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Are they at war? Silicon Valley vs Detroit

August 29, 2010 Leave a comment

Declaring War?

Earlier last year there was a provocative posting at The Washington Post literally indicating that top executives at HP believe that Detroit should be left out to die. The article argues that instead of bailing out inefficient industries, US government would be better off funding Hi-tech industries who know how to stand up on their own feet.

A few months earlier, Tesla’s CEO Musk Elon who founded other high profile companies including PayPal, Zip2, Solar City and SpaceX, has decided to put his manufacturing base at California in order to tap the portfolio of Hi-tech talents in the vicinity. The EVs are powered by electrical powertrains that only have a single speed gearbox, which eliminates the need for complicated clutch and shift mechanism. The underlying development and production processes for such calls for very different domain of knowledge than traditional automobiles. Building on the supply of Hi-Tech professionals as well as the dynamic, open, and competitive culture of the Valley, Tesla has made some marks at not only product innovations, but also leveraging outsource manufacturing and building a store-based retail chain. Tesla turned profit the first time in July 2010 and has just raised $260M from its June IPO, which is the first car company went public since Ford in 1956. “I’m against having a two-class system where you’ve got the workers and then the managers, sort of like nobles and peasants…” Elon remarked on the working culture of Detroit in an interview and claimed “I’d like to have a conversation with whoever’s in charge at the time — the car czar or whoever — and say ‘I’d like to run your plants“.

While the Valley has a history of successful companies growing out of garage operations, Detroit executives may well shrug off such attempts as unrealistically ambitious with good reasons. People have tended to underestimate the complexity of doing a car. This has been true for the ages” said a Michigan automotive insider. In fact, despite the aggressive claims made by Silicon Valley executives, EVs are still only sold at small volume in a niche market that has so far confined their competition with Detroit more to the media than at major marketplaces.

Already Making Peace?

A closer look at these Silicon Valley start-ups, one may find that their fates are not so independent of the big blues. Tesla for example will supply Daimler with their electric powertrains. In turn Daimler has invested and owned 10% of Tesla which has acquired Nummi facility that was run by GM and Toyota to build Model S. Tesla’s peer / competitor Fisker is sourcing its engine from GM, who is planning to follow the path of Tesla to go IPO in Oct. Such interweaving relationships between start-ups and old timers represent an industrial dynamics that one may find to be quite characteristically American. In fact it is hard to imagine how these young companies can grow further without leveraging the supply chain, the sales channels and the wisdom that has took the big blues decades to build.

Having the privilege to work with both ends of the spectrum, I would suggest that such genetic crossover has been propagating at many levels.

For example, we included full containment / traceability capability to even the initial phase of a project at a start-up EV assembly operation, which was supposed to focus on ramping up of product volume. The containment capability though hard to be justified by superficial ROI analysis, is a wisdom borrowed from the big blues that an insurance policy of your brand is always worthy. After all it only took 1 instance of a highly unlikely event to bring down billions of dollar and decades of effort in building up say, BP brand. On the other hand, we provided a manufacturing IT platform for a hybrid battery plant built by one of the big blues. Flexibility and scalability is not only essential for start-ups to grow but also for new technologies to be fostered under a mature corporate environment.

Apple or Webvan?

It is way too soon to speculate on whether the Silicon Valley car ventures are going to achieve what Apple did to IBM, Digital and Wang, or to end up like many other soon-to-be-forgotten “New, new things” such as Healtheon or Webvan.

If Silicon Valley appears to be at war with Detroit, it would be more a manifestation of the healthy tension that is essential to strike the balance between risk-taker and cautious venturer, revolution and evolution as well as innovation and management maturity. This intriguing dynamics between start-ups and big blues may well be one of the ultimate strengths of the US economy.

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