Thursday, June 04, 2009

Learning by Doing

Tesla Motors, producer of the Tesla Roadster all-electric sports car (0 to 60 in 4 seconds with a 240 mile range!) has produced their 500th car. Their next product will be an electric luxury sedan at a significantly lower price than the $100,000 Roadster.

Aside from being an interesting example of technological change, this story is interesting because it's an example of what economists call learning effects, or learning by doing. It took Tesla Motors eight months to produce the first 100 Roadsters. The next 400 roadsters took only another eight months. Some of that is probably due to increased capital, but a lot of it surely has to do with simply getting better at what they're doing through practice. The most famous example of this is the production of weapons and vehicles during World War II, during which factories found that they could rapidly expand their production, producing more planes, faster, and at lower cost, simply because workers learned more efficient ways to do their jobs.

These sorts of gains are one reason why we should be optimistic regarding the production of alternative energy vehicles. They may be expensive now, but they will get cheaper with time. It is true that some inputs--such as lithium for lithium-ion batteries--are very scarce. They may even get more expensive. This isn't an insurmountable problem, however. Julian Simon pointed out that there is more than one way to make wire for communications when copper becomes scarce. One way is to find more copper. Another is to come up with a substitute, such as fibers that transmit light. The substitute may even be better than the original. The more scarce the original resource becomes, the more pressure there is to find an alternative, and the more profitable such a discovery becomes. Recycling old resources may also be an option, if the recycling process is not itself too resource-intensive.