Tuesday, June 10, 2014

Press-Release News

Is this three-wheeled car the "next big thing" in transportation?  Or just an elaborate hoax?  The media really doesn't care to find out either way.  They just want to sell you a story that you will watch or click on, so they make money.

The three-wheeled car is nothing new.  In the jolly olde UK, they have had them for years, as tax rates on cars were structured such that "cycle cars" became quite popular, the most notorious of these being the Morgan 3-wheeler.

The idea is appealing, as with three wheels, a "car" could be registered as a motorcycle, thus avoiding a lot of airbag and bumper requirements, and thus eliminating a lot of costly certification trials (which can cost tens of millions of dollars, just for one car).   It would also make registration and insurance cost less as well.   And with a tiny engine and small body, gas mileage should be pretty phenomenal.

In the last few years, a fellow named Elio has been selling the idea of a three-wheeled car, which he says will sell for under $10,000 and get 84 miles per gallon.   He has an option to use the old Hummer plant in Louisiana to build these cars, which are now slated to come out in late 2015.

A lot of people think Mr. Elio is full of hooey.   Many point out that the average price of a new motorcycle is in the neighborhood of $12,000, and that is without air conditioning and power windows.   Building a "cycle car" in America, on a limited production basis, and reaching the sub-$10,000 number would be difficult, to say the least.

Second, with econobox cars selling for not a lot more (and seating four and having more than one door and more than three wheels) whether the demand for these cars will be strong is anyone's guess.   In many States, you would have to get a motorcycle license to drive one, and perhaps wear a helmet.  These issues would suggest that demand for a three-wheeler would be pretty low.

And 84 miles per gallon?  That might be a bit of a stretch, as that is moped-like gas mileage, not motorcycle mileage.

Some folks have "crunched the numbers" on the Elio motors concept, and have raised a number of red flags.  See:




This next one in particular, analyzes the financials of the company and its proposed marketing plans, and notices some scary assumptions are being made by the company - for example that the Elio will become the fourth-largest selling vehicle in America:


"250,000 is a big number, in other words, and – if Elio hits that number – that would make the Elio trike the number 4 best-selling vehicle in the US using 2011 numbers. The Elio would out-sell the Honda Civic, Toyota Corolla, Ram pickup, etc., etc. And it would have to do it all with (get this) 120 dealers."

To me, there are a number of red flags here.  The Elio motors concept reminds me a lot of the Tucker (which, despite a big Hollywood movie, was also an ill-fated and ill-conceived venture) or the perpetual "Air-powered car" deal that floats to the top of the cesspool every few years.  Both are favorites of the media, as they capture eyeballs and generate click-through revenue.

The parallels to Tucker are pretty interesting.   Both had oddball, "revolutionary" designs, and both had prototypes that were based on old car parts (the Elio, apparently scavenged from an old Geo Metro).  Both took deposits on cars that were not yet built and years away from being built.   Both were horrifically underfunded and used unorthodox means of funding.   Both had acquired rights to use a huge left-over assembly plant.

Whether Tucker was a con-man is up for you to decide.   His business partner had been earlier convicted of stock fraud.   I would like to think that Tucker was just naive about how business works and didn't realize how much money is needed to run a car company, particularly when building one up from scratch.   I don't think he understood, too, how hard it would be to compete with companies that already had assembly lines in production and years of experience in the business, as well as vertically integrated production facilities and established dealer networks.

But dreamer or con-man, the Tucker story ends the same way.  And no, it was not a "conspiracy" to put him out of business.   Even if he had succeeded, he would have failed, as the Tucker would have easily cost double what the big-3 would have charged to build a similar-sized car.

So maybe Mr. Elio is just as naive.    Maybe.  Maybe not.  Like myself, he attended General Motors Institute, so having been in the "belly of the beast" he should know one or two things about what a pain in the ass it is to build a car.   The profits can be marginal, the competition is murder, and it is a global business.   We'll get back to that last part later on, as it is the principal argument that others have not addressed.

The compressed-air-car is another favorite of CNN and other news sources.  On a slow news day, they do a story about "the car that runs on air!" as the plebes love a "somthing-for-nothing" story and believe they can just give a few turns of a bicycle pump and then be off to work in their air car.

The reality is that the efficiency of using compressed air as a means of storing energy is miserable.   You'd be better off driving an 18-wheeler to work, it is that bad.   The major problem though, is energy density - the ability to store large amounts of energy for a given size and weight.   Electric cars have suffered from this problem since the beginning, with heavy lead-acid batteries providing low energy density and high weight.   Lithium-Ion batteries solved that problem for the electric car business (perhaps).

Compressed air would be lucky to have the energy density of a lead-acid battery.   Something comparable to Lithium-Ion?   Not even in the cards.   Know-nothings will spout, "Well, you never know!  Technology advances all the time!"   But there is a flaw in that argument.  Technology cannot advance past the wall of sheer Physics.   Compressed air simply isn't going to fix its efficiency and energy density issues, simply because of the laws of Physics.   And the laws of Physics cannot be repealed by the legislature.

Not surprisingly, the "air powered car" turns out to be a mixture of a dreamer and a con-man.   The dreamer was the designer, who was French (they are dreamers, the French) who got hooked up with a guy who started taking deposits for "modular factories" that would build these air-powered cars "next year".  Needless to say, the factories and the air-powered cars never materialized.

With the air-powered car, the stories always said that production was going to begin "early next year" (often failing to mention a year) so that even an old story sounded promising.   But "next year" after "next year" came and went, for over a decade, to no avail.

The promoters, on the other hand, kept issuing press releases, with nice graphics, demonstrations, and videos - and new prototypes.   And hungry newsroom managers lapped it all up, needing something to fill up their time slots and knowing that these sort of stories sold well with the plebes.

And that is the first red flag to me, about Elio motors.   It is press-release news, and if you Google online, you can see that there are waves of Elio stories, each corresponding to a press release, demonstration, or new video by the company.   The company seems to spend more money on press releases than in actual R&D or building of the factory or manufacture of any cars.  And in each press release, we are told that the fabled car is "coming out next year" - for several years now.

Is the Elio a hoax or just another product of a starry-eyed dreamer?   Does it make a difference?  You can lose money, either way.

I don't think the Elio is going to make it, and here's why. I had the same idea, years ago, and quickly dismissed it.  I had seen the Bombardier three-wheeled motorcycles on the road, and thought, "Gee, why not put in two seats, a closed body, and sell it as a cycle-car?  It would get good gas mileage and cost little and sell well!"   But then I thought about it and realized there were a lot of flaws in my thinking:

1.  The $5-a-gallon gas crises of 2008 was over, and people really aren't interested in hyper-miler cars.

2.  The savings in going from 40 mpg (such in a Prius) to 60 or even 80 mpg is minimal.  The law of diminishing returns kicks in, and the savings get smaller and smaller as you go up the scale.

3. Making such a car in America would be prohibitively expensive, as it would be a niche market vehicle, and as such, economies of scale would not be present.

4.  No matter how bad-ass a roll cage you put into the thing, it would be a deathtrap compared to even a basic car.   Litigation would result, and you'd likely be sued out of existence.

5.  The government could step in at any time and decide to classify any three-wheeled vehicle with an enclosed cabin as a "car" and thus pull the rug out from under you at any time.  The savings in not having to certify it as a "car" would evaporate overnight.

6.  So many others have failed at this before, such as the Corbin Sparrow.  The Corbin is still in business, but they sell them for a staggering $30,000 a copy, which tells you what Elio needs to be thinking about, in terms of real production costs.   The Carver three-wheeler suffered from the same cost problem.
7.  The gas mileage would not be all that great, compared to some micro-cars already on the market, or to hybrids.   Small size and a small engine would deliver good gas mileage, but not astounding mileage.
8.  If this was such a great idea, why haven't people in other countries where gas prices are far higher considered it?   Yes, they have tuk-tuks in Thailand and India.   But even in those countries, four-wheeler micro-cars are replacing these.

The last item is the real stickler.  If this sort of vehicle doesn't make economic sense in places where gas is like $10 a gallon, why would it sell in America, the land of cheap gas?  (and yes, compared to the rest of the world, we are the land of cheap gas).  Why don't they have these in Europe?   Even in the UK, probably the largest market for three-wheeled "cars" (not tuk-tuks) in years gone by, has largely gotten out of the market.   At double the gas price we have here, they don't think it makes economic sense.

And one wonders why this idea has not taken hold in Japan, either - a place with high gas prices and great experience in motorcycles.   Sounds like a product Suzuki would jump right on.  (Answer:  They did, but stopped making them in the 1960's.  See link list at end of article).

If Mr. Elio did become successful selling this design, how long would it take for foreign concerns to jump on the same bandwagon and offer far cheaper models made overseas?   Production costs in places like Mexico, India, China, and Korea, would be far less than the cost of US labor in Louisiana.   And existing motorcycle companies (who already have three-wheeled designs on the market) could easily add such vehicles to their lineups, taking advantages of their existing economies of scale (for example, in engine production) to produce a vehicle for less cost than Mr. Elio could ever hope for.

But like I said, it is an interesting idea.   I wish him well, but I know how this is going to end.   Already we've seen the pattern of prototype after prototype being produced, production schedules being pushed back again and again, and repeated rounds of fund-raising.   This could go on for years - even decades, like the air-powered-car guy.

When it comes right down to it, most people would rather spend $10,000 on a used Focus, with four doors, four wheels, and four seats.    Yea, the gas mileage isn't as good, but so long as gas stays under $4 a gallon, that really isn't much of an issue.

But the main point of this, is what I call Press-Release News.  I've seen two new Elio pieces in the news recently, and both are basically barf-ups of press releases.  They are not critical pieces where someone explores the pros and cons of the concept, the background behind the story and the funding, but rather just puff pieces that cheerlead for the company.    This is not real news or analysis.   It is just a filler article.

Sadly, NBC posits theirs as "The Art of the Startup."   The video has only Mr. Elio speaking, with no one asking any hard questions.   This is news?

Can you imagine NBC interviewing Richard Nixon over Watergate this way?   Just give old "Tricky Dick" five minutes of airtime to tell his side of the story and then just leave it at that.  Let the viewer decide!

A CNN piece posits that Elio is already making these cars, when in fact not a single production model has been made to date.   Yet another local news piece features a giggling female reporter driving one in circles in a parking lot at low-speeds.   The prototype doesn't even have seatbelts (Hint to Mr. Elio:  You can buy retractable seatbelt kits from J.C. Whitney!  Why is it so hard to get them into your prototype?)

And sadly, the news media does this over and over again.   They do a "compressed air car" piece, saying it will be available "next year" and never bother to wonder why they did the same piece two years prior which also claimed that the product would be coming out "next year".  There is a distinct lack of curiosity in news-people today.  They want ratings, and that means controversy or eye-candy.   But real investigative journalism?   Nah, it bores the plebes.

What is up with this?   It is laziness, plain and simple.   If you issue a press release with some interesting story, nice graphics, and perhaps some compelling video, well it will get played on the air, almost verbatim.   No one will vet it or provide an opposing viewpoint.   In print, it is even worse.  I've seen "news stories" that appear word-for-word identical in several papers or online sources, which in turn are exact copies of the press-release on the company's website.

This ain't journalism.   And it illustrates why you have to unplug from the media and think for yourself.


* * *

List of Three-Wheeled Motorcar Companies (the dream has been around a long time!) in no particular order:

Davis Motorcar Company

Corbin Sparrow

The Carver

 Morgan Cyclecar

The Dymaxion (Bucky Fuller's three-wheeled dream!)

The Fuldamobile (so Teutonic!)

Go 3 Wheeler (a kit car, apparently under development, one seat)

The Messerschmidt - favorite of Uncle Fester and Terry Gilliam.

Daihatsu Bee - postwar Japan povertymobile.

Daihatsu Midget - more like a tuk-tuk

Mazda K360 - another autorickshaw

Reliant Robin - the UK's answer to the Trabant.

What do all of these cars have in common?  They were the response to harsh economic conditions, high fuel prices, high registration costs, and low incomes.    Once economic conditions improved in their home countries, demand for such vehicles tapered off.   Most are no longer made.  Autorickshaws are still around in India and a few other countries, but even there, are being supplanted by more modern four-wheeled conveyances, as their local economies improve and people prosper.

And that is the problem for the three-wheeled car.  It is a poverty-car, and people will buy one when times are tough and money is tight.   But as our economy continues to recover, demand for such cars will be very low.   A lightly used econobox is a more rational choice for such a buyer.

And that right there is the problem for Mr. Elio.  The idea made sense in 2008 when the price of gas shot up to $5 a gallon.  It makes less sense, today.


My three-wheeler (Russian Made, no less):


Yes, three-wheelers are dynamically unstable, as well.

4 comments:

  1. You would think Mr. Elio would do an IPO to sell stock and raise money for the venture. Ha-ha! But of course we know that IPOs are not for start-ups, but for established companies, and done only when the founders decide to "cash out".

    In the early 1900's, yea, an IPO would have been done, sold off more than half the company, and raised capital to build the factory and sell the cars.

    Today, the IPO sells off 5% of the company, and just allows insiders to cash out, after the business is already established.

    Too bad for Mr. Elio, as he could use the cash. At the rate he is going, he might end up like Tucker!

    ReplyDelete
  2. Bad news for the Elio.

    First, Polaris has beat them to the punch, making a three-wheeled car, that they claim can be registered as a motorcycle. So the idea, which is not a new one, is readily copied and is already on the market.

    Second, Texas has decided that this is not a motorcycle, but a car, and as a car, it doesn't meet any crash safety, emissions, or other standards that cars have to meet.

    If this regulatory decision stands, it means goodbye to the three-wheeled car concept - or at least the financial advantage of it. The whole point was to make it on the cheap and register it as a motorcycle and avoid all those nasty regulations.

    If other States follow suit, it is goodbye Elio....

    ReplyDelete
    Replies
    1. See:

      http://lanesplitter.jalopnik.com/texas-bans-the-polaris-slingshot-three-wheeler-1658137248

      Delete
  3. But wait, there's hope yet. Polaris, who is doing all the heavy lifting here, has gotten "autocycle" legislation through the Texas, Connecticut, and Kansas legislatures, so three-wheeled cars may not only be legal, but no motorcycle license may be required.

    Elio will ride on Polaris' coattails.

    The Polaris "slingshot" sells for $20,000 to $24,000. This is about the price of a nicely loaded Camry. This is not an "economy car" but sold on sporting pretenses.

    Elio might have a hard time making a $8400 price point, unless he makes them in Mexico or something....

    ReplyDelete

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