All posts by lexofdex

Sergio’s Last Stand: Sell Chrysler To Google, Spin off Dodge-Jeep

I’ve written a few posts on our good Italian friend and leader of FCA, Sergio Marchionne, over the last few years. Most notably, I was incredibly critical of his view that combining FCA with any other carmaker was not the way forward. Since that post which he undoubtedly did not read, Mr. Marchionne has not had much luck in convincing any automaker of the argument.

In fact, he’s recently alluded that before his tenure as CEO is up in 2019, he may be changing his tune. Adam Jonas, a Morgan Stanley banker I wish I knew and who’s best known for his provocative bets on Tesla’s success, asked Marchionne if spinning off Jeep and Ram would be possible, to which he replied flatly “yes.”

Mr. Marchionne’s change in tone could signal that it’s more than just possible, but the suitors for who might buy the spun-off brands, or whether they’re just spun into their own public entities that Marchionne still runs is yet to be seen.

For me, FCA has some jewels and some not-so-jewels. The jewels are the red-hot Jeep and Dodge brands that are distinctly catering to unique customer segments very successfully, while Fiat and Chrysler have struggled to produce anything of substantive value. So here’s my thought:

  1. Spin off Jeep-Dodge into their own company. These brands are the most complementary brands in the game in both customers and technology, as can be seen by the now-famous Hellcat and HEMI engines that are advertised and found in both Jeep and Dodge brands. This is a specific example of a brand-transcendent product that is actually extremely hard to get right. Jaguar-Land Rover would look at this pair with extreme envy.
  2. Make Ram a sub-brand to Dodge again. It’s selling well right now in the latest SUV boom, but that’ll come to an end eventually, and I’d not want to be caught holding the bag when that music stops and you have only one product. The new Ram Raptor-fighter will benefit from the awesome engine tech that Dodge and Jeep share, and it’d give the brand back its performance edge on the ultra-hot F-150 and Silverado.
  3. Sell Chrysler to Google. It did not taste well coming out of my mouth, but given Google’s cash hoard, their current dominance in self-driving taxis, and existing partnership with Chrysler around making the Pacifica a self-driving taxi machine, it wouldn’t be a stretch to imagine why Google might want to make this work. Assuming it doesn’t lose money, it’d be like what Google and Apple and all the other tech players that have dominant products do – buy the supplier. In this case, Chrysler’s manufacturing footprint is established and has the processes in place to produce at least as many robo-taxis as Waymo requires. Also, imagine we’re in 2020 and carmakers are competing feverishly with Waymo, Uber, and Lyft for robo-taxi customers. Do you think the automakers are going to be willing to supply their competitors with an unending supply of quality cars? I wouldn’t bet on it. If Google already owned a carmaker, they could dominate this market (something they might do anyway).
  4. Add Alfa Romeo to Ferrari. Ferrari boosted its production when it IPO’d which made shareholders happy and the CEO angry enough to leave, but that won’t keep investors satisfied forever. To maintain the exclusivity of Ferrari while driving value as a company, tucking Alfa Romeo into Ferrari’s fold makes great sense. It also will bolster the reputation by association of Alfa Romeo, a brand that outside of Italy is virtually unknown, but that has strong roots and a distinctive character that could one day put it on the same course as Porsche (maybe). Either way, Alfa could be Ferrari’s growth plan, which would take the pressure off of Ferrari from diluting its brand while injecting some finer breeding into an emerging brand.

As Sergio contemplates his legacy, he’s definitely looking towards not just what to do with FCA, but where and how to leverage FCA’s brands and assets most efficiently. A combination of spin, sell, and move could be in the cards before he hangs his hat for good.

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Why Volvo Is My New Favorite Automaker

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Courtesy of volvofinancialservices.com

As I sit here owning a much-beloved VW Touareg and have great respect for all of Bavaria’s expertise in constructing some of the most fantastic cars of all time, this damn company in Scandinavia keeps peaking my interest. It all started the moment I saw the new XC90, and ever since, I’ve been closely following what this company is up to because although they may not have the pomp and fanfare of Tesla, Audi, and others, these sheepish Swedes certainly have a lot going on behind the curtain.

Reason 1: They’re arguably as far if not farther along the path towards an actual autonomous vehicle. By ‘actual’, I mean they actually have a realistic strategy for testing rather than just buying a vacant airstrip and congratulating themselves when the car doesn’t fly off the 20-lane-wide piece of concrete. They’re piloting the cars with actual families around Sweden, which will show Volvo how the cars might actually be used by normal people. Smart.

Reason 2: Their slim but potent product portfolio is the dream of any established automaker, or really even Tesla for that matter. They started with the XC90, the same car that went through an almost-unheard-of 2 full product cycles and still managed to keep sales up. (2 product cycles equals around 14 years of production. The XC90 went into production in 2001 and went virtually unchanged until 2015.) That’s called good design, and if the XC90 and S90 flagships are any indications, Volvo still has an uncanny knack for designing cars so brilliantly that they rarely need updating. Also, because the cars are so tailored to what their customers want, they don’t need to make a huge array of products to satisfy them. Subaru is the poster child for this, and also the poster child for how to make money selling cars for double digit profits.

Reason 3: They accomplished all of this under some of the most outrageous corporate leadership of all time. As alluded to in a previous post, Ford singlehandedly drove a number of brands to the brink of collapse, Volvo included. (Jaguar-Land Rover and Aston Martin are both still recovering.) In 2010, when Ford mercifully handed the abused company over to Geely (a Chinese auto company), Volvo was living on the fumes of the XC90 and their station wagons that had long gone out of style. In comes Hakan Samuelsson, a Scania and MAN truck industry exec, and a powerful team backed by a powerful Geely has become a force to be reckoned with.

Reason 4: Due to their familial ties to China, this positions Volvo for an extremely lucrative future. Few carmakers are having luck tapping into that market, for both cultural and political reasons. On the cultural side, wealthier Chinese are not as flamboyant as they once were. This is good news for the stealthy luxury of Volvos. Politically, being owned (at the moment) by a Chinese-based firm provides huge advantages in being able to operate and sell cars profitably in the heavily-regulated country.

Finally, the real reason I finally dedicated a personal ode to Volvo is that there have been clear signs pointing to an impending IPO in the near future. The company has issued preference shares to institutional investors, has issued quarterly reports for several quarters, and is currently seeking to raise additional capital. This is fantastic news for a well-run company ahead of the game in terms of technology and design, and well positioned to be the Subaru of the mid-to-upper end market for years to come.

De-Clawed Digital Disruptors: Why Samsung’s Acquisition of Harman is a Relief to Carmakers

This article comes on the heels of Samsung’s disclosure of its acquisition of Harman International Industries, referenced here.

The automotive OEMs’ business model, at its core, revolves around simply selling physical cars to people every 7-10 years, and hasn’t changed (or needed to change) since the car was originally invented. Enter the smartphone in the late 2000s, and within a few years the most important features on every car shopper’s must-have list involved some type of smartphone connectivity, which was about the time when carmakers started getting nervous. If what people care most about in a car (besides the basic standard that it moves when told to) is no longer what the carmaker controls or owns the development of, then theoretically it should be fairly simple for an Apple or Google to produce their own smartphone-centered cars, or at least reduce Ford and GM to simple low-margin hardware suppliers.

So why hasn’t the sky fallen on the OEMs yet?  If the latest move by Samsung, another one of the big smartphone players, offers any indication, there’s hope for them yet. Even within the last year, there were rumors swirling of Apple developing a secretive Titan connected car project that was to spell doom for the mainstays, while Google’s autonomous teletubby cars garnered tons of media buzz as they spun around the streets of Palo Alto. Today, however, Google has decided to pursue a more modest partnership strategy with its autonomous driving software, project Titan has been shuttered indefinitely, and now Samsung is entering the fray with a more-muted strategy in line with that of its digital brothers.

If you’re a Mary Barra or a Carlos Ghosn, this is at least a temporary sigh of relief. It’s another example of a so-called ‘digital disruptor’ finding it harder than anticipated to adapt its software/service business model to a hardware-heavy industry, opting instead for a less-risky, less-predatory entrance. It also confirms at least in the short-run that the creation of the automobile itself remains securely in automakers’ hands, while the connectivity and software aspects of the car will remain a hodgepodge effort of Detroit-Silicon Valley partnerships, internal development, and a plethora of tier 1 suppliers and startups.

At this point in the connected car race, both carmakers and external players find themselves sitting across from the same hairy dilemma: how do we leverage these new connectivity capabilities between the car and its surrounding devices to bring value to drivers? So far, they’ve come up with mainly three unsatisfying answers: car-sharing services, telematics/informatics services, and V2X (vehicle-to-something) communication. As all parties involved have found, not even a combination of these business models yields the fruit they had expected yet.

Perhaps the real meaty value of the connected car lies in its unique role as the central device that physically connects us to our world, much in the same way that our smartphones are the focal points of our digital lives.

Tesla and SolarCity Set Course for Common Energy Platform

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Photo from csddaily.wordpress.com

 

The Tesla and SolarCity merger is not just a smart business bundle of achieving one-time corporate synergies. It’s arguably the beginning of a future where regardless of how the energy is gathered or utilized, it can be shared.

 

This may seem obvious or like not a big deal, but when we start talking about the future of modular transportation where a group of “modules” (cars) together can power a train more efficiently and with less traffic, these cars need to be able to pool their energy repositories together to create one large pool for the train of cars to pull from.

Short side note: this is where fossil fuel vehicles hit a bigger roadblock than a herd of angry Greenpeace activists. Fossil fuels produce energy, but they have to be turned into electricity via combustion prior to being able to be shared. I can’t pour gas into my iPhone and expect it to work, ever again.

We take for granted all the things that we simply plug into the wall. This is how the future of transportation needs to work from the standpoint of universality of the energy being used, but we need to go a step further. Being able to charge your iPhone and iPad from your computer’s energy source is fantastically useful, but it doesn’t make the USE of that energy any more efficient – if anything it makes it less because my iPhone dies every fourth email whereas my computer can handle a few hundred before dying.

With transportation, though, there are real benefits from being able to allocate energy correctly, and only if the energy can be easily allocated in different ways can these tangible benefits materialize.

For example, say there are two 18-wheel trucks, one directly behind the other, driving on an interstate for several hundred miles. Both are carrying their own payloads, and both are using their own engine power to move their respective payloads across the country. However, the guy driving behind the first truck is expending much less energy than his friend in front because he doesn’t have to deal with as much headwind hitting the front of his truck. This is a fairly common occurrence among truckers, and it’s called drafting. The problem with drafting, is that someone is always having to take the brunt of the wind, while the others simply coast behind.

But what if there were a way in a line of interstate trucks for the trailing trucks to push energy from their engines forward to the trucks bearing the brunt of the headwind? Then you’d have the energy where it’s needed most and where the other trucks can simply coast along. It’s a similar thought process as a train on train tracks. Each car does not individually have its own power supply, but rather is attached to the power in the front.

Granted, trucks on a highway are not going to connect directly to reach other necessarily, but the value of having the front truck bear the brunt of the headwinds while everyone that’s trailing pushes some of their own energy forward makes everyone more efficient and channels energy directly to where it’s needed.
That same hallmark of directing energy where it’s most needed is apparent in the Tesla/SolarCity deal. The solar system stores the energy in the battery packs, which then can be used where it’s most needed. Whether that’s charging the person’s car to go somewhere or heating their home or profiting from selling the energy in excess back to the grid, the person’s energy ecosystem is allocating energy where it’s most needed and where it’s most efficient.

In developing a common energy platform where energy can be targeted to where it’s most needed and most efficient, the Tesla/SolarCity deal is way more than just good old fashioned corporate synergies.

Better Together: A Case For Modular Transportation

Creativity without restraint is a hard concept to grasp because the restraints are generally self-imposed: “what will people think of my answer? Will they think I’m stupid? Or worse, naive?” When posed with a big question like “what should the future of transportation look like?” or “what’s the next big thing?”, most people, myself included, would immediately start mentally searching for the latest report or most dinner-party-friendly response; one that evokes the audience’s polite head tilt and petite frown, signaling they had considered your response in all its nuances and determined it suitable enough.

The obvious problem is that dinner parties are not generally the venues from which groundbreaking thinking flows. And while I’ve generally tried to write the dinner-party-friendly version of my ideas and observations over the last few years, I’m now thinking of, well, not doing that.

My self-posed question is “what does the future of transportation look like?” Here’s my immediate, uncensored thought process:  Connect them. Not in the dumb IoT type of way. When I was little, my grandfather made me my own custom train track to build, but I used it for driving cars on. Would that work? Can we make trains of cars utilize train tracks? What about a train of cars? Isn’t that essentially what a highway is?

Overall, as I try to reconcile nature-based design with the future transportation networks, I am left with the notion that whatever the ultimate answer may be, it has to revolve around the idea of “better together.” The individual modes of transport in the future need to be more efficient when there are lots of them than when they are individually operating. In today’s world, the situation is very much the opposite, as can be discovered quickly between the times of 7 and 9 am and 5 to 6 pm every week day.

The idea of “better together” actually comes from birds, bison, and a host of other herd-like animals that can achieve more efficiency or more safety together rather than apart. Juxtapose this: a bunch of birds in a V-shape all traveling to the same place more efficiently against a bunch of cars going to the same place at an equally slow speed due to congestion. Could we create a train of individual modules (or cars) that are all roughly going to the same place, and then allow individual cars to attach and detach to the train as needed? For longer trips, could we have a skeleton of a train that individual modules can fit into and then collectively power the whole unit? Scale that to planes, could we have a bare-bones, UPS-like plane that a bunch of individual modules power?

The amount of power that you provide to the unit directly affects the price that you have to pay – similar to how if you have solar panels on your roof you can sell the power back to the grid? As a nod to this sharing economy concept, if all of these individual modules are making up the backbone of a plane or a train or a highway-type train, can you “sell” other seats of your module to other people looking to go to that same place? Could we design cars so you still feel separated if you don’t want to necessarily converse with the other person who’s sharing your module on your flight to Miami?

 

Designing From Nature Yields The Biggest Breakthroughs

Diverting from the usual, I want to talk about design, and I want to talk about it outside of the context of high-priced consulting firms (for which I work) and Amazon Echo and the iPod. In fact, I quite literally want to talk about design outside. Nature’s design, besides being a popular buzzword among church clergy, has and will continue to shape what we consider beautiful like the Echo and iPod. Perhaps more importantly, design derived from plants and animals has and will continue to lay the groundwork for the most beautiful and innovative man-made creations in history.

This last statement seems dramatic, but over the last few months, I’ve run across a few examples that demonstrate the evidence that nature does not just inform the finer arts, but widely inspires groundbreaking technologies. For concision, I’m going to select just a few examples of how nature can change the course of human progress, past and ongoing, to prime a further discussion.

Wilbur Wright was inspired by birds in flight. This is a fairly well-known piece of history, but until reading the brothers’ biography by David McCullough, I did not understand the depth of intense study that Wilbur conducted in order to comprehend the science of flight – why buzzards had a certain wing shape, why certain birds were able to fly without wind, and even why birds arched or flared their wings to remain at their preferred height. The design of different birds inspired part of the design of their initial Flyers, and Wilbur continued to leverage birds to test his theories and formulas of aeronautics.

Microsoft is storing data in the form of DNA. As a contemporary example, Microsoft teams are developing a revolutionary way to store data, using DNA as their template. Through the use of A,C,T, and G to store information instead of the standard binary 0 and 1, they’re able to store exponentially more data on the same amount of space. 

These are 2 examples of conscious design derived from nature. But plenty other inventions that have shaped human history were undoubtedly inspired by mimicking nature. The compass is a direct interaction with natural magnetic fields, and SONAR is used by dolphins for communication.

We’ve learned a lot from nature, and in many ways we have profoundly increased the velocity of human progress by listening to it. It’s hard to believe that there aren’t many more groundbreaking, history-altering natural designs staring us square in the face.

From a transportation perspective, can we learn from nature as to how to integrate forms of transportation in the most efficient and safe ways? How does the largest organism on earth, a quaking aspen tree network, deliver nutrients and information correctly and evenly in order to stay alive?

This is the type of question that I believe could provide some exciting answers.

Car Batteries Are Still Toddlers, Don’t Stunt Their Growth

I recently finished The Powerhouse by Steve Levine, which tells the tale of the lithium ion battery and its evolving application to electric cars. What I was somewhat shocked to learn was that although lithium ion technology has existed for decades, the lithium ion batteries that are going into the Teslas and Volts was developed in my lifetime, and for the newer generation models, within the last five years. (I had a similar reaction when I learned that the Internet was developed just a couple years before I was born, #millennial.) 

What also occurred to me is that we’re a long ways off from creating the ultimate battery. In much the same way engines have continually improved over the last 100 years, so too will a better battery come to fruition every couple years. 

Having more than a passing interest in batteries yet no technical background to speak of, it seems to me that there are a couple standout issues with the current lithium ion batteries that will keep scientists scratching their heads to fix:  recharge time, voltage fade, and capacity. 

None of these are easy things to fix (apparently), and it seems that the current trajectory is incremental improvements on the existing lithium ion technology – a few more cycles before voltage starts to fade, a little more capacity, a little faster recharge time. Sound familiar? It’s the same place combustion engines are at – a little more of this, a little better that. But engines have had the luxury to be refined and perfected over more than ten decades. Lithium ion and car batteries in general are still in their first decade. 

If we’re hitting this incremental-only ceiling this early in the game, it begs the question if we’re looking in the right places for the next breakthrough in battery technology. And if I were the person in charge of setting the course towards the next battery innovation, I’d look for types of batteries that solve the issues that lithium ion seems to be stuck with. 

My first stop would be to flow cell batteries – essentially batteries that are recharged by draining the spent liquid and refilling it with new liquid. To the consumer, essentially the same time and process of refilling a combustion engine. Oh and they don’t degrade over time. There are several types of flow cell batteries, but the only one that gets talked about is the hydrogen fuel cell, which has its own issues. 

What looks most promising from my non-technical end of the table is the vanadium redox flow cell battery. Like lithium ion, the modern form of the battery was discovered decades ago, but has not really been improved upon since. The issue with these batteries currently is that you’d need a whole bunch of electrolyte to produce enough energy to power the car. So much so that it would be impractical to fit into a car. But there is progress on this end, though slow due to so little interest. The Pacific Northwest National Laboratory has created the closest thing to a plausible flow cell battery, but at the moment they don’t talk about it having automotive applications. 

In addition, organic flow cell batteries are emerging as potentially the safest and most sustainable type of flow cell battery. This stuff has only been thought up in the last seven years. The advantage over inorganic redox batteries is a huge reduction in cost and more environmentally-friendly materials. Again the PNNL is about the only ones working on this, though the California-based ARPA-E has also looked into it, again from stationary energy storage perspectives. 

While I’m not an expert in battery chemistry, it seems that people are so enamored with lithium ion that we haven’t given credence to other battery technologies that may be able to solve a lot of the pain points that exist with lithium ion. Flow cell and organic flow cells are just a couple ideas, and may absolutely not be feasible, but I think it’d behoove the entire energy and electric vehicle industries if we didn’t tell the current batteries they’re great just the way they are – talk about a recipe for parental disaster.