In 1900, when there were only a few thousand motor vehicles registered in the U.S., the public could choose from steam, electric or gasoline automobiles, all with passionate partisans, industrial backers and embryonic infrastructures. There was no clear winner.


An impassioned race for market share ensued, with electric vehicles (EVs) initially having the upper hand because they were quiet and didn’t require a crank to start. But gasoline soon took the lead because it offered greater range. And when Charles Kettering of General Motors invented the self-starter for Cadillacs in 1911, it was all over.


But today the EV is making a major comeback and there are strong parallels to the start-up culture that produced the personal computer. The EV promises much — deliverance from foreign oil, a path to reaching ambitious greenhouse gas emission targets, and ultimately a far better automobile than we have today. Even President Obama has embraced the EV, with a call for a million plug-in hybrid cars on American roads by 2015. But many hurdles remain before battery-powered cars can dominate the road.


The PC evolution happened faster. In 1976, a very young Steve Jobs, Steve Wozniak and Mike Markkula formed Apple in a Silicon Valley garage. They scrounged together 50 very basic personal computers from spare parts, then used the money to make improvements in the design, including a keyboard and a better display. Soon they were on their way to the Apple II and, by 1984, the McIntosh. The Valley became the launching pad for thousands of digital dreams.


In 2010, Silicon Valley is again playing host to a revolution in technology, though this time the entrepreneurs aren’t making computers, they are building surprisingly sophisticated zero-emission EVs. The garages that housed embryonic PCs now house cars again, but they are powered by very light lithium-ion (li-ion) batteries.


The big story is the rise of small, nimble and independent electric carmakers that appear poised to command a significant share of the world auto business in just a few years. Tesla Motors, which recently built its 1,000th high-performance battery-powered Roadster, is headed by the young South African-born billionaire Elon Musk, who made his fortune as a co-founder of PayPal. He holds two degrees from the University of Pennsylvania, including an undergraduate degree in economics from Wharton. The company’s sports cars sell for more than $100,000 although the more sober (but still very fast) $50,000 Model S sedan is on the horizon for 2011.


Tesla Motors recently announced an IPO, seeking to raise $100 million. Musk told Knowledge at Wharton in an interview last May, “As far as new companies go, the car business is such a capital-intensive [one]. It doesn’t lend itself to start-ups very well. You need to operate with incredible capital efficiency if you are going to be a start-up and succeed. Tesla has done a good job in that respect, though it certainly could have done a much better job.”


In its IPO filing, Tesla (which was briefly profitable in 2008) said that it lost $31.5 million in the first nine months of 2009, through September 30. This was down from a loss of $57.3 million in the same period of 2008, it said. Revenue in those nine months last year was $93.4 million. Musk has attributed the losses to its fast-paced development of the Model S. The company hopes to sell 20,000 of them a year.


Henrik Fisker is a charismatic Danish-born former BMW designer who is also going the high-performance route with the Fisker Karma, an $87,900 plug-in hybrid with supercar performance and 50 miles of all-electric range. The Karma will initially be produced in Finland and sell probably half its production in Europe.


Both Fisker ($528 million) and Tesla ($465 million) received Department of Energy loans to build EV capacity in the U.S. Fisker is using its funding to set up a base in Delaware (on the site of a former General Motors plant) for a second, smaller car known as Project Nina. Tesla is investing in a new California plant to produce the Model S.


Other independent contenders include:


  • Bright Automotive. The company makes a plug-in hybrid commercial van and has customers like Coca-Cola and Frito-Lay lined up. Bright’s unique Idea vehicle is marketed as a solution for low-cost fleet operation. Bright CEO John Waters had a hand in designing the battery pack for the ill-fated General Motors EV-1 — the first modern EV from a commercial carmaker.


  • Brammo. The design-conscious company is selling an electric motorcycle in Best Buy stores. Brammo’s Enertia is an $8,000 carbon fiber-based urban commuter bike with a 50-mph top speed and a 40-mile range. CEO Craig Bramscher started Dream Media, which created databases for giants like Sony, Warner Brothers and Fox.


  • Coda. This battery-powered carmaker sources the platform for its 100-mile electric sedan from China, where it also has a joint operating agreement with a prominent battery supplier. Coda, which will obtain most of its electric powertrain from western companies, has backing from a complement of Goldman Sachs veterans, including Henry Paulson, former CEO for Goldman and former Treasury Secretary. The Coda, priced around $40,000, will be available initially in California at the end of 2010. 


  • Think Global. Think, a Norwegian contender, has an interesting history and was owned by Ford from 1999 to 2003. It’s small, two-seat City sedan is designed for urban commuting. Right now it has a beachhead in Europe, but the company is taking aim at the global market. Think recently announced a U.S. factory in economically depressed Elkhart, Ind. With Bright also located there, as well as the major battery player Ener1, Indiana is shaping up as a second Detroit.


These upstarts say they can compete with the best from Detroit, Tokyo and Stuttgart. But they won’t have a clear field. Mainstream automakers are also readying fleets of battery-powered cars. There are a range of credible EVs from America’s embattled Big Three carmakers, including The Chevrolet Volt (which uses a gas engine not connected to the wheels to supply power for an electric motor), a battery electric Focus and plug-in hybrid from Ford, and a range of cars from Chrysler’s ENVI division (whose future is somewhat clouded by the company’s bankruptcy and subsequent emergence). In the past, Big Three electric cars were mostly window-dressing: They appeared at car shows, and revolved on stands, yet somehow never actually reached production. Today these are the cars that could save Detroit.


According to Britta Gross, General Motors’ director of global energy systems and infrastructure commercialization, the company will roll the Volt out in three regions –California, Michigan and Washington, D.C. — starting in November 2010. “We’re planning to scale up as quickly as we can, then expand nationally within several years, she says.


The EV revolution is international. The Japanese, assisted by co-ownership of Asian battery makers, are true leaders in the field. Toyota is fielding a small electric city car with 100-mile range, and also a hydrogen-powered fuel-cell car by 2015. Honda is committed to electrifying most of its fleet with batteries and hybrid drivetrains. Nissan, in addition to bringing out the Leaf, its first battery car, late this year, is pioneering EV charging by signing up cities around the world as partners. The company is creating the infrastructure for its cars to succeed in the marketplace.


“Zero emission vehicles will change the way people use their cars,” says Carlos Tavares, the chairman of Nissan Americas. “The power will come to you: You’ll be able to charge in your garage, in parking lots and in shopping malls. We’ve been working on battery technology since 1992, and it has taken us this long to reach the maturity we have today. The Leaf will offer zero emission at about the same cost as operating a gasoline car — you won’t have to be green to buy one.”


Nissan’s Leaf also benefits from modern communications technology: Owners will be able to pre-heat and pre-cool their vehicles from their cell phones and computers, as well as choose their charging times the same way people today record TV shows.


Potential Roadblocks


Expect some potholes in the road to electrifying the automobile. According to John Paul MacDuffie, a management professor at Wharton, “It’s likely to be a somewhat slow road, though whether it will also be a bumpy one is a judgment call at this point. We will definitely see a lot of ups and downs in EV interest due to fuel prices. One issue is that, aside from a $7,500 federal tax credit, we lack steady federal incentives, which would be smart to provide as a way of helping people make these purchases.”


MacDuffie believes it could be decades before the world’s roads finally relinquish the internal-combustion engine. “I think we will have a mix for a long time, with no obvious dominant winners,” he says. “We could see another 10% to 15% efficiency improvement in gasoline cars. It’s not clear from where we are right now what will be in that mix in 20 to 30 years. For instance, hybrids appear to have the upper hand now, but plug-in electrics could cruise along steadily, and then suddenly proliferate after reaching a tipping point.”


The world’s major automakers still treat EVs as “a fringe part of their business,” MacDuffie says. “But it’s very likely we will reach a point where it’s impossible to be a credible automaker unless an EV is in your portfolio — and maybe we’re already there. But EVs present a challenge: Automakers aren’t used to what appears to be a slow buildup in the marketplace, with the big growth period in the marketplace still a long way away.”


EVs won’t work without a place to plug them in, which is one reason Nissan’s partnership with municipalities to develop public infrastructure is important. Entrepreneurs have also emerged, including the Israeli-born Shai Agassi, whose company Better Place has helped make modern EVs possible with an ambitious plan to wire whole countries, including Israel and Denmark, for EVs. Although some parts of Agassi’s plan — specifically the idea that cars could have swappable battery packs for long trips — are unlikely to be realized, his broad vision has been invaluable.


In an interview with Knowledge at Wharton last August, Agassi says, “[T]his is one of the most exciting times in this industry. We will have a billion electric cars on the road sometime around 2025 because we will have a billion people [driving] and there’s no way they can be [driving] gasoline cars. Between now and 2025, a billion new cars need to be added and there will not be any industry that will be more exciting than this one….You’re looking at a $20 trillion industry rising up from nothing today within the span of 10 to 15 years.”


Other charging companies include Coulomb Technologies, which has sold 2,000 charging stations since its founding in 2007 and is fielding orders from Boston, Chicago, New York and Europe; and ECOtality, based in Scottsdale, Az., which is wiring several American cities, but is also looking much farther afield — to China, the first American company to expand there. “The Chinese are likely to get there first,” says CEO Jonathan Read. “They’re racing us at breakneck speed. We used to have an arms race with the Chinese — now it’s an EV race.”


Crystal Balls: The EV’s Varied Timetable


The prognosis for electric cars ranges from very optimistic to skeptical. Merrill Lynch believes that there could be a $70 billion lithium-ion battery market by 2020, “requiring significant manufacturing scale and a 30% to 50% reduction in cost.” Since li-ion batteries are at the heart of almost all EVs, that price reduction is crucial. One reason that even small EVs are priced near $40,000 is the current $10,000 to $15,000 cost of their battery packs.


Among the pessimists is the Boston Consulting Group (BCG). The idea with economies of scale is that as companies build more battery vehicles, the cost of the packs will come down dramatically. But a BCG report says that isn’t likely — at least in the near term. “Although electric-car battery costs are expected to fall sharply over the coming decade, they are unlikely to drop enough to spark widespread adoption of fully electric vehicles without a major breakthrough in battery technology,” According to the report. The firm thinks that car companies will still be paying $8,000 for relatively small 20-kilowatt-hour packs in 2020, and that their target of $250 per kilowatt is impractical. Right now, batteries cost between $1,000 and $1,200 per kilowatt.

According to Xavier Mosquet, the Detroit-based leader of BCG’s global automotive practice, $400 per kilowatt is more likely. And since about half of battery costs are fixed — not sensitive to quantity discounts — he says huge breakthroughs are unlikely without radical changes in materials. High prices like that make it harder for EVs to compete with gas cars on cost. According to Mosquet, oil would have to go to $350 a barrel (it’s now around $82) for payback in three years.


Despite all these hurdles, BCG still predicts that 26% of new cars (14 million vehicles) sold in 2020 in the major developed markets (China, Japan, the U.S. and Western Europe) will have electric or hybrid powertrains. Hybrids will be the biggest part of that mix at 11 million. Only 1.5 million will be fully electric, the company says. Meanwhile, the electric battery market will reach $25 billion. “The burgeoning market will be about triple the size of today’s entire lithium-ion battery market for consumer applications such as laptop computers and cell phones,” says Mosquet.


Contrary to other more expansive visions, BCG says battery cars in 2020 may be concentrated — used as part of commercial fleets and as commuter cars. Also somewhat pessimistic is the conclusion by the federal National Research Council that high battery costs will make it difficult for plug-in hybrid vehicles (imagine a Prius with a larger battery pack and wall-charging capability) to enter the mainstream.


“It is possible that breakthroughs in battery technology will greatly lower the cost,” the report says. “At this point, however, it is not clear what sorts of breakthroughs might become commercially viable. Furthermore, even if they occur within the next decade, they are unlikely to have much impact before 2030, because it takes many years to get large numbers of vehicles incorporating new technology on the road.” According to the report, the maximum practical scenario, requiring some breakthroughs, would put 40 million plug-in hybrids on the road by 2030. More realistic, the study says, is 13 million. Neither figure is all that encouraging when there are 300 million cars on our highways.


The Electrification Coalition took issue with the NRC report, which, it says, “contains battery costs and technology assumptions that are well beyond the range of current industry data. These estimates ultimately provide the basis for a broader analysis that is fundamentally flawed in numerous ways.”


The Coalition, formed late in 2009, brings together such players as Carlos Ghosn, the head of the Renault-Nissan Alliance (and a major supporter of EVs), David Vieau, CEO of the battery supplier (to Fisker, Chrysler and others) A123 Systems, Frederick Smith, chairman of FedEx Corp., and David Crane, CEO of NRG Energy. Its vision is far more expansive than NRC’s: “By 2040,” says its Electrification Roadmap, “75% of light-duty vehicle miles traveled in the U.S. should be electric miles. As a result, oil consumption in the light-duty fleet would be reduced by more than 75% and U.S. crude oil imports could effectively be reduced to zero.”


The Roadmap was prepared with the help of global management consulting firm PRTM, which projects that li-ion battery cost reductions of more than 50% by 2020 are possible without technology breakthroughs (assuming that 10% of new vehicles sold by that date are electric, which would support economy-of-scale reduction).


According to Oliver Hazimeh, the director of PRTM’s global e-Mobility Practice, “We look at what is happening in the marketplace and see the electrification of the automotive powertrain. It is no longer a question of ‘is it happening?’, but a question of ‘when and where? ‘” By 2020, Hazimeh says, “electric miles could be cheaper than oil miles. We see that ownership and costs associated with EVs will be on par with gasoline engines by that time.”


It may be that PRTM’s forecasts are too optimistic and NRC’s too dire. But given the many variables that will affect EV sales, confident speculation is difficult. Few analyst