What we can learn from the electric vehicle shakeout

This article originally appeared on GigaOM Pro, our premium research subscription service.

The last few months have seen the expected demises of a few major VC-backed startups in the electric vehicle game, including Coda and Better Place, not to mention the seemingly unending saga that has become Fisker’s fate. The reasons for each of these companies’ hard times varies. But in aggregrate, they tell us a lot about what can and cannot work in the EV market.

Rather than look back at what happened to each of these companies, something that was well done by others, I want to look forward at the changing landscape that has become car ownership and where EVs fit in that world. Here are lessons that we can take forward:

1). It’s a technology product, not a car. I’ve long believed that the automakers must view the EV as a technology product, more akin to an iPhone than a V8. This sentiment was uttered again this weekend by Mimi Sheller, Drexel University’s Director of Mobilities Research and Policy Center, in a New York Times article trying to explain why driver’s license rates among 16 to 39 year olds have fallen so consistently from 1983 to present. The article paraphrases Sheller as saying “The Millenials don’t value cars and car ownership, they value technology – they care about what kinds of devices you own.”

If millenials are going to care about a car, they’re going to care about the car that most represents having the coolest technology device. One doesn’t have to look far toward Tesla’s extensive computer console and Coda’s lack of tech styling, to understand how thinking around this topic differs at different EV makers. Yes, most Tesla buyers are a bit older but if an EV is going to crack the mid market, as Tesla is focused on doing, it will have to contain great user interfaces, excellent connectivity, and next generation body design.

2). The realities of range anxiety. It’s hard to know how much of the Nissan Leaf’s tepid sales and Coda’s failure had to do with concerns over range. Clearly Tesla is concerned enough about it that it first built cars with 200 or more miles of range and just recently rolled out a battery swapping option for long distance road trips. Better Place showed us that battery swapping technology is still a difficult sell, maybe less so in markets like urban European cities where putting in a home charger is difficult.

Whether battery swapping technology lives another day or whether Tesla manages to revive it for a single purpose is less the point. The point is that there’s still consumer sensitivity here. I do believe that drivers, particularly millenials, will be willing to sacrifice some convenience to own an EV. But I think the sweet spot for mass adoption of an EV will always be a $25,000 car that goes 200 miles on a charge. Yes, it’s irrational, given that most drivers drive less than 40 miles a day. But such a car would unlock the market.

The dark horse here is a battery innovation that revolutionizes range. Remember Envia?

3. The luxury car market will never be the same. I’m thankful that Fisker’s disastrous mismanagment and subpar engineering was paralleled by Tesla’s success, just so everyone understands that there isn’t consumer resistance to an EV. There’s consumer resistance to a poorly made and poorly marketed EV.

While there’s a lot of focus on Fisker’s rough times right now, the companies I’m more concerned with are BMW, Lexus, and Mercedes. It’ll happen slowly but I can see Tesla and the luxury EV becoming a status symbol with a sustainability twist that slowly creeps into the German and Japanese luxury automaker’s markets.

BMW, for example, sells around 70,000 7-series vehicles every year. Tesla will sell around 20,000 Model S vehicles this year. Those are major differences but not that major. What happens if Tesla sells 40,000 in 2015? Perhaps as problematic is that Tesla founder Elon Musk says he can do 25 percent margins on his cars, much higher than has been seen among traditional automakers and very attractive to investors.

By the time the major automakers decide they want to compete in the EV game, it’ll be late and Tesla the brand will represent next generation technology, not BMW or Lexus. Remember it’s a technology product, not a question of reputation related to a century of work on the internal combustion engine, which is what sets companies like Mercedes apart but which is no help in the EV market. Not to mention the fact that Tesla will have had a multi-year engineering and production head start.

There has been a fair bit of gloominess among investors as they’ve watched billions evaporate in the recent round of EV bankruptcies. But I see lessons here. Like many areas of cleantech investing, there’s likely an element of first mover disadvantage in electric cars that includes a slowly maturing consumer. But I don’t think one would argue that now is a better time to launch an innovative EV than it was even three years ago.