Question

You can't say Laurin Hahn lacks drive. While still in high school, he founded what has since become the most popular dance club in Munich. Then, with no real engineering skills, he and a buddy set out to build a car powered by solar panels on its roof. Four years later they had a working prototype, so they formed a company to sell it. A few years on, when key investors declined to put in more money, the pair turned to crowdfunding. Within two months they'd raised €53 million ($62 million). "I guess I'm fairly ambitious, but the point of the car was to help the world," Hahn, now 26, says with a laugh.

Their company, Sono Motors—the name, Latin for "sound," is a riff on how quiet electric motors are—is developing a boxy, four-door hatchback covered in solar panels that are barely visible but can generate enough electricity to give the car more than 10 miles of range after a few hours in the sun. When it hits the market in about 18 months, the Sion, as it's called, will come in only one color: solar-cell black. The price, Hahn says, will be €25,500, making it competitive with Volkswagen AG's ID.3, an electric sedan that started selling in July for €35,000. The Sion can also be plugged in, but Hahn figures the solar panels will eliminate one of the primary concerns drivers have about e-vehicles: range anxiety. "You can run the car completely dry, leave it on the side of the road, and it'll recharge itself," he says—even on a cloudy day (though much more slowly). "The idea that I can't get stuck is extremely important."

The concept took root in Hahn's garage in 2012, when he and his friend Jona Christians bought and gutted an old Renault Twingo hatchback. The pair spent months affixing solar panels to the roof, doors, and hood. They ultimately pushed the car out into the sun to soak up some rays—and managed to drive just a few meters at a crawl. Hahn and Christians kept at it, with detours to local universities to hone their technical skills, though both eventually dropped out. Over time they made their Twingo street-legal, able to reach speeds and distances that might work for most commuters.

They brought in a third partner, Navina Pernsteiner, who was Hahn's roommate at the time, to handle marketing, and started a crowdfunding campaign that yielded €850,000. "Suddenly we were able to bring people on board," Hahn says. In 2018 they raised €5 million from venture capital firms, then started looking for about 10 times that to start production. But the talks fell through as investors suggested they abandon plans to make cars and instead license their technology.

Hahn and Christians didn't like that idea, so they again turned to crowdfunding, setting a goal of €50 million, which they soon exceeded as some 13,000 people each plunked down anywhere from €500 to the full purchase price to preorder a vehicle. (The company says those orders aren't binding and can be canceled for a full refund before deliveries start.) Today, Sono has about 100 employees—coders, engineers, designers, and a marketing team. National Electric Vehicle Sweden AB, the company that emerged from the bankruptcy of Saab, has signed on to manufacture the cars, which Hahn says is needed to ensure he can meet demand.

Skeptics say that even with the funding Sono has in hand, the company will have trouble turning its idea into a viable business. Matthias Schmidt, an electric-vehicle analyst in Berlin, says the car might prove useful for city dwellers who don't have off-street parking where they can charge a conventional EV. But as more charging stations spring up, he says, interest in the idea will likely wane. Markus Lienkamp, a professor of automotive technology at the Technical University of Munich, calls Sono "a nice marketing story and nothing more" and says he expects it to end up on the scrap heap, like a host of other e-vehicle startups that have struggled to compete with industry giants.

Hahn says he doesn't expect to have trouble selling cars even as charging infrastructure expands. And he says he's familiar with Lienkamp, but Sono's expertise can be seen in the "numerous" patent applications the company has filed. "We've invited Professor Lienkamp for a test drive," he says.

Hahn acknowledges that his funding, which poured in last fall and winter, came just in time to help weather the worst of the coronavirus lockdowns. Most staff members are working remotely, though a handful have been going to a workshop where prototypes are being built. The team still needs to better integrate the unit that controls the power flow from the solar cells and eliminate hiccups in the drive train, which comes from supplier Continental AG. "We didn't have to stop production," Hahn says. "We didn't need to go to the state for wage support. We're liquid."

THE BOTTOM LINE Priced at about $30,000, the boxy, four-door Sion will compete with VW's new ID.3 electric sedan, but it will be available in only one color: solar-cell black.

1. Given that Sono intends to compete with Volkswagen, explain why economies of scale might present a significant barrier to entry. What strategies might Sono pursue to overcome these challenges?

2. Discuss some of the similarities and differences between the types of pollution caused by vehicle emissions and mining operations. What are some of the political/economic challenges associated with reducing each of these? [Hint: Consider the scope of where these types of pollutions are produced vs. whom they affect.]

Answer 1

1. Volkswagen has significant economies of scale where it is able to produce cars in a greater quantity and at reduced costs of production. This leads to lower manufacturing costs as it is able to source the cheapest products of higher quality from anywhere in the world. The company is thus able to bulk produce and cater to the market at the click of a button, which Sono will not be able to do so.

Sono will have to collaborate with a major competitor such as BMW, etc in order to achieve the economies of scale. It can also give its shares to various investors, thus enhancing access to liquidity and increasing its scope of production on a larger scale and it will be able to gain information from experienced engineers who will fast track their final prototype by increasing the level of efficiency.

2. Both vehicular pollution and mining operations generate significant amount of pollution and they are difficult to manage. However vehicular pollution is redistributed across several regions and generates only air pollution whereas pollution created via mining is of different types such as noise, air, land and water pollution and it is concentrated in a single region making it difficult to reside in such localities closer to where mining operations are being undertaken.

Some of the political/economic challenges associated with reducing each of these are that higher levels of vehicular pollution are more in the urban areas and governments can create rules wherein the private costs are on par with social costs, where there is a tax imposed on purchase of fuel. But it leads to private costs exceeding social costs where individuals from poor socio economic backgrounds end up paying far more.

On the other hand some of the challenges associated with reducing pollution created via mining result in lower mining activities as those activities are taxed, this leads to the metals being mined becoming more expensive and thus even though pollution is reduced close to the mining operations, importers and far off consumers end up paying the price because they end up purchasing the products at a higher price due to the tax being imposed.