Electric cars are cheaper right now: Silicon Valley whiz Shai Agassi

Shai AgassiShai Agassi says it’s cheaper to drive an electric car than one that runs on gasoline, and he’s hoping to sell 100,000 of them in 2010.

Agassi is a Silicon Valley star who blogs at The Long Tailpipe, a 37-year-old serial entrepreneur who’s succeeded, failed, then succeeded bigger than before in a series of companies in both Israel and California. His latest effort is something different from anything he’s done before: he’s trying to take electric cars mainstream.

Back at the end of April, Agassi gave a talk at Stanford University’s Woods Institute for the Environment, which I’ve just discovered as a podcast on iTunes U. Maddeningly, I can’t link you directly to it, but the sequence is:

iTunes Store —> iTunes U —> Stanford —> Science and Technology —> Woods Energy Seminar, and then it’s track 4.

Update: Finding anything much in the iTunes Store turns out to be incredibly hard, as things slide on and off the front page and directories change like paths in an enchanted forest. Searching seems to be the way to go. In this case, searching for “Shai Agassi” does the job.

You can download Agassi’s talk directly as an MP3 from here, but for some reason they cut off the Q&A in that version, which is where some of the most interesting stuff is.

To give you a sense of how well-regarded he is in certain circles, Agassi shot up the ladder at SAP — a gigantic German software company that specializes in back-office stuff that you probably either use every day of your working life or have never heard of — after it bought his last independent company for $400 million, and he was on track to being named its next global chief executive.

Then he quit because he didn’t want to spend his prime working years overseeing software development when there were bigger and more exciting causes to attend to (his explanation) or because he didn’t want to put in a decade before being named global CEO (the company’s explanation). Nobody disputes that he was certain to run the whole place in time, though.

In the talk, Agassi comes off as, frankly, a bit of an ass, but serial entrepreneurs tend to. They have to believe they’re the best thing ever to come down the pike or they’d never be able to do what they do, which is to sell, sell, sell all the time. Sell somebody with an idea on the promise that you can make it real, sell the first couple of outsiders on joining up, sell venture capitalists on the idea and the nascent team, sell the business press on the whole enterprise, and ultimately sell a bigger company on buying the smaller company out. At the end of it, you’ve probably oversold, a lot of people have probably overpaid in a lot of different ways, and you’re laughing all the way to the bank.

But there’s no denying that Shai Agassi is very, very, very good at what he does, whatever that might be. When BusinessWeek runs a story about you and one of the biggest software vendors in the world like the one it ran yesterday (“SAP reassures Silicon Valley, post-Agassi“), you’ve got some clout.

Here’s a long transcript of what he told the Stanford audience about the prospects of the electric-car industry, particularly in Israel, where he’s hoping his new company will have its first success.

Policy’s already in place. Israel’s got a hundred-per-cent tax on cars — 89-per-cent tax on cars — zero emissions, zero tax. And a hundred-per-cent tax on fuel. They don’t like fuel in Israel… And the final thing is, you tell an Israeli that Israel will be the first country to eliminate the use of oil, and they sign up, because they know it’s good news. There is a social-geopolitical contract that is very clear to every single member of Israeli society. High-tech, low-tech, it doesn’t really matter.

So I said, why don’t we take Israel as an example. If we can do Israel, and it works, we can create a repeatable model that maybe then works in London. London is seven million people; Israel is seven million people. And then we can hopefully do it 50 times in China, because we better figure out a model that will work in China. And so then we looked at that model, and we came back with an idea that said, “Let’s try and do wide deployment of electric vehicles across a whole country.” Not 10, not 100 — two million cars. What does that mean?

And the model that we came up with — and I have to thank a group of very important Stanford students that have played a very crucial role in helping us shape this model — um, is a very interesting one. We actually think that there is a missing entity in the automotive industry that would create, effectively, ubiquity of electrons. Ubiquity of charge. Somebody that will guarantee you that wherever you go, you can charge your car. And that will create a model by which the cost of that car will actually be cheaper for you than buying a fuel-based car.

If you can do both these things, and we believe we can — I’m not going to go into too many details because somebody will kill me — you can actually get consumers to create “pull” instead of governments or companies creating “push.” And if consumers actually feel that this is a cheaper proposition, not a better proposition, not a greener proposition, but a cheaper proposition, then you get mass adoption. That’s the key.

In effect, what we’re saying is this is a repeat of the first time oil became useless. I don’t know if you know that, but if you chart the price of oil, historically, there is a spot where oil was worthless, after it was very useful and very expensive. And the first electric appliance to replace oil completely is the lightbulb. You see, oil was not discovered in order to drive cars, it was discovered in order to light houses, as a replacement for whale oil — kerosene replaced whale oil. But when electricity came up, and was widely distributed, kerosene’s prices went really, really low, to a degree that it was almost worthless to dig it out of the ground. And then we salvaged the whole industry and they continued to dig holes in the ground, to find deeper and deeper oil since that point.

We’ve passed the point where half of the oil in the world has already been dug out. We’d better figure out a way to stop before we dig out the other half. And the hope is to actually get to that point where we again replace oil — atoms — with electrons.

Now, in that first transformation, there were three guys that played a very big role. One of them is Edison, the other guy is Tesla, the third guy is Westinghouse.

Edison figured out how to make lightbulbs, but more important than that he actually started creating generators in cities, and he actually started putting cities on a grid. Only he bet on the wrong technology: direct current, DC. And his cities were really, really limited in since. He could do only very small distance, sort of like EV1 [the first all-battery-powered electric vehicle, subject of the movie Who Killed the Electric Car?]. Great idea, wrong technology, too-short distance.

The guy who really got it is Tesla. he invented the generator and the motor, effectively. And so he could expand the distance and reduce the cost.

And we believe there will be a Tesla in this industry. If it’s not Tesla themselves — Tesla Motors. But there will be a Tesla. Somebody will figure out all the necessary pieces in order to build this kind of a car. That goes long distance, cheaper cost.

What we’re trying to play is the Westinghouse role.

See, Westinghouse didn’t really care about the technology all that much. What he cared about is the business model that allowed him to put city after city after city after city, block after block after block, on electricity. He bought the patents from Tesla and got it out and deployed. He made Westinghouse Co., which also became CBS, I think, which became Viacom or Paramount or one of those. While Tesla has gotten a lot of doves as friends, but at the end of the cycle, [Westinghouse] made the big difference in deployment. He beat Edison — most people don’t remember it today — but he actually beat Edison in his business model and his selection of the system integration, that made electricity. And we want to play the role of a Westinghouse in the deployment of cars.

Let me give you a couple of data points.

In order to run a full country — we ran the math — in order to run a full country on electric vehicles instead of running them on oil, you’re adding six to seven percent electricity to the grid requirements. Most of that electricity actually happens at night and not during the day, and even if you’re using a mix, normal mix of natural gas and coal, you will reduce 50 per cent of the emissions even if you didn’t do any filtering, any carbon sequestration, nothing. You just ran it at the current mixes today. My view on it is wherever we bring in that kind of a deployment, we also have to bring in some clean renewable generation, at the same amount of electrons at the electrons we’re taking off of the grid. And so in a sense, part of what we’re proposing in Israel, for example, is to create a solar-thermal power plant. We’re basically coming in and saying to the country, “As you do this, add six per cent generation, seven per cent generation of clean energy. You pick the clean version you want, and if you want us to do that, we will do that as well.” And I think every country will have its own version.

Now, if you’re in France, and you’ve got nuclear power, 99 per cent of the country is running on nuclear power plants anyway. The electrons are not collecting in a bucket overnight. They’re just going to waste. And so what you do is you basically use that night electricity, which is there anyway, to trickle into the cars, and you effectively got rid of all the carbon emissions, all the greenhouse-gas emissions, at zero additional cost to the economy.

If you’re in Denmark, if you’re in Iceland, in places where they’re exporting electricity, you’re in that same kind of situation, but every mix would be a different mix.

I think there’s something very important in understanding that a big part of the equation is in taking the emissions out of the tailpipes into one long tailpipe and cleaning it up at the source of the power plant.

Our goal is to get to 100,000 cars on the road in 2010. I think that’s what California consumes in three days.

You have to know one thing. The total cost of ownership of an electric vehicle crossed under the total cost of ownership for a fuel-based car a year ago. It’s really hard to notice because most people do not see total cost of ownership. But once that has happened, it’s just a question of amortizations and monetization ways. To create a financial model that actually works.

If you looked at the cost of a car today, and you take out, from that car all of the — don’t think of car of one, think of mass-production car — and by the way, that wasn’t my statement, it was a statement from a very, very senior executive of a car company that will remain unnamed because I don’t know if he wants to be on iTunes tomorrow, but if you take the componentry inside the car, you take the engine out, you take everything that needs to cool the engine — kind of stupid, we’re heating an engine to cool it — and then you put a motor inside, and you eliminate for a second the battery, the cost of that car, the cost of the batteryless EV, they’re pretty much the same. If you take the battery price, now, and you amortize that over usage, the cost of that versus a taxed fuel — in most of Europe, most of the world that is conscious to the cost of CO2 — fuel is more expensive than battery plus electrons. So the TCO [total cost of ownership] equation is that equation.

With the car companies, they don’t care. If you create a model by which they can sell more cars, God bless you. So these guys — I can tell you by my experience with the car companies. Some care. Because they’re so vested in their current plants, they’re so vested in making a sound when the engine goes, or they’re so vested in a certain set of patents, that they care. And some companies don’t. They say, “If you can give me a model by which I can sell 300,000 cars, great, where do I sign up?”

I think that’s normal to any industry. Inertia is a great force.

See, as I say, always selling. But I wouldn’t bet against the guy.


2 responses to “Electric cars are cheaper right now: Silicon Valley whiz Shai Agassi

  1. Pingback: Electric car project gets 0m boost | Greenbang.com

  2. It all sounds very good, but how would it work in a very cold climate ( like canada) where you need heat in the car for the people and to keep the windshield clear.

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