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Why smart driving cars are a big deal #transportation #smartdriving

The question will be how you can end around the infrastructure and a regulatory framework nearly a 100 years in the a making. The Internet was an entirely new thing that existed outside of the status quo and thus could advance, largely unhindered, as fast as possible. You can imagine the looming regulatory changes this is going to require.

The self-driving car benefits from Moore’s Law, which explains that computers get dramatically cheaper over time, and Metcalfe’s Law, which describes the increasing power of networks as they get bigger and more connected. Both of these laws are now at work on one of the biggest expenses and most powerful forces in our world: transportation.

This is a bigger shift than the smart phone, and it might happen nearly as fast.

De-materialization — The Move to an Asset-Light Life

My new pattern requires renting cars at the airports as needed. I am progressively ceasing to own things, not on a political-schism basis,…but simply on a practical basis. Possession is becoming progressively burdensome and wasteful and therefore obsolete. — R. Buckminster Fuller, Operations Manual to Spaceship Earth

Fuller was a bit ahead of his time, but he was right to observe that the world has a lot of excess capacity: our cars sit unused for most of the day, our houses sit empty while we are away at work or socializing, just to name a few obvious examples. What companies like Lyft and AirBnB do is provide a platform for that spare capacity to be put to work. Technology is adding to and facilitating this process in ways large and small. For example, I loaned someone a book off my Kindle the other day — it was quick and easy, and further simplifying the process, the book will be automatically returned after a set amount of time.

Median income is down 7%, and median net worth is down 28% over the last 10 years (BLS) while costs have risen, but these business models, which offer access to goods and services without the substantial investment required for an outright purchase, have been successful during the downturn. The same thing is going on in the corporate world as US companies have been functioning with less capital and fewer people since 2008. Companies are also utilizing less space per employee as more people work from home. Similarly, there has been a rise of co-working spaces, a form of shared office space, as various companies, often (but not always) aligned around a single field or ideology, pool resources to time-share space rather than outright owning it.

The top three expenses for young people are housing, transportation, and education. The rental markets are strong, and the demand is increasingly concentrated in the form of micro-apartments in major cities. Home ownership has not bounced back from the housing bubble. On the transportation side, the number of people who have driver’s license is steadily decreasing, and the number of miles traveled per year is at a multi-decade low in the US. And with the rise of open online courses and other technologies, the traditional degree is under threat, a trend that will continue with the ongoing increase in the cost of physically attending brick-and-mortar universities. It would cost me twice as much today to get my degree from an in-state school, a cost that I simply could not have borne.

While this phenomenon is driven by the economy, I think that there is a generational effect here as well. When you grow up posting, sharing, and tweeting, you are used to being constantly connected, often to people you don’t actually know. All of a sudden, it doesn’t seem so strange to loan someone your car or rent them a room in your condo. There’s definitely a cultural spillover from growing up connected to sharing physical goods and spaces.

It’s interesting to think about what’s next. What big asset do you own that you don’t have to? Where else is there spare capacity? What is the most valuable thing you own, and would you share it with someone else? It’s fascinating to watch how mobile technology is manifesting change in the physical world, attacking everything from taxi to hotel business models. But that’s not a bad thing for society at large (the individual taxi driver or hotel owner is a different story, of course). At the end of the day, if it leads to more efficiency and less stuff, it will be a huge win.

The Economics of EVs — 12 months with a Tesla Model S

I’m a Tesla evangelist. The car is phenomenal and one of the smartest consumer products I’ve ever owned. It’s sharp, drives well, the software integration is amazing, and it received the highest rating ever from Consumer Reports. I’ve had the car for a little over a year and wanted to take a look at the economics of fueling.

I’ve driven 4,499 miles over the last year. During that period, the car used 1,932 kWh of electricity or 429 Wh/mile. I drive mostly in the city, continuously starting and stopping, so my efficiency is likely lower than the average. I pay $0.05 per kWh of electricity in Chicago (one of the cheapest rates in the country). There is a loss of about 10-20% when you charge (according to Wikipedia, which references studies on lithium-ion lifetime-charge efficiencies). We’ll compare these stats to the Honda Civic, which gets 28 mpg in the city. Gasoline in the Midwest averaged about $3.35 over the past year (according to the EIA).

1,932 kWh/0.85% = 2,273 kWh purchased from the utility (adjusted for charge efficiency)

2,273 kWh x $0.05 = $113.65 in electricity for 4,500 miles

$113.65/4,500 miles = $0.025 per mile in fuel costs

$0.025 per mile * 28 mpg = $0.70 per gasoline gallon equivalent

4,500 miles/28 mpg = 161 gallons of gas x $3.35 = $538.40 in gasoline costs

$538.40 in gasoline vs. $113.65 in electricity or a $424.75 difference (nearly an 80% reduction)

On a percentage basis, it’s clearly a large reduction. But I didn’t buy the car for the fuel savings, and I don’t drive enough miles for the economics to work. I’d have to own the car for a long time to get any real payback on the purchase price. However, this does give us some insight into mass-market adoption from an economic standpoint.

According to the EPA, the average miles driven in the US was 11,493 in 2010.

11,493 miles/28 mpg (Honda Civic) = 410 gallons of gasoline x $3.35 = $1,375 in fuel costs

$1,375 in fuel x 80% reduction = $1,100 in fuel savings per year

The average commuter then would save $1,100 a year in an EV versus a Civic.

Let’s assume that this consumer is going to spend $20,000 on a Honda Civic (which starts at $18,000). The question is how much more would you be willing to spend to save the $1,100 a year?

If you spent $25,000, an increase of $5,000, you’d get a 22.0% return ($1,100/$5,000).

If you spent $30,000, an increase of $10,000, you’d get a 11.0% return ($1,100/$10,000).

If you spent $35,000, an increase of $15,000, you’d get a 7.3% return ($1,100/$15,000).

This all sounds about right and squares with the pricing of the Prius. People are willing to pay more, maybe $5,000 to $12,000 more, for the Prius because it’s more efficient, cleaner, and has a certain status. A mass-market EV would have to be near that price point. And even at a $35,000 price point, it still would offer a 7% return in fuel costs to the average consumer versus a leading car like the Honda Civic. Certainly it gets better if you travel more miles. If you are going 15,000 or 20,000 miles per year, then the fuel savings quickly add up. It seems very rational to me then that if EV costs can get close to $30,000 to $35,000, you should see widespread adoption on economics alone.

The car would have to have adequate range, but the required range is reasonable. Let’s assume that the 11,493 miles (the number of miles the average person drives per year in the US) are all driven on weekdays. 11,493/260 weekdays = 44 miles a day. Lets double to 88 miles just to be safe. Therefore, let’s round up and say that you’d want 100 miles of range for a commuter car.

The whole analysis is sensitive to a number of inputs. For example, where you live will determine your fuel and electricity costs, but these tend to be linked. California has higher electricity costs but also higher gasoline costs.

The biggest risk to EV adoption maybe improved fuel efficiency standards. These new standards are going to have a big effect on fuel efficiency in vehicles in the coming years and reduce the demand for gas. That along with cheap and seemingly now abundant oil in the US means gasoline prices are likely going to go down. All that being said, it feels like we could get there this time.

The Cost of Mobility — A Driver’s License or a Mobile Phone

Take teenagers 20 years ago and ask them would they rather have a car or a computer? And the answer would have been 100% of the time they’d rather have a car, because a car represents freedom, right? Today, ask kids if they’d rather have a smartphone or a car if they had to pick and 100% would say smartphones. Because smartphones represent freedom. There’s a huge social behavior reorientation that’s already happening. —Marc Andreessen, Fortune interview

What would you rather have — you get to pick only one — a driver’s license or a mobile phone? I’d take my phone without a second thought. It has an app to call a car (Uber), directions (Google), and public transportation maps and schedules for every major city (Embark). And the data is clear — the driver’s license is losing (i.e., ownership is steadily decreasing).

Drivers_Licenses

From an economic standpoint, the cost difference is dramatic. I just switched to T-mobile, which gives me unlimited voice and data for $70 a month (including internationally). That’s $840 a year in operating expense and maybe, if I bought the phone with no package, $500 in capital costs. Spread the phone cost over three years and call it $1,000 a year.

Compare that to a car: the average consumer spends $1,500 a year on gas alone. Plus, it’s a capital investment of tens of thousands of dollars. The all-in driving costs are probably close to $5,000 a year for most people, especially if you factor in the depreciation in the value of the car.

When I got my driver’s license, it was a big deal. There was no Internet (Marc Andreessen was working on Mosaic in Champaign, but it had yet to be launched), and mobile phones were by no means ubiquitous. The car thus was a form of freedom. Today, though, your friends, the news, and just about all other services are all available on your phone. As the graph from the Atlantic shows, there has been a fundamental shift regarding the number of people with driver’s licenses. With this shift, we as a society are driving far fewer miles and thus using less energy and importing less fuel. It’s amazing, the consequences of that little device in your pocket — the mobile phone has shifted consumer demand and literally affected the trade balance of the US (along with higher fuel efficiency standards).

The future is one of automated drivers and shared cars. It makes economic sense, it will be more efficient, and it will be safer. I never learned how to ride a horse growing up, and I’m guessing many kids in the near future will never learn to drive a car. And I for one cannot wait for the day that I can hop into a driverless car to head off to work. Looks like comedians will soon have to ditch all their jokes about the DMV (they were getting stale anyway).

Further Reading

Inside the Mind of Marc Andreessen, Fortune
The Dramatic 30-Year Decline of Young Drivers (In 1 Chart), Atlantic

ampCNG Thesis: BTU Arbitrage

In 2010, I was looking for renewable-energy ideas and projects to invest in. I was working with the team at Carbon Solutions Group and learning about the market. To start out, I made a couple investments in traditional solar, which worked well (although the timing was bad as panel prices collapsed just afterward). My original intent was to look at power projects, the idea being that power was going to be much more distributed and smaller scale (In fact, ampCNG’s original name was Aggregated Micro Power, or AMP). Led by the efforts of friends and investors in the UK, we adopted, in part, the same name and set out to pursue power projects as AMP Americas.

At that time, the US energy market was undergoing a profound shift. Natural gas, which traded as high as $12/MMBTU in 2008, was down to $4/MMBTU. At that price point, nothing is really competitive on a pure cost basis, with maybe the exception of coal. I had also watched the carbon markets whip around and eventually collapse due to the lack of a clear governing policy, so I told myself that our projects had to be profitable in the absence of subsidy. Given those constraints, we couldn’t find much that worked. We looked at biomass, visiting pellet plants and learning about the economics of growing organic material. We considered various waste-to-energy projects — gasification, torrefaction, and pyrolysis.

The problem was that nobody had a system that worked at any kind of scale in any real-world environment, at least not that we could find. We also started looking at anaerobic digestion, which is the production of methane (or natural gas) from waste, often food and manure. I found myself on farms throughout the country, at one point standing on a tarp suspended by only the methane from the 20-feet-deep pit of manure below. The problem with many of these projects, though, was that if they were producing power, they had to rely on incentives, but where incentives weren’t necessary, a power purchase agreement (PPA) from the utility was, and acquiring one of those often took years, if you could get it at all.

Then, through a friend, I was introduced to Fair Oaks Farm, a dairy farm on I-65 in Indiana led by Mike McCloskey. Mike, an industry leader for decades who has invested tirelessly in sustainability through anaerobic digesters and other innovations, wanted to run his dairy trucks off of the natural gas that he was producing from manure on the farm. As we dug into it, we saw that it made sense: diesel fuel was expensive and dirty, and the use of natural gas, especially renewable natural gas, was clean and cheap. After a lot of trips to the farm and Excel spreadsheets, I partnered with Mike and invested in two compressed-natural-gas cleaning stations, a gas-cleaning skid, and a fleet of trucks.

That was two and a half years ago. Today, that project runs 42 trucks on natural gas, most of which is delivered from the anaerobic digester on the farm. We’ve run well over 10 million miles on compressed natural gas and developed a unique knowledge base from being an early adopter. We’ve expanded the network, recently opening stations in Perry, Georgia, and Orlando, Florida. Through our joint venture with Trillium (a subsidiary of TEG), we’re building a dozen more throughout Texas and the Midwest. Natural gas is below $5/MMBTU in most parts of the country. In each MMBTU, there is 7.2 diesel gallon equivalents, which means that $5/MMBTU of natural gas is the equivalent of $0.70 of diesel fuel. Now a lot has to happen to make that natural gas usable — it must be compressed to high pressure and distributed to trucks, and the trucks have to be upgraded, for example — so what you end up with is a price closer to $2-2.50 per diesel gallon or a savings of more than $1.50 per gallon in most cases.

We’ve made progress, but the problem is big. The US burns 41 billion gallons of diesel a year — 28.5 billion of those go into trucks running 173 million miles a year. If the industry built 5,000 stations selling 1M gallons of diesel gallon equivalents we’d replace 5B gallons of diesel or about 17% of the trucking market or about 12% of the overall diesel market. We could do this while consuming just under 3% of our current natural gas production (65.7 bcf in 2013 per EIA). It would save shippers over $5B annually and considering that every gallon of natural gas burned would have little to no NOx or SOx and a reduction of 20-30% in CO2, the impact would be big.

So compressed natural gas makes sense from an economic standpoint, it makes sense from an energy standpoint, and it makes sense from an environmental standpoint (methane, especially renewable methane, is much cleaner than diesel). The big lessons that I’ve learned throughout this process are, to name a few few, (1) that I need to be willing to pivot (in our case, from power to fuels), (2) that turning a project into a company is a way to de-risk a business and an investment, and (3) lastly, if you’re building anything, make sure you are okay (financially, psychologically, etc.) if it takes twice as long and costs 20% more than expected.

The math:
65.7bcf a day of natural gas x 365 days = 23,981 bcf annual production of US
5 billion gallons of diesel * 139,000 BTUs / 1,000,000 BTUs = 695M MMBTUs of energy
695M MMBTUs of energy / 1M MMBTUs per BCF = 695 bcf
695bcf / 23,981bcf = 2.89% of US natural gas production