Successfully investing in emerging technologies and markets comes down to timing and execution. Simply put, the ones to act first stand to reap the financial prosperity of such opportunities. Over the course of the modern era, technological innovation presenting itself has not only structured society and commerce, but also rewarded the investors that funded and believed in these ideas. Noticing trends in the past, when quantified and qualified correctly, can lead to the discovery of new opportunities emerging in the future. In this comparative analysis, we will cross-examine:
- How Microsoft (NASDAQ:MSFT) successfully derived value in the past from revolutionizing the industry of personal computing through software and relate it to how The Car Charging Group (OTCPK:CCGI) will revolutionize the industry for the Electric Vehicle by implementing the infrastructure
- How the Microprocessor allowed Microsoft to innovate and compare it to how the lithium-ion battery will allow The Car Charging Group to innovate in similar fashion
- How companies like Apple (NASDAQ:AAPL) failed to do what Microsoft accomplished through a business model focused on software and use it to show how The Car Charging Group can prosper in the same way by building its business model around the strategic placement and distribution of charging stations, supported by the failure of Better Place Inc.
How Microsoft Made Computing Accessible To The World
Microsoft was a small start-up with huge idealistic dreams, that being the goal of putting a computer on every desktop in every home. Bear in mind that this idea was generated in 1970, a time when the thought of the average man owning a computer was preposterous as the uses were only commercially viable. Microsoft exploited the skepticism by focusing on developing an operating system as the foundation where the user could communicate with the computer through various commands. The software's purpose was to manage, or run, the computer hardware which serves to bridge the gap between the computer hardware and programs, such as a word processor. By 1981, Microsoft had successfully developed a whole new language in which the general public could communicate with the computer, known as MS-DOS. This however was a Command-Line Interface (CLI), meaning that users had to directly type in commands that they either memorized or tediously flipped through pages of the manual to find.
The Command-Line Interface, while functional and on the market, still did not satisfy the criteria Microsoft set out to redefine, as the overall objective was simplifying the interface to a point where anyone could use it. That objective was realized when Microsoft introduced Windows, a new adaptation of operating systems that harnessed a Graphic-User Interface (After Apple (AAPL) had already done this). Using the Graphic-User Interface (GUI), the mouse was introduced and the software featured drop-down menus, scroll bars, icons, and dialog boxes that made programs easier to learn and use. Users were now able to switch among several programs without having to quit and restart each one. The package came with applications like Paint, Windows Writer, Notepad, Calculator and a calendar, card file, and clock to help users manage day-to-day activities.
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This series of events was an inflection point in demand for the PC as the software, compatible with any IBM computer or clone (a PC with similar hardware to IBM's), allowed actions that stretched beyond the commercial use previously available. The exponential growth for the computer can be illustrated from sales through 1975 (the year Microsoft began) to 2011 (the year smartphone's sales overtook PC sales).
By the time of the new millennium, Microsoft had a 97% market share, trumping competition like Apple in the process.
...Why Apple Failed
While the GUI revolutionized personal computing, it was Apple who came out with a developed model before Microsoft, although Xerox (NYSE:XRX) was the initial creator. Even though the subtitle of "Why Apple Failed" is not indicative of its future success, the 1980's Apple GUI model evidently turned out to be a commercial failure due to the fact that Apple failed to understand the value of software, more particularly third party software. Microsoft, strictly being a software company, built an operating system platform that let thousands of other innovate which, along which Moore's Law, made computers cheaper and more valuable every year allowing an abundance of people access to them. This was allowed by Microsoft's strategy of retaining the rights to market its software, profiting off licensing deals subsequently granting other computer manufacturers the availability to use Windows software. Apple, unlike Microsoft, focused on manufacturing computers and hardware with software only compatible with its own components. This restriction, contributed to the initial demise of the Apple computer as consumers who may have enjoyed the aesthetically pleasing Macintosh, couldn't part with the relationship they developed with Microsoft software (which couldn't be installed with the Apple computer).
Making The Connection
Investors who coincided with Microsoft's idea in the 1980's were significantly compensated by the upside in the share price resulting from the company's success. Although the investment opportunity that yielded a +50,000% appreciation of the stock (at its peak) has been forgone, the emerging market for Electric Vehicles (EVs) in the infancy stage of development offers investors another opportunity to benefit financially in a similar fashion. The relationship between the computer and EV, though abstract through function and use, are similar when relating them to the restrictions that initially prevented the mass-market penetration of each device.
The Emergence of Microprocessor Vs. High Capital Costs & Range Restrictions Associated With Vehicle Batteries
When discussing the hardware components of both the EV and computer, being the components that comprise the physical structures of the each device that allow its function, it's important to note that innovation and the reduction in price of overhead and component costs is what made future market penetration from software viable to the masses. With the introduction of the 4004 microprocessor from Intel (NASDAQ:INTC), the innovation was able to take the integrated circuit down in size one step further by placing all the parts that made a computer think (i.e central processing unit, memory, input and output controls) on to one small chip. This made programming intelligence into inanimate objects possible, subsequently allowing Microsoft to create software harnessing its capabilities, all the while reducing the size of the computer to make it suitable for personal use. If we cross-examine the microchip and how it benefited the computer with how the lithium-ion battery packs are doing the same with EV technology today, we can validate the traction the EV is making in reducing cost of input and bettering technology output to a point where use is feasible to the majority of consumers.
A report released last summer by Mckinsey priced automotive lithium-ion battery packs at ~$500-$600kWh. Assuming these are actual costs, a fully electric vehicle like the Nissan (OTCPK:NSANY) Leaf, sporting a 24kWh battery, would run Nissan $12,000. When comparing that to a PHEV (Plug-In Hybrid Electric Vehicle) like the Chevrolet (NYSE:GM) Volt, which consists of a 16kWh battery motor and combustion engine, the price of the battery would cost at least $8000. Respectively, these expenses would be 40% and 20% of the vehicle sale price.
Clearly, in order for the price of the Volt (approx. $40,000) and Leaf (approx 30,000) to fall, the battery costs will need to drop significantly. The good news is that compared to 2009, prices are down roughly 30%. In addition, Mckinsey projects prices to fall to about $200 per kWh by 2020. If this 60% drop in battery prices holds and assuming all other costs are equal, the overhead to construct each corresponding car would fall by $7200 and $4800. Suddenly, a $35,200 Volt and $22,800 Leaf don't seem as expensive. The chart (below) illustrates the significant strides the lithium-ion battery has made in the past two decades, with energy density rising and prices falling (*the watt-hour per kilogram (Wh/kg) is a unit of specific energy used to represent the density of the battery with one watt-hour being equal to 3600 joules per kilogram).
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In regards to the distance output of these lithium-ion batteries, the range of electric vehicles is an issue commonly mentioned as the lithium-ion battery is not advanced enough to keep the car going as long as traditional vehicles. On average, the Leaf can last about 73 miles before a recharge is required, whereas the Volt has a 38 mile range on battery and 360 in total (including combustion engine range). This restriction has limited EVs to a niche market. A study claims that the average daily distance in the U.S. is 40 miles. Going by this simplified figure, the Volt and Leaf, on average, would satisfy the daily distance driven. However, there are many factors at hand that distinguish individual consumers. For those who travel greater distances, EVs are limited and may only be utilized in small to average sized commutes.
An increase in the availability of infrastructure, whilst a lack there of causes restriction to the mass-market penetration, could provide a solution to the range anxiety of consumers while the lithium-ion battery packs continue to develop and fall in price. In accordance with the story behind Microsoft and the computer, the value shift from hardware now, being the Electric Vehicle, must occur by developing a user-friendly infrastructure that will allow EV commuting to be brought to the masses.
How The Car Charging Group Will Make The EV Accessible To The World
For the nationwide acceptance of EVs and PHEVs, a diverse network of infrastructure consisting of charging stations must be developed to bring convenience and ease-of-use to the industry. Like we witnessed with Microsoft, the demand for the computer was created from the purpose software gave it, and as we relate that to the EV, so will the infrastructure. The Car Charging Group has formulated a business model that strictly focuses on the strategic placement of charging stations across North America, and not on the technological development of the of the EV or charging stations themselves. The majority of charging stations purchased are produced and manufactured by ChargePoint, featuring cloud-based software that optimizes ease of use by allowing drivers to locate charging stations via a mobile app. Most of the EV charging stations installed by CCGI are the CT2000 line of ChargePoint charging stations, which feature the fast charging capabilities possible under the Level 2 classification. Summarized in the chart below are the various electric vehicle supply equipment (EVSE) classifications.
Level 1 EVSE provides charging through a 120 volt (NYSE:V) AC plug and requires electrical installation per the National Electrical Code. Most, if not all, PEVs will come with a Level 1 EVSE cordset so that no additional charging equipment is required. On one end of the cord is a standard, three-prong household plug (NEMA 5-15 connector). On the other end is a J1772 standard connector (see the Connectors and Plugs section below), which plugs into the vehicle.
Level 1 is typically used for charging when there is only a 120 V outlet available. Based on the battery type and vehicle, Level 1 charging adds about 2 to 5 miles of range to a PEV per hour of charging time.
Level 2 equipment offers charging through 240 V (typical in residential applications) or 208 V (typical in commercial applications) electrical service. Level 2 EVSE requires installation of home charging or public charging equipment and a dedicated circuit of 20 to 80 amps, depending on the EVSE requirements. This charging option can operate at up to 80 amperes and 19.2 kW.
Level 2 equipment also uses the same connector on the vehicle as Level 1 equipment. Based on the battery type and circuit capacity, Level 2 adds about 10 to 20 miles of range per hour of charging time, depending on the vehicle.
DC Fast Charging
Direct-current (DC) fast charging equipment (480 V AC input) enables rapid charging along heavy traffic corridors and at public stations. A DC fast charge can add 60 to 80 miles of range to a light-duty PHEV or EV in 20 minutes.InductiveCharging
Inductive charging equipment, which uses an electromagnetic field to transfer electricity to a PEV without a cord, is still being used in certain areas where it was installed for EVs in the 1990s. Currently available plug-in vehicles do not use inductive charging, but SAE International is working on a standard that may apply in the future.
The Car Charging Group does not exclusively use stations from ChargePoint, nor do they have any contractual agreement to do so. The benefit of doing so leaves them in a position in the future to harness technological advancements of Level 3 charging apparatuses as the develop. The likelihood of new or emerging technology in charging stations seems high, as the industry is still in its initial stage of development. This is a unique, pivotal competitive edge over other companies developing charging stations and infrastructure as they will be restricted to using the technology they produce having to undergo the steep financial requirements to restructure or create new technology (similar to how Apple had to redesign their hardware to accommodate third-party software like Windows).
With over 60 strategic partners, access to over 6.5 million parking spaces is exclusively available to CCGI secured with long-term service contracts that include commercial, residential and municipal property owners. The value proposition offered to property owners is that CCGI will pay for the costs of the charging station, installation and maintenance while offering revenue sharing options in some situations in return for these lengthy contracts. The benefits offered to the property owners are two-fold as this innovative amenity increases property value, retains current tenants and customers while attracting new ones, at no cost. Businesses such as retailers and restaurants will use these charging stations as a marketing tool to attract consumers to their location, similar to what coffee shops have done with WiFi. The actual installations of the charging stations are relatively inexpensive, and can be scaled-up so a property with a few charging stations can add more as demand increases and the market saturates.
The company's business model, though unique to the industry, is not the first attempt at developing infrastructure for the EV. Better Place, an Israel-based company, developed infrastructure that revolved around swapping diminished batteries with fully charged ones at specially designed stations in approximately five minutes. When it was founded in 2007, it seemed like an innovative solution to the range anxiety and limited capacity of batteries, along with lengthy waiting times associated with charging the vehicle. Five years down the road, Better Place is falling apart having a cumulative loss of $500 million.
...Why Better Place Failed
Early investment showed optimism for the idea, as the company received approximately $850 million in investments from a roster of distinguished international and institutional investors. But a series of strategic blunders has left the company losing a sizeable proportion of principle investment. The company focused on producing both the "hardware", being the EV itself through a partnership, and the charging stations that only allowed a battery swap to one model of EV, the Renault Fluence. Like the error Apple initially made of manufacturing computers and hardware with software only compatible with its own components, Better Place fumbled similarly by restricting users to a certain type of vehicle when the demand for EVs from different manufacturers outpaced that of the Renault. In addition to that, the cost to construct the battery swapping station was astronomical, which has been said to cost $500,000 , as batteries had to be stockpiled and charged periodically.
The takeaway from Microsoft's success story is understanding how the company shifted value in computing to software, which subsequently commoditized computing hardware and made computing accessible to the masses. Although the opportunity to invest and prosper from their success has been forgone, diminished by economies of scale and competition, the emerging market for Electric Vehicles is poised to see the same exponential growth if the value shift can occur in similar manner. The Car Charging Group, through the implementation of its strategic business model, can shift value in the EV to charging stations, which will essentially commoditize EV technology as it creates the infrastructure necessary to be accessible to the masses.
Segregating key drivers of growth, between developing EVs and manufacturing Charging Stations, will propel CCGI beyond the companies like Better Place as the company's focus is solely on the distribution and strategic placement of charging stations produced by other manufacturers. When investing in emerging technologies the risks inherently are that development-stage companies, whether it be Microsoft in the early 1970's or CCGI presently, are subject to limited resources due to the fact that the company is not yet well-established. However, risk tolerant investors wanting to get exposure to the EV market can directly isolate investment into the lucrative opportunity offered by the infrastructure market.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.