COMMUNITY COMMENTARY
Who Killed the Electric Car?
Tom Gage, CEO of AC Propulsion, provides customer testimonial for SAP Business ByDesign
Tom Gage
N
o one as it turns out. Although GM
recalled and crushed its famous EV1
electric car in 2003, electric trans-
portation is now heading for commercializa-
tion. For two of the lead engineers on the
program that developed the prototype for the
EV1 in 1989, the promise of electric propul-
sion was the “call to action” for creating AC
Propulsion, Inc. Driven by a passion for effi-
ciency, high performance and new technology
(and wary of the slow pace of change in big
companies), Alan Cocconi and Wally Rippel
founded their own company in 1992. Their
goal then was to create electric vehicles that
people actually wanted to drive.
Over the intervening 19 years, AC Propul-
sion has experienced the roller coaster ride
that paralleled the developments within the
EV (Electric Vehicle) industry. I joined the
company early on (1996), after extensive and
varied automotive engineering experience
that included an 8-year stretch with Chrysler
in Detroit. Even with the ups and downs, our
company has become a recognized leader in
proprietary EV technology for drive systems
and vehicle integration. Opportunities for
commercialization were limited, until now.
The long journey and lessons we learned.
With just over 100 employees, AC Propulsion
has a strong position in the still small EV mar-
ket as the technology supplier for the original
Tesla Roadster, BMW MINI E, Luxgen MPV_E
(Taiwan), and one of the top prizewinners in
the $10 million 2010 Progressive Automotive
X-Prize competition (the MonoTracer E elec-
tric cabin motorcycle).
Today, AC Propulsion stands alone as the
only EV-focused company in the world with
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044_MAJMay11 5
no debt, no cumulative losses, and positive
cash flow. But things weren’t always looking
this way. AC Propulsion has been run largely
as an R&D shop by a dedicated group of en-
gineers that has not wavered from its convic-
tion that electric vehicles can be fast, conve-
nient, and fun to drive. These same engineers
endured periods with no paychecks in the
early years, and thus ran the company with
an eye toward minimal overhead. Even so, at
one point the company was down to only 5
employees. Funding provided by an angel in-
vestor in late 2005 enabled the company to
expand development efforts at a time when
the auto industry was returning its attention
to the advantages and strategic value of elec-
tric propulsion
More recently, the revenue from key com-
mercial development contracts sustained our
company through the past couple of years,
while the country experienced a deep reces-
sion. Our commercial success and the posi-
tive cash flow that came with it was due more
to the strong technology content of our prod-
ucts than to smart marketing or savvy strate-
gic planning. All four of the game-changing
events for AC Propulsion – the Tesla license
in 2004, the angel investment in 2005, and
the BMW MINI E contract in 2008, and the
Luxgen business in 2010 – resulted from en-
gineers talking to engineers – not from more
conventional marketing and sales initiatives.
Specifically:
1. The Tesla license evolved from the desire of
Martin Eberhard to own a tzero electric sports
car which had been produced as a prototype
by AC Propulsion and outperformed several
European exotics (Porsche, Ferrari, Lambo-
rghini) in short races. Our company wanted to
build drive systems, not cars - so we loaned
the tzero to Martin and offered to license him
our technology if he could find someone to
build the car. Martin raised the funding to es-
tablish his own company to build high-perfor-
mance roadsters – and that company, Tesla
Motors, went on to go public in 2010 with a
market cap in excess of $2 billion.
2. The angel investment stemmed from the
personal interest of a seasoned battery en-
gineer. Believing that the company’s IP had
tremendous potential, he brought in a series
of his friends as potential investors, one of
whom decided to invest the necessary seed
capital (and pay the back wages).
3. The BMW MINI E contract for a pilot fleet
(500 cars total) resulted from a technical con-
ference where I was presenting the results of
our V2G research study, along with a demo
car on display. There were BMW engineers
in the audience who took note that we had
functional technology (vs theoretical), and
informed senior management in Munich. The
result was an order that seemed almost im-
possible at the time: build 500 drive systems
in 6 months. That got the attention of the en-
tire global automotive community.
4. Luxgen has become ACP’s largest cus-
tomer, and in this case, the business resulted
from a combination of our engineers and
board member’s active pursuit of Luxgen, and
Luxgen’s strategic decision to include EVs as
part of their product portfolio.
As a result of the above events, at the
end of 2010, the Tesla Roadster, MINI E, and
Yulon MPV E represented a significant major-
ity of new EVs on the road and so ACP could
May 2011
4/8/2011 11:32:12 AM
 COMMUNITY COMMENTARY
honestly claim that upwards of 80% of all EVs
in the world contained our drive system tech-
nology. But few people knew the “backstory”
behind how that all came about.
Going forward, we decided to take con-
trol of our own destiny and adopt a proactive
marketing approach where WE approach our
prospective customers, instead of the other
way around. Our angel investor is keenly in-
terested in the China market potential and
invested an additional $12 million in 2010
toward a new and bigger factory in Beijing,
but expressed a desire for a financial partner
to further develop the company’s potential. In
mid-2010, we undertook to raise additional
capital – with the understanding that further
R&D efforts would be curtailed until more
funding was in place.
Like the pioneers of social media, AC Pro-
pulsion is now poised at the forefront of a
global emerging market. And, as is sometimes
the case, our company does not fit within
any of the typical investment profiles – too
far along in the growth cycle for the venture
capital funds, too early in the growth cycle
for private equity funds, and not quite right
for certain strategic investors. We concluded
internally that we needed to take a different
approach to raising money, so that we would
not lose our competitive edge in technology.
Our business model also raised questions,
since it centers around providing a key com-
ponent of the car on an outsource basis – a
practical approach that enables car compa-
nies to participate in the EV market quickly
and cost-effectively, but one that is contrary
to the traditional method of building key com-
ponents in-house. AC Propulsion is now ex-
ploring different financing options with a se-
lect group of strategic investors, designed to
leverage the company’s leading edge in V2G
(Vehicle-to-Grid) technology that provides a
solution and economic benefits for integrat-
ing electric vehicles with the power grid .
From the business management angle, AC
Propulsion’s internal organization is a mix of
mature technology processes and start-up
level infrastructure that was workable for
May 2011
045_MAJMay11 6
years while EVs were just a topic of conver-
sation. The introduction of the Nissan Leaf
and the Chevy Volt in 2011 signaled that EVs
are finally hitting the mainstream. Now that
the commercialization of the EV industry is
becoming a reality, our projected growth de-
mands require a different approach to how
we conduct our day-to-day business.
So what did we do? In mid-2010, we as-
sessed what was needed to respond to the
changing dynamics within the marketplace:
• Hired an investment banker to help us
explore the capital markets, with intent
to go public within two or three years;
• Developed a plan for expanded marketing
efforts in China and ROW (Rest of World)
designed to go TO the customers rather
than wait for them to find us;
• Lived by the motto that “cash is king,”
watching every dollar spent and
negotiating cash advances with
prospective customers;
• Transformed our existing leadership
model into a split model (one exec
handling inside operational decisions
while I focused on external marketing
and fundraising) ;
• Established contract relationships with
financial and legal professionals, who
identified and resolved certain tax and
legal issues that could have become
high-cost mistakes, and
• Set out to increase production capacity
and upgrade manufacturing processes to
meet projected demand growth.
In hindsight, we should have taken these
same steps years ago. It quickly became clear
that our historical style of intuitive manage-
ment, lack of strong command and control
systems from the legacy QuickBooks in-
stance, and manual processes would no lon-
ger be adequate to deal with the anticipated
hockey-stick EV market or the requirements of
outside investors. Nor would these methods
provide the controls or documentation re-
quired to obtain the ISO and UL certifications
demanded by automotive OEMs.
AC Propulsion reviewed a number of solu-
tions, looking for an integrated and scalable
ERP system that could handle the expected
growth without crippling the company with a
lengthy, costly implementation process. We
sought the expertise and experience from Ta-
tum LLC and after considerable review and in-
ternal discussion, we selected SAP Business
ByDesign and began implementation in late
February 2011 under the direction of the Ta-
tum-led project management team. A fast im-
plementation, affordable price tag, high level
of functionality in project management and
MRP and the ability to scale to meet expected
growth were among the considerations.
As we approach the “last 5 yards” of the
implementation in the US, AC Propulsion is
already experiencing information benefits
from the collaboration between various func-
tional departments.
Looking to the future, AC Propulsion is
positioned to supply automakers around the
world with innovative drive system technol-
ogy. We are also focused on the enormous
$15 billion market potential within China.
From the perspective of the C-suite, the deci-
sions made now will determine whether AC
Propulsion remains a small company or joins
the ranks of the tier-one automotive suppli-
ers. It is no longer enough to have leading-
edge technology; our company must develop
strategic partnering relationships across all
facets of the EV industry – car companies,
battery suppliers, contract manufacturers (to
offset capacity shortages), utility companies,
grid operators and governmental agencies.
As CEO, this requires me to play a dual
rule: from the inside, to enlist collaboration
and encourage continued innovation; from
the outside, to serve as an ambassador for
AC Propulsion.
We recognize that to emerge on top re-
quires every single person in our company to
run faster and smarter than the competition
– but the prize is to be “the last man stand-
ing” in the design and manufacture of drive
systems (with substantial market share), and
that is where we aim to be by 2015.
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