Will GM Be Killed By The Electric Car?

December 22, 2006; John Addison writing for SeekingAlpha submitted this editorial feature: A recent movie and several books asked the question “Who killed the electric car?” then answered GM. Indeed, the major auto makers successfully defeated California’s attempt to mandate that 10% of car sales be electric vehicles [EV]. GM retrieved the EV1 at the end of their lease periods and crushed almost all. Yet, GM and other auto makers have continued to pour billions into electric motors, advanced batteries, hybrid-electric propulsion, and electric vehicles where hydrogen fuel cells supply electricity to electric motors.

The more relevant question is this, “Will electric vehicles kill General Motors?” Most people on the planet cannot afford gasoline powered cars. Increasingly they can save $200 for an electric scooter. Over 30 million people drive electric vehicles. Jonathan Weinert reports on the exploding popularity of e-bikes in China.

As incomes increase, early adopters in China, India and other emerging nations will upgrade to new generations of light electric vehicles [LEV]. Most of these vehicles will have 3 or 4 wheels and carry increasing numbers of passengers and loads.

Established market leaders commonly ignore or sarcastically dismiss low-cost and under-powered alternatives to their market leading products. Initially downloaded music in MP3 players had poor sound quality and was illegal. Now the music industry is transformed as people listen to high-quality music downloaded to their iPods and smartphones.

IBM was so dominant with mainframe computers that it suffered years of anti-trust litigation. Digital Computers sold far less powerful, but cheaper, mini-computers to labs. IBM ignored the threat of the mini-computer until the information technology industry had shifted to networked minis. Continual innovation and dropping prices of chips and networking brought another revolution with PCs replacing mini-computers. Digital did not learn from its own disruptive success and dismissed PCs as useless. Digital was later bought by Compaq, the very company that disrupted the minicomputer success. PCs are now under attack by the Internet. Microsoft is watching Google very carefully.

Just as a body’s immune system will try to reject a newly transplanted heart, successful organizations reject disruptive change. The phenomenon is so common that business schools now require the reading of Clayton Christensen’s The Innovator’s Dilemma and Geoffrey Moore’s Crossing the Chasm. Let us hope that the executives of GM are reading these classics. Reading my book Revenue Rocket is also recommended.

The interiors of vehicles are becoming electronic in everything from displays to entertainment systems to GPS guidance. Under the hood, it is the same story. Mechanical parts are being replaced by electronic components. In hybrid vehicles, electric motors are doing more; the companion gasoline engines are getting smaller. In the future vehicles will be primarily electronic. Internal combustion engines will be retired. Small vehicles not requiring long-range will get their power from the electric grid. Vehicles requiring more range or carrying heavier loads will be electric vehicles with hydrogen fuel cells. Some at GM get this. GM is currently putting 100 hydrogen fuel cell Equinoxes on the road. A couple of weeks ago, I drove this exciting vehicle on surface streets and on the freeway. It is a powerful car that many would want to own. The R&D people at GM have an exciting vision that includes advanced batteries; regenerative braking; a thin “skateboard” platform common to multiple vehicles; drive-by-wire replacement of mechanical links to pedals and steering wheel; and electric motors. GM plans to start selling its next generation fuel cell vehicle by 2011. GM’s CEO Rick Wagoner has stated plans to lead in plug-in hybrids, when battery technology meets its quality standards. The vehicle will use a big 3.6L engine.

Will the heart transplant take? Or will the patient’s antibodies reject the needed organ? In 2005, GM reported a loss of over $10 billion. Its global market share has shrunk to 13%. Thanks to its pension obligations, labor contracts and overhead, it cannot make a small car at a profit. It focuses on large SUVs and large trucks with gas guzzling engines in hopes of making money. The bulk of the corporate momentum is not in future electric vehicles but in big vehicles with engines.

Toyota, riding on the success of hybrids and more fuel-efficient vehicles, is overtaking GM’s position as #1 market share leader globally. It threatens to beat GM to market with a plug-in hybrid. Within three years, Nissan Motor Co. plans to develop and market subcompact electric cars powered by self-developed lithium-ion batteries.

Honda wowed visitors at the LA Auto Show with its 350-mile range hydrogen fuel-cell Concept FCX, which it will start leasing to consumers and business in 2008. When Honda started selling motor scooters in the U.S. in 1959, GM could not have anticipated Honda’s future success in cars. Now as the global market shifts towards electric vehicles, Honda is also one of the leader’s in selling e-bikes in Asia. Is it déjà vu all over again?

In the sea of change that is beginning, tsunamis are racing to crash on America’s shores. One is Asian production of vehicles with electric drive systems. Another is the disappearance of cheap oil. Another is global demand for affordable vehicles. We will see how skillfully GM navigates in a perfect storm. John Addison is the author of business strategy book Revenue Rocket and the upcoming book Save Gas, Save the Planet. He publishes the Clean Fleet Report and is a popular speaker.