Reference no: EM13895170

The HyperCar

From his solar-powered digs down the road from the ski slopes of Aspen, Amory Lovins is gearing up to take on the giants of the global auto industry. Mr. Lovins has a degree from Oxford University, a MacArthur Foundation "genius" grant, and a reputation as an environmental consultant that fetches him as much as $20,000 a day. At the age of 53, he has written or co-written 27 books and cofounded an environmental think tank that has spun off three for-profit businesses. But his pet project these days involves a new level of risk and ambition: Hypercar Inc., a fledging car company with a plan to build a superefficient sport-utility vehicle that he is convinced will revolutionize the industry. All he needs is about a quarter of a billion dollars to get the thing out of the lab and onto the street.

His dream is an earth-friendly SUV that would get the equivalent of 99 MPG of gas and emit nothing but drinkable water. It would be powered not by an internal-combustion engine, but by a fuel cell that cleanly converts hydrogen into electricity.

But that would be only the start for the Hypercar. Mr. Lovins's machine would be made not out of steel, but of lightweight carbon fiber-the kind used to make fighter planes, tennis rackets and skis. And it would be driven by two joysticks instead of a steering wheel-one result of its sophisticated electronic brain, which would do everything from linking the car to online entertainment programs to suggesting when it's time to take the car into the shop.

At least that's the theory. No one has yet figured out how to build a carbon-fiber car economically. No one has put a fleet of fuel-cell-powered cars on the road. No one has built a production car steered by joysticks. And none of the established industry players is willing to fork over the piles of money the Hypercar needs for a real rollout. None of which seems to bother Mr. Lovins in the least.

BP Amoco PLC has invested about $500,000 in Hyper- car. Its hope is that Mr. Lovins's project will spur the world's established auto makers to move boldly to produce cleaner vehicles. BP sees the radical Hypercar as a way to apply "a bit of competitive pressure" to prod the big auto makers to produce even more efficient designs, says Chris Mottershead, BP's London-based technology vice presi- dent for lower carbon growth.

Mr. Lovins hatched the idea for a superefficient auto- mobile about a decade ago, and spent the next several years trying to convince auto makers that they could make money by building it. General Motors Corp., for one, didn't bite. "I have a lot of strange friends, and Amory is on the outer limit," says Donald Runkle, former head of GM's advanced-technology labs. He invited Mr. Lovins to talk to his engineers, but GM concluded that building the kind of car Mr. Lovins envisioned didn't make much busi- ness sense. "Those puppies cost a lot of dough," explains Mr. Runkle, now an executive vice president of Delphi Automotive Systems Corp., the big auto supplier.

On a recent morning, Mr. Lovins stood in a confer- ence room at the Mirage hotel and casino in Las Vegas. He had flown in to give a slideshow about the Hypercar at a conference dealing with how the Internet will affect the auto industry. More empty seats than people greeted his presentation. But afterward, he thought he had hit the jackpot when he got a few minutes to make his pitch to a software executive sporting a green golf sweater and very deep corporate pockets.

The executive was Barry McNealy, brother of Sun Microsystems Inc. Chairman Scott McNealy. Sun is working with some of the world's biggest auto makers in a race to design software that will link cars to the Internet, and Barry McNealy, who is in charge of Sun's dealings with its automotive customers, had convened an annual meeting of his staff at the conference where Mr. Lovins had just spoken. He tried to convince Mr. McNealy that the Hypercar would be the perfect test vehicle for Sun's software. That way, he told Mr. McNealy, "you get there first."

Mr. McNealy was polite. "I love what you guys are doing," he told Mr. Lovins. He added that his brother might be interested in hearing more about the Hypercar if Mr. Lovins pitched it as a possible office on wheels, an idea Sun believes could catch on with consumers. But Mr. McNealy stopped far short of writing a check. "Your ability to get to market remains to be seen," he noted, and in the auto industry, "the barriers to entry for a niche player are very high."

That week, Mr. Crumm, the CEO for the Hypercar and retired GM executive, received three representatives of Terra Trust, an environmentally focused Swiss investment fund. Terra had pledged to invest $1.5 million of the $5 million Hypercar has raised so far. But Terra has come up
$100,000 short because of managerial problems that the representatives blame on their predecessors.

Over coffee and cookies, Mr. Crumm and his staff gave the Terra people an overview of their Hypercar plans. The group cut to the chase. "You can have all these fancy plans, but you could be nowhere near assembly," said Urs Lustenberger, a young lawyer who serves on Terra's new management team.

He was particularly impressed by the Hypercar model's high-tech tires, which are designed both to increase fuel economy by reducing rolling resistance and to run safely for short distances when flat. Like almost all components on the Hypercar except its carbon-fiber body, the tires would be made by an outside supplier. The idea is that by depending heavily on suppliers, Hypercar won't have to do as much manufacturing itself.

The Hypercar staff was itching to raise about $60 million that they figure they need to build 20 or so test Hypercars that actually run. They need those test cars before they can move to full-scale production, which itself could cost around another $140 million, the company esti- mates. But the Terra representatives apologized that their fund doesn't have the kind of money Hypercar needs.

The week before Christmas, the Hypercar team con- vened a three-day summit in Basalt. Because of the problems with raising money, some of the young staffers suggested scaling back the company's do-or-die production goal. Messrs. Lovins and Crumm agreed that the company will start trying to license its technology to other auto mak- ers in two years, regardless of whether it's ever able to build a fleet of Hypercars. Mr. Crumm had been "pushing for the brass ring," he acknowledged a few days later. But the company found that to raise the funds needed, it must offer a short-term way for investors to reap a profit. "There are some investors who want to harvest the technology and unload," Mr. Crumm says.

It is now three years later and you have been approached by Amory Lovins for advice (address your report to him). As you prepare your recommendations, assume that the Hypercar is technically feasible (that is, it can and will work within the next two years). You should also assume that the purchase price for this car would be within $2000 of a comparable, conventional car.

Questions

1. What is the overall business feasibility of the Hypercar (use any models and frameworks that are appropriate)?

2. To what extent are the conditions "right" for the successful introduction and launch of this car?

3. What are the major obstacles to the successful introduction and launch of this new approach to designing and building cars?

4. What should Lovins do next with the Hypercar concept?