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Green auto firms bet on oil backlash

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Green auto firms bet on oil backlash

Market innovators hope consumer demand will shift to support their drive toward electric vehicles

Amity Shlaes / Bloomberg News

New York -- What do screaming protesters at the G-8 and G-20 summits in Canada have to do with a battery service startup that has received $700 million in investment capital from Morgan Stanley and Lazard? And what do they have to do with this week's initial public offering by Tesla Motors, an electric-car company?

The answer has to do with hopes for an oil-free future that was building even before Deepwater Horizon became a household word. Now many innovative companies are counting on anti-BP fury to take consumers over the edge and adopt alternate energy projects that were already in progress.

Consumers may even embrace the product they have famously rejected, the electric car. Better Place, a car battery service startup, begins with the wager that the old problem of recharging batteries is the big obstacle that stopped consumers from buying electric vehicles before. Using Israel as a test site, Better Place in the next year or so will open 75 stations where electric cars can simply swap an exhausted battery for a new one in the same time it takes to refuel.

There's an old business theory that suggests the electric car may indeed zoom ahead this time. That theory, called disruptive innovation, was developed by Clayton Christensen, a guru at Harvard Business School back in the 1990s when BP was still British Petroleum.

It boils down to this: A big company makes something that consumers buy en masse, a group to which it is beholden. Paradoxically, a company's emphasis on good service can be an error. When management caters too extensively to extant clients, it forgets to develop new markets.

Meanwhile a smaller group has an alternate idea. But that alternate idea has serious flaws, and no one even knows if a market for it exists. Over time, the quality of this marginal product improves. Next, the new product finds a crowd that is willing to accept imperfect technology because it likes the item for other reasons.

In the 1990s, Christensen laid out the reasons the electric car was failing, using as evidence the old Chrysler electric minivan. The vehicle required 1,600 pounds of batteries, which slowed acceleration. It cost five times as much as a comparable gas-powered model.

Others noted that the viability of the electric car concept seemed fatally linked to the price of gas at the pump. Hence the timorous retreat to the hybrid. The question is whether all the current events of recent years, from two wars to multiple oil price spikes to, now, the BP spill, constitute a permanent change.

Under the Better Place business plan customers buy electric cars from Renault, then sign up for a subscription battery swapping network, just as they now sign up for cellular service. A navigation system will help drivers find a charging station that's part of the Better Place network. Robotic tools swap an empty battery for a fresh one in minutes.

What's interesting here is that while governments and their tax codes loom in the background, capital is playing a star role: Consider Tesla's initial public offering and the private companies that have invested in Better Place.

In addition, this time is different because the BP disaster will loom for a generation ahead, however oil prices fluctuate. Already many voters, in the United States and elsewhere, trust brands as much as governments. And already, many brand companies promote political causes.

As they watch the protesters in Canada and live video of the Gulf spill, many voters are considering going green more seriously than they ever did before.

From The Detroit News: http://detnews.com/article/20100701/AUTO03/7010376/1148/auto01/Green-auto-firms-bet-on-oil-backlash#ixzz0sRHBdewv

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