Sen. John McCain's recent proposal to establish a $300 Million prize competition to develop a new battery package for electric vehicles is actually a lot worse than it looks. This light bit of pandering to environmentalists and the high tech community would have much more sinister implications if he were to actually fund and launch such a competition as President.
This is not a question of stimulating the establishment of a new industry where there was none before. Its not about creating incentives for particularly risky and expensive Research & Development, where a market for the end product is uncertain or might fail to materialize. This is about capturing the future of transportation for the same people you're driving on right now.
Technology prizes have a rich and successful history (it was the Orteig Prize which drew Charles A. Lindbergh across the Atlantic), and the Ansari X-Prize has in fact birthed a new commercial space tourism industry. So, where's the problem with McCain's Assault on Batteries?
- Amount: The $300 Million is wildly out of proportion to the costs of doing battery research, or the capital needs of a develpment stage technology venture successfully developing the winning system. The Ansari X-Prize, which got Burt Rutan to surpass NASA's Mercury Redstone accomplishment, was only $10 Million, and the Google Lunar X-Prize, which will put a commerical Pathfinder-like mini-rover on the Moon has a total purse of just $30 Million. The only way that battery R&D gets up into the $300 Million range is if you rely on the likes of General Motors, Lockheed Martin, or ExxonMobil to do it, with their massive corporate overhead burden, G&A costs, etc. The McCain prize is $30 Million worth of progress and $270 Million worth of boondoggle and corporate welfare subsidy.
- Competitors: There are dozens of ventures aggressively seeking to deploy their advanced battery technologies in the marketplace right now. Some are already at the point of trying to get automakers to adopt their batteries for use in new electric vehicles and plug-in hybrids. Some are already participating in a competition to develop the next generation of environmentally sound vehicles, the $10 Million Progressive Automotive X-Prize. A $300 Million prize, which would draw Fortune 500 companies into the fray, will swamp the efforts of these existing ventures, making it more difficult for them to raise capital, not less. What the existing high tech entrepreneurs in this niche dont need right now is billion dollar conglomerates starting from scratch and leaping into their turf, appearing to render them irrelevant, while actually adding nothing to the industry's technology base. Competing with each other is business, having United Technologies or SAIC suddenly step in, announce a new battery division (which exists only on paper, living in a file cabinet), and tell your investors you suddenly dont matter is something else entirely. Remember that old I.T. adage? "Nobody ever lost their job for giving the contract to IBM".
- Immediacy: Advanced battery technologies which can perform the mission the McCain prize supposes to address are coming out of university labs and high tech ventures already. They are in a race to get into the marketplace, to be chosen by vehicle manufacturers. For automakers that currently have decisions to make about licensing, joint ventures, production contracts, or acquisitions to make involving these emerging battery systems, the McCain prize will put them on hold. It would become irresponsible for a Ford or Chrysler to commit to a new electric vehicle design specification, if there were an apparent prospect for substantially improved technology to become available in just another three years or so. Of course, this is the excuse they have been offering for 20 years, and it has just about run its course with investment analysts on Wall Street, who recognize its implicit incompetence, but a $300 Million prize would muscle-up that lethargy for years into the future.
- Venture Capital - Assume that you were a venture capitalist presently doing your Due Diligence investigation for a major investment in a battery technology company, which might transact in the next six months. In President McCain's Inaugural Address in January, he outlines the $300 Million Battery Prize he was initiating by Executive Order, from discretionary funds at the DoE. Knowing that the winner of such a contest would go on to lead the vehicle battery industry, locking up contracts with major automakers with not only the financing but federal suasion on their side as well (and the world class publicity), your own funding decision suddenly becomes much more complicated. First, your target venture just picked up a lot of new competition, clouding its overall prospects for success. Second, you're going to want to wait and take a look at the other battery technologies entering the contest before making your commitment. Third, if you dont think your guy's venture can beat out some of the larger entrants to win the contest, who may be further along, or better at presenting themselves, or be better connected, etc., you may find that betting on his technology alone - no matter how superior it may be technically - just doesnt seem like a winning proposition anymore. In short, such a contest, by its magnitude, will likely freeze most institutional VC investment in new emerging battery technologies for the duration of the competition. It is difficult to envision such a government competition taking less than three years to organize and conduct to completion. That's a long dry spell for these entrepreneurs.
- Focus - Market incentives are not missing from the vehicle battery technology arena; they are there in abundance, to the tune of many billions of dollars in annual sales, even in the early years. The Automotive X-Prize was not targeted to create a new engine, or to build a single one-of-a-kind car which would wind up in a museum, but to create new car manufacturing companies, each of which would bring new, practical 100mpg+ vehicles to market. They did this because while fuel efficient technologies are plentiful, GM, Ford, and Chrysler are demonstrably loathe to adopting them; their corporate bureaucracy and the cost of changing their design modes is just too great to incorporate significant innovation into their products in a reasonable timeframe. On the other hand, new entrepreneurial ventures can get it right the first time, without all the legacy sunk costs in designs and equipment to overcome. A new battery pack for EVs has the same problem as a new, more efficient internal combustion engine, getting picked up by those who actually manufacture vehicles. Giving the battery tech venture the $300 Million does not in any way contribute toward solving this problem.
Other than wasting $270 Million to push off the advent of electric vehicles by three years, and probably bankrupt a dozen of the most promising battery technology ventures during the process, while drawing aerospace/defense contractors in to suddenly dominate a dynamic emerging industry that they do not understand and know nothing about, this McCain boondoggle has a more fundamental flaw. It is by no means certain that electric vehicles will ultimately prove to be cleaner/greener, better for the environment, or more economical than advanced biofuels, or that they will more rapidly end our dependence on foreign oil. America has lots of Coal, but whether it will be made as "Clean" as the Coal industry tells us remains to be seen. Meanwhile, new feedstock-free ("freedstock") biofuels are now being made with Algae from Air, Sunshine, and Seawater, on desert sand, producing food as a byproduct. Electric vehicles might be the answer, but without knowing that for certain in advance, without having a clear national policy to replace Coal as our primary source of electricity, and without the automakers ready to divorce Big Oil, its a much bigger gamble than $300 Million alone.
Washington is not very good at picking 'technology winners' in the marketplace, ahead of time. The IT industry is replete with horror stories of the failures of government agencies to effectively forecast trends in their industry in its long term procurement efforts. The chilling effect that Grampy Old Fart's delusion will have on the progress of new green energy technologies to market is hard to predict, but it could be substantial.