Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

Let's Take A Lesson From The Chip Industry: Turn The Big 3 Auto Makers Into Car Foundries . . .

Posted by Tom Foremski - December 3, 2008

The reason we have such a huge choice of low cost computers and all sorts of gizmos and gadgets, smart phones, and electronic toys is because of the amazing advances in chip designs. Hundreds of small chip design firms are producing incredibly advanced semiconductors that power a slew of innovative devices.

But the reason we have so much innovation in the chip industry is because of a manufacturing revolution that began more than twenty years ago. In 1987, Taiwan Semiconductor Manufacturing Company (TSMC) was founded as a new type of chip company--it was a semiconductor foundry--it made chips for other companies.

This completely transformed the chip industry and ushered in an innovation explosion. Chip designers didn't have to build their own chip factories, they could buy production time from chip foundries. Previously, chip startups had to raise hundreds of millions of dollars, primarily to pay for chip production--yet their value was in the designs.

Chip foundries led to a dramatic cut in the cost of establishing a chip company. Investment now went into chip design, not building a manufacturing line and learning how to run it.

This simple manufacturing revolution is responsible for all the innovation in electronics. And that's a model that could be effectively applied in the automotive world, and unleash a wave of innovation.

Manufacturing expertise . . .

I support a bailout of the automakers for one key reason: manufacturing expertise. If they shut down then we lose many decades of manufacturing knowledge and processes--it would be hugely expensive to recreate.

That manufacturing expertise can be used to build a Hummer, or it can be used to build hybrids, electric cars, and anything with wheels and an engine.

There is a tremendous amount of innovation in transportation that could be unlocked if you didn't have to have build your own factory to make the vehicles.

General Motors and the other car makers know how to re-tool lines to make all sorts of vehicles. They know what designs, and components work, and what doesn't; they have relationships with parts manufacturers, they have software design systems, test systems, air tunnels, algorithms...

They also know how to get through the red tape of qualifying vehicles for US roads. There is a massive amount of knowledge and expertise within the Big 3 that could be applied to producing the greenest of green vehicles.

My proposal is to use government monies to convert the Big 3 auto makers into car making foundries, in a similar fashion to chip-making foundries. That way, small startups with great ideas could quickly get their designs into production without requiring massive amounts of capital and learning how to build and operate a car factory.

Tesla Motors . . .

Take a look at Tesla Motors, one of the most innovative car companies of the past decade. The Tesla Roadster is an innovative all-electric sports car made with a carbon fiber body that has a range of 244 miles and does zero to sixty in less than 4 seconds. It received Time Magazine's 2nd best inventions of 2008.

But you have to very rich to buy one of these $109,000 cars primarily because building a manufacturing line is so expensive. It also means that Tesla had to raise massive amounts of capital to fund the manufacturing lines. This means the innovative Tesla technology will take years to trickle down to mainstream models--yet that's where it's lower carbon-footprint would have the most value.

Tesla ran into lots of delays because of manufacturing problems, and also problems with some of the components.

What if Tesla contracted with GM to make its cars? GM would know how to quickly tool up a production run, it probably would be able to help out with some of the drive-train problems Tesla had. GM would know what things work and how to avoid many problems that Tesla had to learn the hard way..

It is this kind of manufacturing expertise that could be leverage across a new industry. Small startups with great designs and technologies could quickly come to market without having to build their own production lines.

Car foundries could set off a huge wave of innovation at precisely the right time when we are searching for more responsible and sustainable forms of transport. And the US could grab a leadership position with such a plan.

Let's turn the Big 3 auto makers into foundries that can create a platform for a new type of innovative auto industry.

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