Electric Cars Need Software, Not Just Hardware

1Executive Summary

Some of the highest-profile startups to enter the clean transportation game in recent years boast capital-intensive business models that involve a great deal of hardware. Take electric car maker Tesla Motors and charging infrastructure developer Better Place, for example. They represent some of the most visible players in a crowded field of startups racing to build out the basic tools for electric mobility: vehicles, charging infrastructure and batteries.

But within the larger context of a global economic downturn, trends in four key areas — the legacy auto and lithium-ion cell industries, later-stage green car startups and the venture capital community — are converging to make new opportunities for innovation in the green car space with a less manufacturing- and capital-intensive approach than Tesla and Better Place.

In our current period of heightened government influence over the U.S. auto industry — when collapsed sales have helped to awaken Detroit to the imperative of innovation — and in the next several years, as plug-in cars become available on the mass market, there’s an opportunity for companies to focus more on the software that goes into those vehicles, battery packs and charging stations, or to build up this kind of business as part of a larger venture. As a model that’s more directly tied to Silicon Valley’s history and expertise, selling and licensing such software may end up being among the better bets for the next wave of innovators and investors vying for a piece of the nascent green car market.

Automakers Under the Gun

Automakers are under growing pressure to produce cleaner cars and innovate, at a time when they have few resources for R&D investments. This pressure is coming largely from the U.S. government, with tighter fuel economy standards, new controls on tailpipe emissions and a cap-and-trade system for carbon emissions. The Obama administration also made it clear through its auto task force, which oversaw the bailouts of General Motors and Chrysler, that it expected the companies to produce more fuel-efficient cars and develop plug-in vehicles.

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  1. Paul Walborsky Thursday, June 11, 2009

    You are right on the money – Silicon Valley should focus on software players. Keep us informed on interesting companies that are tapping into a space. We will keep an eye on developments.

  2. Katie Fehrenbacher Thursday, June 11, 2009

    It’s also about the maturation of the alt-car industry which is starting to find the areas of less capital intensive innovation. Earlier days of mobile, companies would try to compete head on with a cell phone maker or be a cell phone service provider, which is really hard and made for some ugly company endings. ^^^Innovation is at the edges.^^^

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