strengths
Again, this is a software business—this is not a hardware business. Yes there is a hardware component like power electronics and so on, but it is a software business, where India has strengths. So if you allow that to happen now, early, then you allow Indian companies to invest in making it happen here, and then maybe you have an export market, because a lot of countries may not let it happen for a while. But when they do, then you have a ready market for software from India and power electronics, so this is the time to do it.
Basically, the choices for policymakers is, you lead or you follow.
And if you lead, then you can create the infrastructure, the companies, the wealth, the export industry and so on, to make it happen. Otherwise you have to import all of that, again.
If you lead, then you can create the infrastructure, the companies, the wealth, the export industry and so on
Tesla has said that it is going to open source a lot of its code. By and large, companies want to monetise on some of their code, especially given that they are going to go to a software business model innovation to sustain their revenues. So how do you see that playing out?
So, Tesla sees itself as Apple essentially, and not as a traditional car company. It sees itself as a high-tech company, and it sees the vehicle as a platform, more than anything.
If you look at the winners in smartphones or notebooks, it’s been the platform companies—IOS and Android—and you can monetize that even if you open source it.
The value is in the network, the value is in the platform. Once you get that, you can create business models around that network and that platform.
Because Tesla is a Silicon Valley company and it sees itself as a high-tech company, it knows first, it has the culture of innovation and change to start thinking about that before. Most have not even thought about electric vehicles. It is two steps ahead of everybody else. [It knows] that this is a computer on wheels and the winner is going to be the operation system. That’s why it is going to build an operating system. Google is also building an operating system for self-driving.
Tesla already allowed companies to tap into its patents for charging stations. Why would they do that? Because it’s a network. The more companies that adopt their technology for charging, the more charging stations are out there, and the more Tesla benefits because it’s a platform and a network.