Sarah Lacy doesn’t seem to understand much about the auto industry. This post is detrimental to the clean energy movement and I wish she’d done more research before posting it.
In sum, Sarah Lacy thinks that if the government offers stimulus money to VCs in a sort of competition for someone to find the cleanest tech, that this is somehow “bailing out winners”. OK, let me get this straight: the U.S., which is falling desperately behind in creating clean energy cars behind countries like Japan, Germany, and even India, shouldn’t give money to promote innovation even though energy independence is key to our national defense and economy? Is that correct?
Sarah, I worked in the auto industry for three years. I made a lot of money in it because I came equipped with a lot of information. THE U.S. HAS MORE AT STAKE IN THE ENERGY RACE THAN JUST ABOUT ANYONE ELSE AND WE ARE FAILING MISERABLY. Yes, you see Intel chips, Google, Apple, and eBay all out of the U.S., but our auto industry is going to be extinct if we don’t do something.
In order to solve mass poverty in the Midwest, we have to bailout the big three to an extent. When you buy an American car, you pay more for the pension of a worker than you do the steel. With so many baby boomers retiring and the Big Three not having an answer to all of these promised pensions, you will have millions of people who worked their entire lives to receive absolutely no retirement. Should we just say “tough”? You picked a loser to work for, so you will just have to bag groceries at the supermarket to pay for your meds? It’s not my fault that the Big Three preferred to spend money on marketing over innovation, but I also understand the economic repercussions of millions of senior citizens being dropped on the curb to fend for themselves.
That being said, the Big Three are not innovating and smaller firms will have to be the innovators. However, there is a lot more infrastructure involved in clean energy than there is in IT, and small firms can’t handle this by themselves. There are pumps. Safety regulations. Clean vehicles are physical goods that must be disposed of. Anytime you involve a massive infrastructure change, you really do have to involve the government. And what Thomas Friedman was calling for was for VCs to come up with a sustainable way for Americans to drive which we would then support in our infrastructure.
Here are some facts that Friedman probably knew that Sarah Lacy apparently does not:
1.) Electric vehicles are currently not very profitable. I knew a manager at Toyota. The Prius is a loss leader for them and is quite expensive to produce. Without government subsidies, it would be unlikely to be on the roads at all. The only reason why this manager liked carrying it is because customers would come looking for a Prius, find out how expensive it was, and then buy a a Corolla. If you think any company would take on the massive overhead with the hope that these vehicles will be cheap to produce, you aren’t being very realistic. The American people stand to gain the most by having clean air and energy independence. These cars can eventually be profitable, but it’s going to take some investment initially and I don’t see enough of that coming from the private sector.
2.) The U.S. is currently exporting biodiesel to Germany, a government that does subsidize it because it promotes cleaner air and energy independence. How do I know this? I visited a biodiesel plant that actually did the exporting. Other countries see the value of bipassing the oil industry, which is capital rich but doesn’t actually employ a lot of people. Using alternate fuels means we can ignore corrupt governments like Saudi Arabia, Venezuela and Iraq. They will cease to be world players.
It is truly embarrassing how little the U.S. knows about diesel. The Europeans have been using it for years, and diesels can actually run on biodiesel blends (which can be made from waste and not corn like people often think) with no modifications to the engine whatsoever. It also has mechanics that are one step above a lawnmower and unlike electric cars, they are incredibly cheap and easy to fix.
3.) The government is often involved in clean energy–you just don’t see it. There are wind farms in North Dakota created by Native American tribes. They now supply enough energy for both the reservation and a nearby military base. And what paid for the infrastructure? Subsidies. The electric car is a direct result of legislation that California threatened which would have required automakers to improve gas mileage significantly. GM produced an electric car, and Honda created the Insight when they saw the GM electric car. GM scrapped their car, Honda didn’t. You will see more solar panels in Germany than you will in the U.S. Why? Because the German government subsidizes it. The U.S. government subsidizes energy saving windows and thermostats. Why? It’s in our collective best interests. If I said “Give me VC funding for my product because it’s in our collective best interest”, would I honestly get funding? Are you honestly that optimistic about the private sector?
Automakers are in the business of making money, and creating cars that better the environment and help solve a geopolitical clusterf**k will not make money without a serious boost. It does make me feel safer when I go to bed though. So I, as a taxpayer, am willing to invest in clean energy. Consider us, the taxpayers, a big venture capital firm who is looking to improve our quality of life. Money is money is money, and I guarantee ANY maker of clean energy cars will gladly take some stimulus money for their projects.
Before you go on and on about the Tesla, ask them how much of their cost is invested in their technology, and then figure out if you think the average American could actually afford that. Or how that person would actually go on a road trip when their car only goes 225 miles without a charge which takes 3.5 hours at least. The Tesla is still a bit of a toy. Sorry.
Some people (not all people, mind you) in Saudi Arabia and Egypt want to blow your brains out because you support a government that supports oppressive regimes in their countries. Alternate energy allows us to exit these relationships while cleaning the air that we consume. This is a geopolitical and environmental issue, so giving tax money to innovators is an investment, not a bailout.
So Sarah, stick with IT or do your homework please. Friedman is on to something.