Money and Finance

The electric-fuel-trade acid test

After many false starts, battery-powered cars seem here to stay. Are they just an interesting niche product, or will they turn motoring upside down?

IN 1995 Joseph Bower and Clayton Christensen, two researchers at the Harvard Business School, invented a new term: “disruptive technology”. This is an innovation that fulfils the requirements of some, but not most, consumers better than the incumbent does. That gives it a toehold, which allows room for improvement and, eventually, dominance. The risk for incumbent firms is that of the proverbial boiling frog. They may not know when to switch from old to new until it is too late.

The example Dr Bower and Dr Christensen used was a nerdy one: computer hard-drives. But unbeknown to them a more familiar one was in the making. The first digital cameras were coming on sale. These were more expensive than film cameras and had lower resolution. But they brought two advantages. A user could look at a picture immediately after he had taken it. And he could download it onto his computer and send it to his friends.

Fourteen years on, you would struggle to buy a new camera that uses film. Some of the leading camera-makers, such as Panasonic, are firms that had little interest in photography when Dr Bower and Dr Christensen published. And an entire industry, the manufacturing and processing of film, is rapidly disappearing.

Substitute “car” for “camera” and you have a story that should concern thoughtful bosses in the motor and oil industries. Internal-combustion engines have dominated mechanised road transport for a century, but the past year or so has seen the arrival of a dribble of vehicles driven by electric motors. That these are the products of small, new firms, or of established non-carmaking companies, supports the Bower-Christensen thesis. But next year the big boys, encouraged by legislative pressure to produce low-emission vehicles, will leap out of the boiling water and join in. Their progress towards greenery will be an important theme of the Frankfurt motor show this month.

Bold claims are being made. Carlos Ghosn, who leads the Renault-Nissan alliance, thinks 10% of new cars bought in 2020 will be pure-battery vehicles. A report by IDTechEx, a research consultancy based in Cambridge, England, reckons a third of the cars made in 2025 will be electrically powered in one way or another. If that trend continues, liquid fuels might become as obsolete as photographic film.

…..

At least one battery-maker, though, has loftier ambitions than merely supplying carmakers with its wherewithal. BYD, a Chinese firm, seems to have Panasonic’s success in the world of cameras in mind. Earlier this year it launched the first of what it promises will be a range of electric cars that will undercut those made by American and European producers, in part by using a novel material in the batteries’ electrodes. It claims this will make those batteries both cheaper than conventional types, and faster charging. BYD started with fleet sales in China and plans to begin private sales there later this month and launch its first vehicle in America next year. The company is being watched closely, not least by Warren Buffett, a celebrated American investor who has taken a 10% stake in it.

This will be an interesting experiment. There is a lot more to an electric car than its battery, of course. But established car firms that think their know-how in other parts of carmaking will save them may find themselves in the same position as those 19th-century carriage-makers who thought a “horseless carriage” would, literally, be that. For, once the engine block and the gearbox are gone, the game of car design changes. And batterification could bring about other changes, too.

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