Free Cars

There has to be a word for what happens when the same concept comes from two completely different sources in a very short period of time.

Last night, I taught my students in my business law class how to distinguish a contract governed by Article 2 of the Uniform Commercial Code from a contract governed by common law – does the service component of the contract predominate over the goods sold in the contract? For instance, if you buy a car (a good) and it comes with a warranty (a service), which facet of the deal is most important? The car, of course, so this is a goods contract, governed by the UCC. I asked for a counter-example, and a student said, “cell phones – the service is more important; they just give the phone away so you’ll use their service.” I thought it was a great example.

Today, I read about an entrepreneur who has noticed that as the cost of gasoline rises, the price of operating a car is trending toward exceeding the price of buying it. Apparently, Europe has already passed that point, for a typical used car. To this interesting economic balance, he’s hit upon an interesting proposal, borrowing from the economic model of a cell phone company that my student spoke about.

His company will give you an electric car. For free. It will use existing lithium-ion battery technology. You sign up to buy electricity from the company’s network of charging and battery exchange stations. The stations are relatively easy to set up – they just draw electricity from the existing power grid, and consist of a storehouse of batteries – you drive in, pop out the old battery, swipe your credit card, and pop in a new one, and away you go. The old battery charges up, and gets picked up by the next user. Obviously, there are logistical problems for getting something like this going, but I don’t see any reason why it couldn’t work, at least in an urban area where a network of stations could be set up in reasonably close proximity to one another, just like gas stations are today.

But is it good for the consumer? I think so -- let's take my car as an example. The Ninja gets somewhere between 325 to 375 miles on an 18-gallon tank of gas, depending on how much high-efficiency freeway use is going on in that time. Gas in the Antelope Valley is going for about $3.50 a gallon, and a little bit more in Los Angeles. Taking the average mileage, that's an operating cost of eighteen cents a mile. If the projections he's making are right, the cost of his service will be about seven cents a mile -- less than half. And there will be no cost of the car itself. So it sounds pretty good from this consumer's perspective.

The question is – would your relationship with the company be governed by common law or the UCC?

Hat tip to The Long Tail for the story.