Car makers could learn from chip industry and unleash a wave of innovation

The single most important development in the chip industry was not a new technology it was a new business process. In 1987 Taiwan Semiconductor Manufacturing Company (TSMC) was formed, it was a chip company with a difference--it would make chips for other chip companies. This was the start of the chip foundry business model and it was revolutionary. It lead to a huge amount of innovation and the development of inexpensive advanced chips that now power all our computers, networks and digital gizmos, smart phones, and virtually every electronic product. As with all great ideas it met with a lot of resistance. Many in the chip industry railed against it. There was a popular expression by Jerry Sanders, then CEO of Advanced Micro Devices, that "real men have fabs." But chip fabrication plants are extremely expensive and they are the most complex of our industrial manufacturing systems. Chip startups used to need to raise huge amounts of startup capital because they needed to build their own fabs. TSMC changed all that. Chip companies could focus on design and let TSMC, or other chip foundries, deal with the complexity of manufacture. It was revolutionary in a way that no single chip technology (except maybe CMOS :) could compete with the innovation in the business model. Today there are very few semiconductor companies that own their own fabs, the majority use chip foundries. And that has translated into better capital efficiency because manufacturing lines can be run at near full capacity by time sharing production runs for many chip companies. That's the lesson the Big 3 US car makers can learn from the chip industry. They have a tremendous amount of manufacturing expertise. They could become "car foundries"--making cars for startups.

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

There is a tremendous amount of innovation in transportation would 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 together, and what doesn't; they have relationships with parts manufacturers, they have software design systems, test systems, wind 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.

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 a state-of-the-art all-electric sports car made with a carbon fiber body that has a range of 244 miles and goes from 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 -- money that could have gone into innovation. This means the 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 as we search 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 car foundries that can create a manufacturing platform for a new type of innovative auto industry.