Long read: The Electric Slide

A few weeks ago, we featured a piece by Andreessen-Horowitz on the Electro-Industrial stack about how the convergence of software and the physical world through electro-mechanical technologies like batteries, motors, etc allows for a new tech stack that will define the future. This piece is a more detailed follow up to that, in that it helps us with the fundamentals of these concepts for those of us who have long forgotten them from school but also helps put these in context of the present world. Much like a16z’s piece, this also builds on the geo-political aspects of this stack with how the US and China are pitted against each other in this new race of technological superiority, akin to the space race of the 60s. It might read geeky but this is something every policy maker, industrialist, investor, academic or anyone curious about the future should follow.

McCormick sets the context with this introduction:

“A couple of years ago, Isaiah Taylor, the founder of nuclear company Valar Atomics, told me something that’s stuck in my head ever since: “There are only really three pillars to anything around us, as far as consumable goods. We’ve got energy, intelligence, and dexterity.”

I would generalize “dexterity” to “action.” Everything we see around us, and will see around us in the future, is the result of the potential to do work (energy), the capacity to decide what to do and how (intelligence), and the ability to manipulate matter (action).

…America is, implicitly or explicitly, making a bet that whoever wins intelligence, in the form of AI, wins the future.

China is making a different bet: that for intelligence to truly matter, it needs energy and action.

If you control energy and action, making intelligence abundant strengthens your position.

After catching up to America in electricity generation in just 2010, China now generates 2.5x as much electricity as we do.

It also dominates the technologies that turn electricity into action: the Electric Stack.

Today, China produces 75% of lithium-ion batteries globally and manufactures 90% of the neodymium magnets that make motors spin. In power electronics and embedded compute, it’s rapidly gaining ground.

That means that China controls the means of producing electric vehicles (EVs), drones, robots, and all of the other electric products that are replacing the combustion-driven machines on which America built its might.”

What’s with the Electric Slide though – the title of the article?

It refers to the unbelievable cost curves in each of these areas that matter:

“Since Sony started rolling out lithium-ion batteries in 1991, battery packs have gotten 98.7% cheaper, for an annual decline of 12.5%.

…Since hard-disk drive motors began incorporating Magnequench and Sumitomo neodymium magnets in late 1980s, the cost of electromagnetic actuation has dropped 98.8% from $204/kW to $5/kW, for an annual decline of 12.5%

…Since industrial companies began using variable frequency drives (VFD) using B. Jayant Baliga’s insulated gate bipolar transistors (IGBT) in the late 1980s, VFD inverters have gotten 99.5% cheaper, for an annual decline of 14.5%

…since Texas Instruments commercialized microcontrollers (MCUs) and digital signal processors (DSPs) in calculators and kids toys in the late 1970s, the cost to run a million instructions per second (DMIPS) has fallen 99.9%, for an annual decline of 20% over the past 35 years”

And the Electric Slide refers to the composite cost curve (the slide) in the components of this electric stack: “It shows that the cost of the Electric Stack has fallen 99% since 1990, or 12.6% per year with an equal-weighted stack.”

And China has been instrumental for this slide in the stack, whose origins ironically were in the US, UK and Japan.

“That today China owns two layers of the Electric Stack almost entirely was not inevitable, or even likely.

The four key Electric Stack technologies were invented at various points between the 1960s and 1990s in America, Japan, and the UK, and reached critical maturity around the same time in the 1990s.

Then, in many cases, we sold the future. GM sold its neo magnets division, Magnequench, to China for $70 million. A123 Systems, which invented the Lithium Iron Phosphate (LFP) battery, went bankrupt and sold to Wanxiang for $257 million in 2013.

Thanks to shortsighted Western errors and farsighted Chinese industrial policy, in the commercialization phase, the Electric Stack center of gravity has moved from America and Japan to China, which dominates the stack. By controlling these four technologies, China has become the world leader in everything from EVs to drones to electric bikes to robots.”

There’s plenty to digest from this long read which is almost like reference material worth spending days if not weeks on and not just a quick Sunday read. We’ll let you get to it.