Eyeing a Future of New-Fuel Cars

The co-author of Zoom says cars and oil "are headed for a divorce" and though U.S. carmakers lag the Japanese, they're still in the game

Imagine charging your car the way you do your cell phone. Or software replacing oil in automobiles. The revolution that will come with these advances is quickly approaching, says Vijay Vaitheeswaran, a correspondent at The Economist and co-author of Zoom: The Global Race to Fuel the Car of the Future.

Unless you've been living under a rock, you know that Detroit's reign over the car industry has pretty much come to an end. You also know that the environment and being "green" is a top priority for companies with an eye on the future. And gas-guzzling cars are inefficient, costly, and produce a ton of pollution.

In Zoom, Vaitheeswaran and fellow Economist correspondent Iain Carson write that "oil is the problem and cars are the solution." The book was the authors' chance to share what's already happening in the automobile and oil industries and ponder the future. The book was recently named a finalist for the Financial Times and Goldman Sachs 2007 Business Book of the Year Award.

Vaitheeswaran is also an executive in residence at New York University's Stern School of Business, where he teaches the course, Energy & Environment: Business as Usual or Ripe for Revolution? In fact, his first set of business students previewed Zoom in the spring and gave him feedback, and the next set will have the benefit of reading the final product, says Vaitheeswaran, who started out teaching at NYU's School of Continuing Education.

Coming to this topic with healthy skepticism is what makes him able to connect with students, Vaitheeswaran says. He wants them to see the marketplace as the best friend of the environment by having environmentalists in their corner and harnessing tactics, such as emissions taxes, that can do good for shareholders and the world.

He recently spoke with BusinessWeek.com reporter Francesca Di Meglio. Here are edited excerpts of their conversation:

Do you think the corporate world's interest in being "green" is a passing trend or here to stay?I think concerns about sustainability are among the great challenges of the 21st century, and business has to play an important role. This has both an upside and a downside for business. Those who want to be leaders of business tomorrow—even if they're not environmental themselves—better know how to handle the issues that are raised by global warming, fossil fuels, concerns about environmental pollution.

Entirely new industries are being created and will be created in the next few decades. This is part of what we argue in our book Zoom. Clean fuels are creating entirely new opportunities for entrepreneurs and innovators. You have to be aware of market potential. Equally, you need to be sure you don't get stuck in the past like the buggy whip manufacturers when internal combustion engines came along. Those guys didn't invest in the future or see a disruptive trend coming.

Simply doing a half-hearted job is no longer viable. "Greenwashing" is now pretty unacceptable. Companies that do a little bit and claim a lot for the environment are immediately denounced by activist groups and environmentalists, Web sites, and wikis. Customers are quite sophisticated now, and they have ways of making sure that companies keep their promises. This isn't just a fluffy thing to be outsourced to the marketing and PR folks. This is at the core of the CEO's job.

What motivated you to write Zoom?I had been looking at energy and environmental issues for a decade at The Economist. I'm an engineer from MIT, so I've always been interested in technology issues. But I have seen that things move very slowly when it comes to energy. It's not like a cell phone where we flip out every six months and get a cool new phone. Change comes very slowly. At the same time, the problems are quite serious—global warming, oil addiction, all of the complications that come from using dirty fuels the way we do.

A couple of years ago, it became quite clear to me that a perfect storm of forces was going to lead to much more rapid change. This happens in industries only once in a while. We saw this in the computing industry when the move toward distributed network computing arrived, and the old dinosaurs of the business that did mainframes were wiped out. Companies like Digital Equipment and Wang were big names, and they went bankrupt because they couldn't handle a sudden, disruptive change. A company like IBM [IBM], on the other hand, was a dinosaur that somehow managed to dance.

That's the challenge now being posed by this perfect storm of clean technologies, new public policies that take climate change seriously, and public awareness and a demand for change. That's fundamentally changing the paradigm of the energy business. That's why I decided to write this book with my co-author [Carson], who is our planes, trains, and automobiles guy. He knows a lot about cars. I know a lot about energy. We put our heads together to write a book about the clean car of the future and life after oil.

What is the book's main point?After a century of being joined at the hip, the car industry and the oil industry are headed for a divorce. Cars are about to leave behind the dirty fuel—in this case, gasoline—that has powered them. In the way personal computing transformed the information age, in the way that mobile telephones can now be found in African villages that never had a landline phone, this is a disruptive innovation. It's going to have dramatic consequences throughout the energy and car industries. Each of these is a trillion-dollar industry in its own right. In the long term, I think we're going to see a convergence of these two great industries as the line between car plants and power plants blurs. We will see a smart, sophisticated, software-rich car of the future very soon. They are going to be plugging into the wall, they're going to be getting electricity from the grid, and they're going to be feeding electricity back.

Who is winning the race to build fuel-efficient cars?It's too early to call any winners. But if you're to handicap the race, you'd have to say the Japanese have taken the lead because of the hybrid technology—not just Toyota [TM] but Honda [HMC] also. That's a smart software-based approach to making the car more efficient. Detroit is not out of the game yet. A company like General Motors [GM] has spent a billion dollars on hydrogen fuel-cell cars. All of the major car companies are working on making electronics and software, including plug-in hybrid cars that are going to come in the next three to five years that you'll plug into your household outlet, so that they'll run on electricity or gasoline. Chevy is going to come out with one of them.

There's a real chance for a renaissance in Detroit if those dinosaurs learn to dance, evolve a new business model, and innovate with new technology. The big question is which path will the Detroit companies take? Are they going to stick to their guns and defend their assets? Milk their existing base and fight for every scrap they had in the past and fight in Washington to have political protection? Or are they going to say, "Let's take some risks. Let's invest for the long term. Let's innovate and ultimately reinvent our company." That's the kind of leadership, I think, that's going to reinvent the car industry in America.

What do you see as the future of the car industry in America?I think there's a very bright car industry in America. It may not be in the conventional places or with the conventional names. The car of the future is going to have a lot more software. Silicon Valley is a lot better at software than Detroit. The first new car company to come along in America in many decades is called Tesla Motors, an electric car company created by Silicon Valley billionaires who are bringing out a wonderful electric car early next year. This thing is a smart, sexy car that can go 250 miles on one charge. It's faster than a Ferrari. It looks great, uses very advanced technology, and it's going to be available in a few months. The winners will be American, but they don't necessarily have to come from the conventional car industry.

What advice would you offer to consumers who want to do right by the environment and by their pocketbooks?The power of the purse is quite important, and consumers can play an important role by voting for smart, clean technologies that come to the marketplace. We don't think twice about spending a little extra for an iPhone because it's the coolest thing on the block. When a particularly good, well-designed new car that [uses advanced technology and cleaner fuel] comes into the marketplace, I would encourage people to think of it as their iCar, and invest and support it. The first car is always going to cost a little more. Don't believe anyone who tells you that you can have anything for free, including environmentalism. There ain't no such thing as a free lunch. For those who want to be early adopters, you'll have the coolest car on your block and you'll be making an investment in the future of our country.

What kind of car do you drive?I love cars. My first car was a Chevy Malibu. My car in college was a Triumph Spitfire Convertible that was a little two-seater from Britain. The irony is that I have a book coming out on cars this week, and I don't own a car right now. I live in Manhattan with great public transportation. My point is that you can be a car lover, but if you have a lot of options, you don't have to have a car. My point is not to be an evangelist for the car. But [Zoom] is a car lover's guide to saving the planet.

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