Green Wombat

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While reporting a feature story on Norwegian electric car company Think that appears in the August issue of Business 2.0 ("Have You Driven a Fjord Lately?"), Green Wombat had the chance to sit down with Ion Yadigaroglu, co-founder and partner at Palo Alto’s Capricorn Investment Group. Capricorn, the investment vehicle of former eBay president Jeff Skoll, has invested in both Think and Tesla Motors, the Silicon Valley electric car company making the Roadster super car. "This is the first time in a very long time that there are two car companies – two real car companies – that are being launched," says Yadigaroglu.  He believes there’s an opening for electric car startups to grab market share while Detroit and Tokyo dither. "The reason there might be a window is because, clearly, the incumbent car companies didn’t take this electric car phenomenon seriously," says Yadigaroglu. "They have, as always happens, big incentives to drag their feet and maintain the status quo." 

Automotive history, of course, is littered with the rusting name plates of failed startups, from Tucker to DeLorean. But thanks to the economics of electric car production, companies like Think and Tesla are able to make cars for $100 million versus the $1 billion automakers will spend on just retooling an existing model. "Fundamentally, by going all-electric there is a radical design change involved," Yadigaroglu says. "The complexity goes down. Half the complexity of a regular car is in its drive train, its engine and transmission and all that. You have such savings by going all-electric in terms of what engineering is needed." Tesla and Think will use Tesla’s lithium-ion battery packs, piggybacking on the billions spent to create such batteries for laptops and cell phones. Think is also benefiting from the $150 million that former owner Ford (F) pumped into the company to develop a highway-ready electric car that met European and U.S. safety standards. And both companies are pursuing a classic Silicon Valley strategy: attract high-profile early adopters with disruptive technology and then popularize it for the mass market.

Think and Tesla will roll out their cars this year from from opposite ends of the market – Think with a two-seater urban runabout called the City and Tesla with its two-seater $100,000 Roadster. The challenge will be ramping up to get costs down so both companies can expand production to more mainstream passenger vehicles. "The real game here is how are we positioned in 2009," says Yadigaroglu. "There will be two electric car companies in the world that will have significant numbers on the road with the knowledge and assets in order to be competitive with Toyota. Car company incumbents are maybe slow but they’re not stupid. I guarantee you in two years there will be interesting vehicles coming out of even the U.S. automobile industry."

Whether an electrified Toyota (TM) or General Motors (GM) will attempt to crush or co-exist with the upstarts in the great unknown. To help drive down the cost of electric cars and boast Think and Tesla, Capricorn plans to start a battery leasing company. Think, for instance, will sell the City but lease the battery, which accounts for half the cost of the car. When you buy an electric car you’re essentially paying upfront the fuel costs for the life of the vehicle. (It would be like buying a $20,000 Honda and then having to pay a $20,000 surcharge for the gasoline the car will consume over the next decade.) Capricorn’s lease might be sold as a "mobility" fee that could include insurance and other services. Utilities like San Francisco-based PG&E (PCG) are interested in buying thousands of used electric car batteries to store renewable energy and ease demand on the power grid. "

Yadigaroglu met Think CEO Jan-Olaf Willums last year when he invited Willums, an expert in corporate sustainability, to a meeting at Capricorn. As the two were driving back to San Francisco – in a Prius – Willums mentioned he and his investment group had just bought Think. "He’s a very interesting person and delightful to be with and very generous," says Yadigaroglu. "They’re not in it just for the money. They really aren’t. One thing that always keeps me optimistic about the world is that sometimes when you try not too hard to make every last dollar of profit is when you actually create companies, organizations or ideas that are truly worth an outstanding amount of real value."