Investing in Efficiency to Save the Planet: Software Motor Company
A brief history of an investment in Software Motor Company
Note: Opinions are my own, this is not an official BMW i Ventures post
BMW i Ventures just invested in Software Motor company — here’s my behind-the-scenes take on how that happened, and why we’re so excited about the company.
The Oracle of Electricity
When I first met Ryan Morris, currently Executive Chairman of Software Motor Company (SMC), it was at a dinner three years ago in San Francisco. At the time, Ryan was an activist hedge fund investor, and had been elected Executive Chairman of Sevcon, a 50-year old electric power-train company primarily focused on fork-lifts and other small industrial applications. I fancy myself something of an electrical and mechanical technology nerd, and know more about this stuff than most people in most rooms. But I was in for a rude awakening. Unlike most investors who have a light passing knowledge in a given subject, Ryan was deep in the space. Extremely deep. Matrix red pill deep.
Source: https://medium.com/@andrewpgsweeny/beyond-the-red-pill-and-the-blue-pill-9ef953d6e133
For those that know Ryan, what followed would be expected; but for the uninitiated, the tidal wave of information and insights about everything from motors, to batteries, to electric vehicles that came gushing from him over the next few hours was awe inspiring. This was no ordinary investor. I was intimidated. I was shook. But I was hooked.
Down the SRM Rabbit Hole
Fast forward a year and Sevcon had been successfully sold to Borg Warner and Ryan was now Executive Chairman of Software Motor Company. On the surface of it, this was a boring, low-margin electric motor manufacturer selling into the boring High Volume Air Conditioning (HVAC) market. A proverbial snoozefest. But I must have been missing something; after all — there had to be a reason why Ryan, the oracle of electric, was there and had seemingly gone “all in” on the company.
On my first visit to the company’s discrete Sunnyvale lab+office it seemed the snoozefest impression was correct. The low slung industrial buildings had a way of inspiring excitement the way that beige paint doesn’t. I was starting to think about ways to get out of there as quickly as possible.
That was, until I heard the numbers. SMC’s Switched Reluctance Motors (SRMs) were seeing 30%-70% reductions in energy usage in THE REAL WORLD. None of this bench-top test stuff, they had hundreds of motors pushing thousands of tonnes of HVAC at real world facilities for years, and the numbers bore out across countries, customers, and climates. The Department of Energy, and top Electrical Utilities had verified the numbers in highly rigorous, peer reviewed tests, and they checked out.
Source: Software Motor Company
Source: Software Motor Company
I was intrigued. But how much of an opportunity was this? Surely this is a crappy market that no-one should care about? Again, I was wrong.
The AC Induction motors that SMC’s SRMs are replacing typically run behind the scenes in unsexy places (think HVAC, pumping stations, sewer systems…), so it’s easy to forget just how common they are. In fact, Electric Motors are a $100 Billion per year market; and they consume 45% of the world’s electricity — some 9,900 Trillion kWhs, at an annual cost of over $1 Trillion. That means that SMC’s motors could chase a $100 Bn direct market opportunity, but also open up an additional $500 Bn in electrical cost savings. That’s probably the largest real-world opportunity size I’ve ever looked at for a startup.
Source: Software Motor Company
But surely there must be a catch. These new motors must use some exotic new materials, or designs, or be really tough to manufacture, they must cost a TON! Or maybe they are brittle and die all the time. There must be a downside somewhere!
And that was where I realized why Ryan was so bullish on this company. You see, Switched Reluctance Motors are conceptually the simplest motor architecture. They use no exotic materials or magnets (just basic steel and copper), and are simpler to manufacture than other motors. Even better, they are extremely reliable. In fact they are the design-of-choice for mission-critical use cases like nuclear power plants and mining where you need a fault-tolerant motor to continue running for decades. So they are cheaper to make, more reliable, and apparently more efficient. A seeming triple-threat.
Source: Software Motor Company
But then why has no-one else made mass-market SRMs before?
It turns out that SRMs are EXTREMELY difficult to control. You need to precisely shape the current going into them, and time it across each of the electromagnets highly accurately, otherwise you end up with a noisy, inefficient, vibrating mess of a motor. So whilst the SRM design is straight-forward and conceptually simple, they have been largely written off as a hopeless footnote by most of the rest of the industry because they were too difficult to control.
Source: Software Motor Company
However, SMC’s team saw a conflagration of trends coming together that would make SRM’s a realistic opportunity now, where they were impossible in the past:
- Firstly, compute at the edge is getting extremely cheap because of smartphones. A cheap ARM SOC has many orders of magnitude the compute power today that a mainframe had a few decades ago. Think Raspberry Pi for $35.
- Secondly, simulation software has come leaps and bounds allowing highly erratic, mechanically unstable systems like SRMs to be modeled effectively in the design phase; while GPUs allow the cost of that simulation to come down orders of magnitude.
- Finally, AI and Machine Learning have surged ahead allowing control systems to create solutions to highly dynamic problems in far more efficient ways than could have previously been done with hand-coded rule-based systems.
Bringing these three things together means that you can build the control hardware and software for SRM’s many orders of magnitude cheaper than was previously possible, and the capabilities of the algorithms are so robust that they take an unstable, inefficient SRM, and make it more efficient than any similar motor before.
Source: U.S. Air Force/Shane A. Cuomo
A good analogy would be to modern fighter jets. Planes like the F-22 are mechanically unstable; they would not fly or be controllable by a human if you just fired up the engines and tried to fly them without a computer. But put a computer into the loop with the right control algorithms and you end up with a machine that is far more maneuverable than any non-”smart” plane ever could be.
SMC’s Switched Reluctance Motors are in effect the fighter jets of the electric motor world.
Source: Software Motor Company
Not Just A Good Investment
So from a business standpoint we are excited about SMC because they are chasing a massive market opportunity with a product that has multiple brute force advantages:
- Cheaper
- More Reliable
- More Efficient
We love companies that have unfair advantages like this.
But we would be remiss if we ignored the sustainability angle of this investment. If we just look at BMW’s infrastructure, it runs massive manufacturing facilities, each consuming tens-of-megawatts of electricity. In fact, BMW spends over €350 Million on electricity each year, and massive amounts of that are consumed by the process and HVAC electric motors in our facilities.
So the potential savings just to BMW on the facilities side are massive, and more than justify a large investment in SMC even if their technology never makes it into electric vehicle powertrains.
Source: Software Motor Company
Sustainability done right should bring efficiencies that make the logic close to a no-brainer. And SMC’s motors are about as close to the no-brainer line that we’ve ever seen in the sustainability space. In fact, the payback periods are better than LED light bulbs in most situations, which is very rare.
So, needless to say, while we think SMC is a good investment in and of itself, the opportunity to make a meaningful impact on electricity usage, and hence CO2 emissions globally, is what really gets us excited about partnering with the fantastic team at SMC.
