The Drive Toward an All-Electric Future and Why It Matters

“They’re all making significant investments, which gives you greater evidence that we might be at that tipping point that you want to see with new technology – that it’s beginning to overtake things,” University of Virginia Darden School of Business Professor Mike Lenox said.

Lenox expects a complete evolution from gasoline to hybrid to electric technology that could result in zero-emission vehicles in the decades ahead. How fast it happens could have massive ramifications, while also providing a case study in the role of business in addressing important societal issues.

The Climate Change Conundrum

Last May, the Darden School launched an initiative to explore how innovations in the business world might bring solutions to bear on climate change. The Business Innovation and Climate Change Initiative is conducting in-depth analysis of several key issues at the intersection of business and the climate challenge; bringing business, government and academic leaders together to share and generate ideas; and helping to craft policy recommendations to contribute to solutions.

In announcing the initiative last spring, Darden School Dean Scott Beardsley zeroed in on the essence of the school’s aspiration. “It’s an opportunity for business leaders to help improve the world,” he said.

Darden’s research focuses on sectors holding the most promise for innovation that results in meaningful reductions in carbon dioxide emissions. The target areas include transportation, energy, industrials, buildings and agriculture.

The automobile industry — global in scale with fundamental changes in technology and an outsized influence on environmental quality — sits at the top of the list of business sectors whose decisions in the coming years will directly affect climate change for better or for worse.

Cars and Carbon

Lenox said the Darden initiative, spearheaded by the school’s Batten Institute for Entrepreneurship and Innovation, is working from assumptions based on scientific research that global warming must be kept below 2 degrees Celsius this century to avoid the most serious impacts. The initiative also works from MIT projections that suggest all economic activity must be decarbonized by 2060 to accomplish that goal.

Which is why cars are such a big deal.

Transportation is responsible for a quarter of greenhouse-gas emissions in the United States and 14 percent globally. Moving to an emissions-free transportation system by 2060 will require urgency and purpose, but perhaps most of all, disruptive innovation to make it possible.

“The framing question we have in our analysis is whether now is the time when electric vehicles can truly be a disruptor,” Lenox said. “And by disruptor we mean a substitute that ultimately replaces internal-combustion engines.”

Answering that question requires a closer look at several factors, such as the maturity of electric-vehicle technology, the costs for entrepreneurs and consumers, the influence of government policy, and the elixir of competition driving the pace of change.

“Is 2060 possible? I would say yes,” Lenox said. “But there’s a lot of uncertainty at this point and a lot of things that have to go right for us to get there.”

Fermentation Before Disruption

Lenox said an “era of ferment,” which is characterized by design experimentation, typically precedes a true market disruption.

“It’s recognizing that as a technology begins to gain some traction, it’s going to attract investment and it’s going to attract entrepreneurial entry,” Lenox explained. “New ventures will come about that want to try this new technology. Old companies will diversify into that new technology.

“What it creates is a ferment of ideas that you need to push that technology curve.”

As an example, he cited the Rio — one of the first MP3 digital music players to hit the market in the late 1990s. After Diamond Multimedia brought the Rio to market, hundreds of others — including Microsoft, Dell and Sony — came out with their own versions.

“One of the things we know when we look at disruption within different industries over time is that when new technology emerges, there’s often massive entry into that segment,” Lenox said.

Ultimately, that competition experienced a shakeout and Apple emerged with a market leader in its iPod device.

“What’s lost in a lot of people’s memories is that the Apple iPod was a fairly late entrant into this burgeoning industry,” Lenox said. “Everyone thinks they were the first one, but they were years later than the first MP3 player.”

“What Apple did was they figured out the dominant design that really resonated with the marketplace and then quickly took over the market,” Lenox said. “A lot of the other players disappeared.”

Several years later, the same thing happened with smartphones when Apple’s iPhone ran competitors Blackberry and Nokia out of business. Today, Lenox said, there is a similar “boom-bust dynamic” taking place in the auto industry.

“We’re seeing it from not only the new entrants — like the Teslas of the world — but we’re seeing the incumbent firms diversify into this in a big way.”