Column: Can Silicon Valley Reinvent The Car?

Letter from Silicon Valley

SAN CARLOS, CALIF. -A week or so ago, I took my first trip in a Tesla. It is one cool California ride: a smoldering, red convertible with two low-slung bucket seats. I could practically feel the road as we purred along Silicon Valley's scenic Highway 280, accelerating nimbly past BMWs and other ho-hum gas guzzlers. And we were quiet--almost as quiet as my desktop computer--because the Tesla runs on pure electric juice.

Tesla Motors, based here about 10 miles north of Palo Alto, aims to do to the auto industry what Apple once did to the plodding mainframe computer business. The company has a radical idea, a pragmatic approach to technology, a business model borrowed from the computer industry and a flair for style. The first Teslas are expected to reach customers' driveways early this autumn. The key question isn’t whether the company can build one car or even a few hundred--it's whether Silicon Valley can reinvent the automobile business.

Or ask yourself this: If you had $100,000 to spend, would you consider plunking it down for one of the first Tesla roadsters? For equity in the company? Or would you steer clear?

Tesla's radical trend is simple--environmentally-friendly technology can be sexy. Forget about clunky sandals and snub-nosed cars. Tesla's roadster packs the sizzle of Angelina Jolie in a tight T-shirt.

There's nothing particularly practical or economical about this snug two-seater with its single cup holder. Fully loaded with leather seats, a hard top and a sweet sound system (and, yes, a port for your iPod), a Tesla roadster will set you back $100,000. But it’s the stuff legends are made of: In four years, with a staff than now numbers 170 and $60 million of private capital (almost half from its chairman, Elon Musk), Tesla has created an all-electric car that makes people drool.

So far, 350 people have plunked down deposits of $50,000 or more to get one of the first Tesla roadsters. Many of those owners-to-be haven't even had a chance to go for a test ride. They just needed one of these clean-tech beauties. (Chairman Musk will get car No. 1 when it rolls off the docks. That seems fair: After all, he's paid about $30 million for his.)

Like the smartest Silicon Valley entrepreneurs, Tesla's founders have made great use of technologies invented elsewhere. The car's extruded aluminum chassis was pioneered by Lotus. Its battery is based on lithium-ion cells, just like those powering your laptop. Nineteenth-century physicist Nikola Tesla, the company’s patron saint, built the first AC induction motor. The 15 patent applications filed by the company largely focus on how to make all the parts work together and how to assemble various subsystems automatically.

There’s no "motor" under the front hood, just fans. The magic happens in the back. Power comes from the battery pack made of 6,800 lithium-ion cells, each about the size of a tube of lipstick, wired together into “sheets” in Thailand. The cells are identical to those that run laptop computers but are surrounded by computer smarts--a system that manages charge levels, cools the cells and sniffs for smoke. Executives say that the car's careful management techniques should make its battery pack last longer than the one in your laptop. Tesla will guarantee its battery pack for five years (or 100,000 miles).

Fans and critics will wrangle over Tesla's motor muscle. To its credit, the Tesla can leap from 0 to 60 miles per hour in four seconds and reach speeds of 130 mph. (I can't tell you how fast we were driving recently because the speedometer in this prototype was stuck. But the car accelerated as smoothly as the best rides I can remember.)

Don't plan a cross-country sprint with your Tesla, however. Company executives say it will log 250 miles between charge-ups. If you hook up a Tesla to a high (220 volt) charger--something that looks like a cross between a parking meter and a gas pump--the car will be back on the road in three and a half hours. It will need a seven-hour feeding at a standard (110 v) wall outlet. The car trunk is big enough for a set of golf clubs and a weekend bag. Leave home bags too bulky to fit into the overhead storage bin of a commercial plane.

Tesla’s business strategy is pure Silicon Valley. The company has made fine use of overseas suppliers and partners: The chassis is made in Norway, the brakes and airbags in Germany, the 900-pound battery pack assembled in Thailand and final assembly, at least for now, is done in England. Tesla does own one facility it considers a core asset: the Taiwanese operation that makes the motor.

Within the past few weeks, Tesla has announced it will open a 60-person research and development operation outside of Detroit. After much negotiation, the company decided to build its future U.S. assembly operation near Albuquerque, N.M., neatly outside the reach of the automakers' unions. That facility, slated to employ 400 and to produce between 13,000 and 25,000 cars a year, will build a four-door electric sedan, called "Whitestar," slated for late 2009.

Like Apple, which sells its wares in glitzy shops but not electronics chains, Tesla has no interest in the usual car dealership arrangement. "Our customers are not comparison shopping," says Darryl Siry, Tesla's vice president of marketing. Tesla plans to open five wholly owned "customer centers" in the U.S. over the next 18 months--two in California, one each in New York, Chicago and Florida. Those pit stops will sell cars, service existing customers and of course, sell branded tchotchkes such as T-shirts. “People keep asking for them,” Siry says. “They should be ready soon."

Siry is mum about when Tesla might be cash-flow neutral. But starting production in the U.S. will take big bucks. It’s anyone’s guess whether that could come from more sugar daddies, a traditional automaker as partner or an initial public offering. The "Risk Factors" section of a Tesla prospectus might be as big as a phone book, but in certain market cycles, investors hardly care.

After a long IPO dry spell, technology companies are once again sprinting for the public market even though profits are still only a distant hope. About a third of the tech companies that did IPOs last year were unprofitable, according to Thomson Financial. Earlier this month, wireless broadband company Clearwire raised $600 million in its IPO, even though it has warned investors it will likely continue losing money through 2008.

Recent business history has shown that Silicon Valley can rock the world--create disruptive innovations that genuinely change the way we live and work. No one had a Web browser 15 years ago; now most of us can't live without one. Some other dreams, however, such as online pet food, proved to be mirages.

Tesla's founders certainly want to end up the winner’s circle. All they need to do is prove that their business model is half as alluring as the roadster.

http://www.forbes.com/technology/2007/03/18/tesla-electric-car-tech-cz_ec_0319valleyletter.html

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Book Review: A Society Fueled by Debt

Maxed Out

Hard Times, Easy Credit and the Era of Predatory Lenders

By James D. Scurlock

SCRIBNER; 248 PAGES; $24

Reviewed by Elizabeth Corcoran

---

Every week, my mailbox coughs out offers for credit cards with lavish allowances. I chuck them in the trash. But what if I didn't? What if I took the money and did what so many advertisements urge -- treated myself to a luxurious vacation, fixed up my kitchen, bought that glittery ring?

For everyone who has been tempted to binge with a credit card -- or for anyone who has wondered how the neighbors always manage to stay at the best resorts in Hawaii -- James D. Scurlock has an answer: Our mad scramble for luxury is fueled by debt. And debt, particularly personal debt, is very, very bad.

Scurlock's provocative and engaging book, "Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders," is a cautionary tale about Americans reeling from too much credit, egged on by greedy companies trying to reap the rewards of astronomically high interest rates. Debt is driving people crazy, wrecking families and in some cases, proving genuinely fatal, he argues. It is also endangering our most fragile socioeconomic layer, the American middle class.

"Over the past generation, banks and credit card companies have made trillions of dollars of high-interest, unsecured debt available, and Americans have scooped it up," Scurlock writes. "Our incomes have risen an average of 1 percent in real terms, while our household debt has increased over 1,000 percent. ... We have no choice but to keep spending until our credit is exhausted and we own nothing." Scurlock is a filmmaker first and then a writer. His movie version of "Maxed Out" opened in San Francisco on Friday at the Opera Plaza cinema. His book elaborates on the stories in the film. The writing is engaging and unencumbered with footnotes or intricate data. This is a sermon against debt, not a scholarly analysis. (For instance, that 1,000 percent increase in "household debt" presumably includes the value of home mortgages.) But the tales Scurlock shares are heart-wrenching: There's the story of Yvonne Pavey, a grandmother in New Albany, Ind., who just vanished one day. Her family later discovered that she had a gambling addiction and tens of thousands of dollars of credit card debt. Her body was found in a nearby river.

Then there are Katherine and John Brown, a mother and grown son, both mentally retarded, living in a trailer in Macon, Miss., on government subsidies. Even though their income was meager, credit card companies besieged them with offers, and the Browns wound up with thousands of dollars of debt. Thanks to bad advice from a friend, they swapped their low-interest, government-subsidized mortgage for a more expensive 40-year mortgage and were soon hounded by bank lawyers demanding the deed to their trailer. Meanwhile, offers for yet more credit continued to fill their mailbox.

Scurlock is nostalgic for an era when bankers served in loco parentis, sternly assessing whether credit applicants deserved a loan. In that golden era, "the notion of handing a customer the 'noose with which to hang himself financially' ... [as one banker put it] was generally acknowledged to be immoral," he writes.

Bankers shed such lofty principles once the highly competitive -- and lucrative -- credit card business got going and deregulation arrived. So bankers quietly morphed into what he regards as financial crack dealers.

Truthfully, debt financing is an essential part of our economic life. Few Americans would own a home if it weren't for mortgages. Countless small businesses would never get launched.

At times, Scurlock gets carried away with his rhetoric: "Familiar phrases like home ownership and American Dream -- simple terms whose goodness once seemed self-evident -- have become hopelessly obscured."

Figuring out exactly what constitutes too much borrowing is like figuring out when you've had too much to drink. Scurlock would like to see the government regulate and warn consumers about too much borrowing, much as it regulates hard liquor and cigarettes.

Yet underlying Scurlock's argument is a fundamental tension between regulation and unfettered commerce: How much should the government create opportunities for the individual? How much should it protect all members of our community from temptation? Bank deregulation has led to more competition among lenders, freer access to capital, higher shareholder returns (for those invested in financial institutions) and economic growth. There are real costs, however: the most aggressive lenders go after the most vulnerable consumers -- particularly immigrants and those unable to make sense of the welter of fine print on the credit applications. "The 'invisible hand' of the free market has morphed into a biased government contraption that favors a few lucky duckies while the many watch from a distance, hoping their turn comes soon," Scurlock writes.

Scurlock offers a handful of remedies, including regulations linking credit ratings to applicants' income rather than to their repayment histories. Sadly, there are no simple answers: Scurlock's solution would stop anyone with unreported income -- including many Mom and Pop proprietorships and immigrants -- from getting capital to develop their businesses.

That said, Scurlock has put a spotlight on an important problem: Too much debt, just like too many French fries or too much booze, can ruin you.

Elizabeth Corcoran is a writer in Burlingame.

http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/03/11/RVG14OE3SN1.DTL

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Column: Silicon Valley's Immigration Problem

Letter From Silicon Valley

BURLINGAME, CALIF.--If you could choose between starting a high-tech career in India or the U.S., which would you pick?

Indian immigrant Rosen Sharma opted for the U.S. in 1993 and has done extraordinarily well here. But if he were just coming out of college these days, he says, he would pick India. The business opportunities are better, he says, and quality of life issues are at least as good: Nice housing? Schools? Safe streets? The chance to feel prosperous on a young engineer's salary? India is holding its own just fine against the U.S., he believes.

Sharma's answer is unnerving. A big part of the U.S. tech boom over the past 20 years has come from our ability to pull in the best and the brightest from India, Taiwan and other Asian countries, year after year. We've taken it for granted that these talented immigrants want to come here and that they will help the next generation of American start-ups achieve greatness.

But Sharma's perspective demands our attention.

In 1993, he says, after graduating with flying colors from the Indian Institute of Technology in Delhi, Sharma headed straight for the U.S. So did most of his classmates. Of the 40 people in Sharma's graduating class at IIT Delhi, he says, all but three came to the U.S.

It was a smart move for him and a great deal for the U.S. Sharma earned a Ph.D. from Cornell University and has since started more than a half-dozen companies--building products, generating revenue, rewarding investors and creating jobs. Now he sits on five company boards and runs his own start-up, SolidCore Systems, in Palo Alto, Calif.

The U.S. is home to Sharma now. He's applied for U.S. citizenship. He's raising his children here. He wants the U.S. to be an engine of innovation, for U.S. companies to build sought-after products and to generate good returns for workers and shareholders.

But Sharma, who is president of the IIT Delhi Alumni Association, says the next generation of Indian engineers are unlikely to feel the way he does: Last year, only 10 of the 45 IIT graduates who went through the same program Sharma did decided to pursue jobs in the U.S., he says.

If this represents a trend, it will have significant consequences for the U.S. AnnaLee Saxenian, now dean of the School of Information at the University of California, Berkeley, has devoted years to tracking the impact of immigrant entrepreneurs. Along with researchers at Duke University, she reported in January that foreign-born immigrants helped start one of every four U.S. technology start-ups over the past decade. Together, those companies employed 450,000 people and generated $52 billion in sales in 2005, according to the study.

As America staggers toward the next national election, we'll hear plenty of slogans about making the U.S. "more competitive." Candidates will debate tax policies and vow to fix our public schools. Chances are you won't hear them talking about making the U.S. more receptive to ambitious graduates from overseas. But they should.

But take another look at my first question: It doesn't just apply to foreign nationals. If you're a bright young person born in the U.S., where should you begin your career? In this country or abroad?

"Overseas," asserts Sharma--but this time, for positive reasons. In order for U.S. companies to be competitive, to serve the largest number of customers and build the most suitable products for customers all over the globe, they will need executives who have broad global experience.

Students are already sensing this trend: Several months ago, when I spoke to business school students touring Silicon Valley about job prospects, many said they were actively considering international opportunities, too.

It sounds like a contradiction--that the U.S. should continue to try to try to woo the best and the brightest from overseas even as homegrown emerging stars seek their fortunes outside our borders. But in a world where competition is truly global, that kind of exchange program makes sense--particularly if those Americans eventually return home and help build stronger companies.

http://www.forbes.com/home/technology/2007/03/04/india-global-exchange-tech-cz_ec_0305valleyletter.html

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