Based in Vancouver, Canada, this is a blog by Michael Argast. My areas of interest include travel, economics, technology, the environment, personal development and other eclectic topics.

Slowly, slowly, then all at once...

One of the things that is sometimes surprising about technology adoption and the rate of change is how quickly it goes from small edge cases to huge, societally changing explosions.

However, this is how it is supposed to work. This isn't an accident or freak exception - this is the way technology adoption occurs.

There are two curves - the technology adoption life cycle, showing adoption cohorts:

tech adoption life cycle.jpg

And the s-curve, showing adoption rates over time.

s-curve.jpg

What is happening at the early part of the curve is that the product isn't ready/finished for the whole market. Various elements - price, features, complementary technologies, supporting ecosystem, etc - still need to be developed. There are likely fewer players in the market at this stage, and being at the market at this stage does not guarantee success later on. A simple example of this is Diamond Rio's MP3 player prior to the iPod - they had the basic technology pieces, but the features (ease of use, music store, plug and play capabilities) were incomplete, leaving the opportunity for Apple to improve on the model and take a dominant market position as the market moved from early adopters to early majority.

In these early days, it is easy for naysayers to take issue with the technology. Famously when Apple introduced the iPod, the geeks rolled out quotes like "No wireless. Less space than a Nomad. Lame."

However, when the mainstream market moves, it can move incredibly quickly, leaving legacy vendors in the dust as the market resettles around a new dynamic. S-curves are famously shortening - what used to take 10, 20, 30 years for widespread technology adoption can now occur in 3-5 years or more quickly.

The classic current business case for this is of course the iPhone. Famously panned by competitors from Palm to RIM to Microsoft, early versions that appealed to the early adopter market were incomplete. Specifically, the original iPhone had slow networking (no 3G, let alone the LTE we love today), a poor camera (no video capture), no App Store (that now makes Apple billions of dollars a year and has created millions of jobs and upended entire industries).

The early versions allowed Apple to experiment with the market, evolve their product, and build out the ecosystem. By the time they had a full head of steam, the legacy vendors (Microsoft, Nokia, RIM) were unable to pivot and got crushed. The problem wasn't that these other vendors couldn't build a similar platform or ecosystem as Apple and Android, it was that the S-curve adoption was SO steep and SO fast that it took everyone by surprise and they didn't have enough time.

The increasing speed of adoption, the benefits of ecosystem are important lessons to learn. I'm really interested in how these apply specifically to electric cars and solar power specifically. I don't think either curve will be as sharp as cell phones (which had the benefit of being on a two-year replacement cycle which artificially drove faster adoption) but when the curve hits I still suspect it will be sharp, and there a reasons to believe these curves will hit sooner rather than later.

First, electric cars.

Tesla as a company has made most of the noise in this space, but Nissan has sold a reasonable number of Leaf's, Chevy has their Bolt and there is a rush of car manufacturers getting into the business. VW is pushing big into electric to get past Dieselgate, Toyota is finally moving past the dream of Hydrogen power with plans around a new solid state battery. 

Looking at price, features, ecosystem - it helps us understand where we might be on the curve. Price-wise, electric cars are still substantially more expensive that conventional internal combustion engine (ICE) vehicles, but the release of the Bolt, Model 3 are quickly bringing the sticker price down and estimates are that lifetime prices without subsidies will be at parity within the next year or two in significant markets. This is impressive given the sub 2% sales figures and sub 1% install base compared to ICE models and as volumes grow economies of scale will start to work to the electric car's advantage.

On the feature side, other than the obvious 'drive from A to B' feature set, and most traditional car features, there are a couple of notable features that come into play. Range is still developing - Tesla's have acceptable ranges, many other vehicles are reasonable for daily commutes but not longer drives. Battery technology and volumes will bring range into acceptable levels relatively quickly. Range is impacted by 'refuel' speeds - ICE cars have a definite advantage here, although being able to refuel at home is a significant advantage for electric vehicles. The feature of lack of noxious exhaust is a definite advantage for electric vehicles.

Autonomy is on an independent axis from electric vehicles, but Uber/Lyft like trip services and/or fleets like Car2Go could significantly accelerate overall share of electric vehicles as a percentage of trips due to significantly lower costs of ownership and per-km travel. 

This leaves ecosystem - charger networks, fleet services, diversity of suppliers (different auto options) all come into play here. Charger networks are building out rapidly - the combination of being able to tap into existing grid and/or solar options means that long term electric charging infrastructure has significant presence advantages and distribution advantages over the traditional gasoline market.

Given all of this, the real question is not - will electric cars win the day - but how fast and when will the transition occur. Given an assumption of cost parity in the next 3-4 years, the questions come down to transition times (rollover of the existing fleet), the negative impact to the oil/gas industries, ecosystem advantages, distribution and production capabilities. I believe that we've just about crossed the chasm for electric cars, and mass adoption will start to occur in the next 2-3 years in the consumer markets and fleet markets (Uber/Lyft/Avis/Hertz/Car2Go). Special markets with lagging feature sets (trucking/etc) will take longer (8-10 years). Leasing will help accelerate sales but supply chain challenges (where do all the batteries come from, manufacturing of new models to meet demand) will slow down adoption. Resale values of ICE cars will drop dramatically in the next 4-5 years as well. 

One of the more interesting aspects of this is the impact on oil/gas prices and the resulting ecosystem. In some dense cities, rising land prices have driven out traditional gas stations while electric refueling options have risen rapidly. 

Most people are expecting this transition to take 20-30 years. I'm expecting the curve and impact to be sharper, accelerated by autonomy and fleets on the second half of a 10 year transition to majority of sales and sub 20 year transition to majority of fleet.

Slow, slow and then fast.

Second, solar power. 

The impact of compounding cost reduction over time is one of the most significantly misunderstood aspects of the solar industry by the mainstream. Cost cuts of 10-20% per year have brought solar in many markets below the cost of coal fuel today, and within another few years will do the same relative to natural gas fuel prices. 

Solar as a technology also benefits from features that traditional grid power does not - the ability to distribute generation to rooftops and closer to consumption, having a significant impact on grid pricing and stability. In North America, Europe, Australia, this is already having an impact on the profitability of utilities but in other markets like India and Africa it allows for leapfrog decentralized generation/consumption approaches that wouldn't be considered here.

The interesting question for me here is not the impact that solar has on the cleanliness of the grid in the next 10-20 years - that impact will be massive, and solar (and to a lesser extent wind) will drive dirty fuel out incredibly fast - but that projecting forward 20-30 years, what is the impact of incredibly cheap power democratically distributed as solar drives prices ever downward. Regulatory and lobbying efforts from utilities will slow adoption, but economics will win in the long run.

I believe we've already crossed the chasm in most sunny markets (India, southern US, Africa, islands where previously fuel had to be brought in by ship) and we'll cross the chasm quickly in the next 5 years in almost every market globally. Production capacity, incentives and regulatory burdens will slow adoption in some markets but this s-curve will be sharp and dramatic in impact.

Overall, s-curves are steepening - increased global wealth allows for more rapid adoption of technologies, and the combination of the Internet and smartphones provides a common platform effect that is grander in scope than electrification before it (necessary for the adoption of technologies like TV, radio, refrigerators). 

The 'slow, slow' part of the curves will be shorter and shorter. Hold on, enjoy the ride. Make your investments and career choices appropriately.

Liked this post? I recommend potential further reading:

Stratechery - blog by Ben Thompson

The Innovator's Dilemma - by Clayton Christensen

Crossing the chasm - by Geoffrey Moore

Inside the Tornado - by Geoffrey Moore

 

Intensity

Riptides...