In his op-ed this morning in the Wall Street Journal former Intel CEO Andrew Grove accomplishes two diverse tasks: he conjures up an intriguing picture of a future for the automobile industry and he demonstrates that having been a successful top manager in one industry may not be particularly helpful in considering the problems of another.
Picture the imaginary car industry of the future. Imagine if, rather than a mere handful of car manufacturers each of which designs and manufactures its own cars whose parts can only be used in its own cars, there were standardized components for automobiles made by a variety of manufacturers and a large number of automobile assembling companies who assembled finished automobiles from the components for sale to dealers or directly to customers. In fact, you might even be able to go to an auto assembler’s web site, select the features you wanted, and as Dell Computer used to do with PC’s, the automobile would be custom built for you and arrive at your door in days or, at the most, a few weeks.
There are several fundamental problems with this imagined industry. First, today’s automobile industry is nothing like as horizontally integrated as Mr. Grove imagines and may never have been. Batteries, tires, spark plugs, headlights, and all sorts of other components are manufactured by small companies, medium-sized companies, large companies or subsidiaries that were once independent companies who sell them to big automakers. It isn’t just the problems encountered by the big automakers that’s causing so many problems for Michigan. Add to that the problems that the collapse in auto sales have caused for the many fabricators, electroplaters, and so on that are dotted around the state. BTW, one of the longterm trends in the automobile industry has been the loss of many of these support companies to overseas operations.
It’s a commonplace for engines manufactured by a single company to be used in the cars of many companies. The GEMA engine, for example, is a joint venture of DaimlerChrysler, Mitsubishi, and Hyundai and is used in cars from all three companies.
A major difference between the PC business and the auto business is that in the PC business if the individual components are insurable then the product made by assembling them is, too, and the product can be sold and used. That’s not the case for the auto business. There are fifty states and the federal government specifying what must and must not be in an automobile if the automobile is to be used on the government roads. The two industries would be more analogous if there were a nationalized power grid and state power grids and PC manufacturers needed to meet the state and federal government specifications for personal computers before they could be connected to the power grid. There would be no PC industry as we know it.
Manufacturers selling directly to customers? That’s expressly prohibited by law in almost all states.
I also think that, bound by his own experience, Mr. Grove is underestimating the problems that face electric cars:
Electric cars have become viable and will likely only become more capable in the future. Components critical to their performance — batteries and electronic control systems — are on a rapidly rising technology curve. These technologies are new and therefore capable of improving quickly with incremental investments.
There is no Moore’s Law for batteries. There is every likelihood that the low-hanging fruit in battery development has already been picked and that there will be diminishing returns to future investment by which I mean that new developments won’t be achieved with “incremental investments” but by progressively larger investments. Electric cars and hybrids remain an only partially proven technology with unknown future potential. Investments in batteries capable of powering engines that move vehicles may be throwing money down a well.
One of the great advantages of autocratic countries is that they can throw money down a well. Their leaders don’t answer to stockholders or voters. China, Mr. Grove’s shining example, may find that its investments in battery technology make it the 21st century’s equivalent to the Kingdom of Saudi Arabia. Or the investments may come to nothing. We just don’t know.
