James Chao, Managing Director of IHS Automotive Asia, an industry analyst, speaks on Nov 29th in a rather intimate SFCC setting on Tesla in China: Hype or Reality? We learn that Tesla Model S sales have dropped in Beijing by 50% in Q3 2017 and James tells us that these numbers are really concerning. Bloomberg’s Allen Wan adds fuel to these numbers: Tesla burns so much money every day producing vehicles at a loss that its financial resources will be depleted by August 2018. Will this company survive?
 
Opinions seem to diverge significantly, even at IHS, where some are convinced that Musk has a bigger plan, while others believe that Tesla needs to be turned into a profitable company in order to proof Musk’s overall vision. James seems to belong to the later fraction predicting that the combustion engine will be longer around than many believe. He tells us that the most spectacular but also most overseen new car is the Toyota Camry 2018, which increases in a refined standard 4-cylinder combustion engine fuel efficiency by 15%, without adding significant costs to the development of new technology; apart from, he adds, investment in engineering.
 
This argument alone confirms that somebody with a history degree, even if is a Harvard one, should not talk too much about the future of technology; in particular if the truly pressing question to be asked it this: Will EV solve the problem of transportation’s contribution to climate change? It was interesting to note that not even one event participant asked about the environmental impact of EVs, but questions rather focused on battery technology in general and if China’s government policies will harvest the promised great leap forward and turn corporations like BYD indeed into cutting edge new energy industry leaders.

In my modest opinion, there are a few issues in this ecosystem which keep to be overlooked by people who only focus on specific questions like battery technology, fuel efficiency, autonomous driving or innovation cycles. If we try to understand the big picture in the transportation industry and want to have answers about the future of Tesla or the future of EVs in China, we have to apply large scale systems theory in terms of technology, social organization and natural resources.

Technology
 
What are the core technologies in the EV industry? Batteries? Powertrain? IoT? Companies like techmeter or datenna have built an entire business around CTOs who want answers to this question and rather look into what the competition is doing than follow their own vision; I assume that Elon Musk is not their customer, because his vision is one of distributed power generation and consumption which turns end customers into independent entities which still are part of one large energy network. The car is in Musk’s vision merely an electricity consumer like a dishwasher or iron, and he certainly does not think along the lines of killer apps or core technologies, but has contemplated large scale problems which require a solution. Technologies are just means to an end.
 
What is then the central innovation at Tesla? It is not related to single technologies like battery, powertrain nor IoT. It is the conception of individual transport being an integral part of an energy revolution which is based on small, decentralized, photovoltaics power stations which are part of a regular family home. The energy of the sun is harvested by the consumer through solar panels and either used directly for charging a car and operating other appliances or stored in a batteries or hydrogen tanks which provide night and winter season supply. Tesla tries to solve the problem of fossil fueled individual transportation by providing renewable energy fuel vehicles.    

Social Organization
 
Such an energy supply model is the antithesis to what the industrial revolution has brought to Western post WWII economies in form of centralized large-scale power plants, which are operated by mostly state-owned energy suppliers. Centralization has the advantage of top down organization, but the disadvantage of 2/3 energy loss during distribution; only 1/3 of the generated electricity reaches the consumer due to vast energy losses along the road.
 
The energy industry does therefore reflect in its entirety the Keynesian post WWII economic paradigm of scaling up production and distribution into megasystem beyond imagination: the bigger the better. It also reflects a political system which is based on strong and centralized nation states, which are able to provide their citizens with essential means in return for absolute loyalty.
 
Renewable and in particular solar energy stands for decentralization, self-responsibility and in terms of social organization heterarchy instead of top down hierarchy. Energy is not only consumed where it is produced thus eliminating unnecessary transportation and related infrastructure, it does also make top down structures of energy distribution completely obsolete and paves therefore the road to a postindustrial economic paradigm which has been famously formulated by Keynes protégé E.F. Schumacher in Small is Beautiful.
 
One could therefore argue that driving a Tesla and any other electric car is as much a political as an environmental statement, in particular in Beijing, where Tesla sales have dropped so significantly. And this is where the EV industry attracts my sincere interest, because I wonder why Mr. Musk wants to enter a market with a manufacturing plant in Shanghai which is obviously not suitable to his big picture strategy of distributed energy generation and consumption; and if the Chinese government realizes that it undermines its totalitarian rule by pushing for 40% EVs by 2030.

Natural Resources
 
Modern man does not experience himself as a part of nature but as an outside force destined to dominate and conquer it. He even talks of a battle with nature, forgetting that, if he won the battle, he would find himself on the losing side. Until quite recently the battle seemed to go well enough to give him the illusion of unlimited powers, but not so well as to bring the possibility of total victory into view. This has come into view, and many people, albeit only a minority, are beginning to realize what this means for the continued existence of humanity.
 
The illusion of unlimited powers, nourished by astonishing scientific and technological achievements, has produced the concurrent illusion of having solved the problem of production. The latter illusion is based on the failure to distinguish between income and capital where this distinction matters most. Every economist and businessman is familiar with the distinction, and applies it conscientiously and with considerable subtlety to all economic affairs – except where it really matters: namely, the irreplaceable capital which man has not made, but simply found, and without which he can do nothing.
 
A businessman would not consider a firm to have solved its problems of production and to have achieved viability if he saw that it was rapidly consuming its capital. How, then, could we overlook this vital fact when it comes to that very big firm, the economy of Spaceship Earth and, in particular, the economies of its rich passengers? One reason for overlooking this vital fact is that we are estranged from reality and inclined to treat as valueless everything that we have not made ourselves.
 
These lines from Schumacher’s Small is Beautiful give us two implicit answers. Musk has not solved the problem of production at Tesla, because he uses up his capital at breakneck speed; and it is his company which does on a microeconomic scale reflect a macroeconomic challenge: the depletion of natural resources can’t be stopped by changing within the same economic system from a product A to a product B, if still the same production principles and the same consumption behavior applies.
 
Let us look into these arguments a bit closer. I mentioned earlier that the core innovation of Tesla is Musk’s masterplan of decentralized, renewable electricity which shall power future transportation. He is certainly many steps ahead of his competition and most governments, but he is sadly still thinking along the lines of Keynesian economics in terms of vehicle production and consumption and this is clearly revealed in the case of Beijing, where Tesla S vehicles are being bought by high end customers who change cars like underwear. Their taste changes fast, their product satisfaction decreases even faster. They want to have the latest model, the trendiest design and the best brand, and purchase EVs rather for the hype than for the environmental impact. But why would you anyway buy a car in a city which is nicknamed the capital of congestion | 堵京 and which offers a good and reliable public transport system?
 
I am instantly reminded of Matthieu Ricard, the French biochemist and Buddhist monk, who is said to be the happiest person in the world, talking about chocolate cake: Although we want to avoid suffering, it seems we are running somewhat towards it. And that can also come from some kind of confusions. One of the most common ones is happiness and pleasure. But if you look at the characteristics of those two, pleasure is contingent upon time, upon its object, upon the place. It is something that -- changes of nature. Beautiful chocolate cake: first serving is delicious, second one not so much, then we feel disgust. A Tesla S is like any car a chocolate cake or as we more often say: a big toy for grownups. True satisfaction does not come from consuming product A or B, whether powered by fossil fuels or renewables, at ever shorter intervals. True satisfaction comes less by having and more by being.

But we don’t have to discuss the metaphysics of economics to make a stringent argument against (too many) EVs. Several reports have discussed lately the negative environmental impact of EVs but have mostly fallen short of analyzing the entire supply chain, but have instead rather focused on how electricity for charging EVs is generated. The most overlooked externality of all smart and clean technologies is rare earth mining which is polluting surface and ground water with alarming toxicity. China Water Risk published a comprehensive report on the subject in 2016.
 
In case this argument is not sufficient, one is asked to replace 35 mio conventional with 35 mio electric vehicles on China’s roads in 2020. One can imagine that EVs will not resolve central problems of urban transportation like congestion or parking.

Conclusions
 
Tesla produces vehicles which are sold without paying for externalities and fuels a stimulation driven consumer behavior instead of spreading the gospel of moderation by relying on principles of circular economy; but the company pushes a technological vision which, if successful, will catalyze social change, and is as such adding much value to our societies. Tesla shall therefore not only be evaluated by how much profit it makes, but in accordance to how much change it enables.
 
If I were though an advisor to Mr. Musk, I would argue against a China market entry. The Chinese power supply policy, which is until 2040 highly geared towards centralized nuclear power generation, and the society’s frame conditions in terms of urbanization and population density make the market highly unattractive for individual transportation, respectively require rather the entry of Hyperloop than Tesla; but old China hands know that the Chinese Railway Ministry is a PLA spin off and the Chinese market thus a deadend for foreign investors.
 
Chinese EV manufacturers like BYD or NEXT EV will never be a genuine competition to Tesla, because they lack a big picture master plan. BYD is despite its name – build your dream - not driven by a vision, but listens closely to Beijing’s China dream and tries to harvest subsidies and golden moments of government investment like most Chinese enterprises. NEXT EV has a great marketing and design team, but lacks according to experts in the supply industry central automotive manufacturing competences.  We will see what Tesla competitors will bring to birth, but shall above all not forget that the problem of sustainable transportation cannot be separated from sustainable energy generation.
 
Further Reading:

• China Water Risks: Rare Earths: Shades of Grey – Can China Continue To Fuel our Global Green & Smart Future?
  
• National Bureau of Economic Research: Environmental Benefits from Driving Electric Vehicles?
• Stockholm Environment Institute: The Geopolitics of China’s Rare Earths – a glimpse of things to come in a resource scarce world?
• KPMG: Global Automotive Executive Survey 2017
• McKinsey: The Road to 2020 and Beyond – What is driving the global automotive industry?
  
• Captain Planet and the Planeteers: on the correlation of Xi Jinping’s distant water fishing and energy policy.
  

What is original? A review of a TED radiohour on creativity and some implications on how the Western world should change its perspective on the “Chinese technology threat”
 
During the last decade I have been involved with technology transfer and intellectual property issues related to China. I have come to recognize some basic patterns in this field, which are nothing new but are somehow my main take away from working in the technology law industry in an emerging market:

• Since the mid 80ies China has opened up its economy and in the course of the following 20 years it has established a well drafted intellectual property framework based on international laws promulgated by bodies like WTO or WIPO and modeled after foreign innovation system like Singapore or Germany.
• This national legal framework – in spite of poor execution measures - was sold to the Western world as China’s acceptance of international law and was one of the entrance tickets to the Western dominated world economy.
• In the tradition of the Chinese proverb 指鹿为马 [pointing at a deer and calling it a horse] China reiterated for years that it had fulfilled all requirements and obligations but actually undermined the IPR framework by industrial policies which force foreign investments to gradually give up technology and know how. James McGregor described these policies in an APCO paper “China’s Drive for Indigenous Innovation”.  The German author Frank Sieren calls one of the main elements of these industrial policies pointedly “Concubine Economy”.
• This reality caused foreign businesses to develop their own protection strategies, which try to circumvent a seemingly not navigable system, i.e. protecting know how without resorting to the legal system. A Swiss research team on technology management analyzed these measures in a paper titled “How Managers Protect IPRs Using de facto Strategies”.  These de facto strategies apply not only to China, but to any market, but its fair to say that Chinese industrial policies accelerated the
• I have the impression that such de facto strategies can delay know how loss, but in the long run a technocrat government will succeed in absorbing what it wants; and more importantly it is the peculiar economic development stage at which China finds itself that creates know how spill over and thus intense domestic innovation. 
• I moreover believe that all the obstacles that humanity faces can only be resolved if East and West collaborate. That’s not a call for world peace, but a pretty rationalistic understanding of which problems we face and what it takes to resolve them – just think of environmental pollution on a global scale. It might as well be that some required inventions for humanity’s progress are only triggered by great turmoil, disastrous warfare and close to end of the world scenarios. In other words: all is good, even though it might look dim and dark, because there is an invisible hand guiding all of us, i.e. all that is.

 
We, the industrialists, are moreover invited to change perspective and adopt for a few minutes the outlook of traditional creatives, who make a living by being innovative not as an organization but as individuals who have to reinvent themselves day after day. I would like to summarize therefore a National Public Radio podcast, which aired a program at the end of June 2014 under the title “What is Original?”
 
DJ and producer Mark Ronson says there: “You know, in music, we take something that we love, and we build on it. That’s just how it goes. Pablo Picasso is quoted: Good artists borrow, great artists steal.” The British poet T.S. Elliot built on this quotation: One of the surest tests [of the superiority or inferiority of a poet] is the way in which a poet borrows. Immature poets imitate; mature poets steal; bad poets deface what they take, and good poets make it into something better, or at least something different. The good poet welds his theft into a whole of feeling, which is unique, utterly different than that from which it is torn; the bad poet throws it into something, which has no cohesion. Ronson continues: “Subconsciously we are influenced whether we like it our not.”
 
Filmmaker Kirby Ferguson claims that only the big bang is original, everything else is derivative. He describes Bob Dylan as a folk musician whose music was 2/3 copied from others, but acknowledges that in what he did, he followed the routine of all artists of that genre: folk musicians contributed to the body of folk music. He dismantles George Lucas Star Wars movies as a copy of the Japanese director Akira Kurosawa, and shows with the iphone that American copyright and patent laws run counter to this notion that we build on a common body by considering creations a private property although the common body of inventions is a public good.
 
Where is the line between copying and building something new? Steve Jobs showed that it’s more a question of perspective that anything else:  in 1996 he quotes Picasso and confirms that Apple has always been shameless about stealing from others. In 2010, when Google’s Android mobile phone is launched, he says “great artist steal, but not from me”. Ferguson suggests to be transparent in using contents from others – what people want is credit for their contribution to the common body of inventions. I think that’s a reasonable approach. Johanna Blakely tells us that the fashion genius is really in curating from the past and reviving it in the present; and since copyright law barely touches fashion, the industry benefits in innovation and sales. Why not extend these best practices to other industries?
 
Earlier this year, Tesla Motors CEO Elon Musk decided to give away a big part of his company's patents for free. It might seem like a strange business move, but Musk said he wanted to inspire creativity and accelerate innovation. Writer Steven Johnson says this is the way great ideas have been born throughout history. Therefore, it’s probably time to rethink how we try to control our know-how. So why continue to spend a fortune on patent registration, IPR maintenance and enforcement, in particular in China, where as we have read earlier, it’s all in vain?
 
Ideas and innovation thrive in environments where ideas are free to flow from mind to mind and to be reused and repurposed and remixed in interesting and surprising ways. And a lot of the technology we're dependent on has come out of that kind of collaborative network. Johnson continues to explain that these collaborative networks and a change in diet [from alcohol to coffee] were the reason for many inventions made during the age of enlightenment. Visionary people would come together in coffeehouses in Boston, Philadelphia, London, Paris and Vienna to discuss visionary ideas. 
 
I ask myself where these places happen to be nowadays. Where do visionary people meet to discuss visionary ideas? Silicon Valley or Shanghai Zhangjiang Hitech Park? Steven Johnson wrote a book about “What is the space of creativity?” but I am not sure if he only wrote about traditional Western spaces or new Chinese realms of creativity. I see innovation not only happening in China because companies absorb foreign technology and the central government coerces hitech enterprises to jump into JV with SOEs. I see bursts of innovation because technicians, engineers and executives from all continents and industry backgrounds meet on a regular basis in technology parks like in Shanghai’s Pudong district Zhangjiang Gaoke. They might not meet in fin de siècle Viennese coffee houses, but they equally exchange ideas and spill over know how. I see intense innovation happen, because Chinese entrepreneurs who have spent a few years abroad return to China with ideas which they adapt and improve. I see innovation happen, because humanity faces in densely populated regions like Eastern China new challenges, which do not exist anywhere else. Think of mass transportation within urban centers and between them. Think of food provision for million of people, but a scarcity of arable land. I have seen pork farms and green houses in Yunnan entirely shaded with photovoltaic roofs to use land twice: for agriculture and power generation; and I can’t agree more with Johnson on the impact of diet. Chinese are more innovative than they have been 10 years ago, because they slowly turn into a coffee drinking society. Starbucks already calls China it’s second home market.
 
Western innovation reports tend to emphasize the importance of formal basic research & development, but usually undervalue incremental research and development. Comparing European and Chinese businesses over the last years, I have the impression that the West sometimes innovates for the sake of innovation whereas China builds on top of existing inventions to commercialize.
 
Even the cold war created great inventions: Steven Johnson tells us that the launch of the first Soviet satellite caused the US to develop the global positioning system GPS. Insofar, even war and the build up of arms can do some good for humanity in the long run. Trust in the invisible hand and to throw in some Eastern philosophy, some Taoist thought and some Buddhist concepts: trust that all knowledge that is has only one source and worldly barriers and differences are nothing but avidya: a delusion. Abandon (intellectual) property law because it is the vehicle for division between yours and mine. In reality nothing belongs to us, but everything to all that is. Build property and value, but don’t cling to it.

The Tibetan Buddhist master Ringu Tulku explains the nature of avidya (ignorance) as follows: In the Buddhist sense, ignorance is equivalent to the identification of a self as being separate from everything else. It consists of the belief that there is an "I" that is not part of anything else. On this basis we think, "I am one and unique. Everything else is not me. It is something different."... From this identification stems the dualistic view, since once there is an "I," there are also "others." Up to here is "me." The rest is "they." As soon as this split is made, it creates two opposite ways of reaction: "This is nice, I want it!" and "This is not nice, I do not want it!"