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The Costs of Innovation (Lance Turner Editor’s Note)

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Last week included news on the advanced mobility front, where Arkansas, by benefit of having some of the biggest transportation companies in the country, is poised to make significant contributions in the next decade.

I’m fascinated by the promises held by autonomous and electric vehicles and how established stalwarts like J.B. Hunt Transport Services Inc. of Lowell and Walmart Inc. of Bentonville and smaller upstarts like Canoo Inc. of Justin, Texas, and EnviroTech Vehicles Inc. of Osceola aim to fulfill them.

Arkansas Business reports on three of those companies last week underlined for me some of what’s driving innovations in mobility and the high costs of forging new paths in the industry:

1) It’s not (yet) about eliminating drivers. Marty Cook’s story last week on J.B. Hunt and Walmart’s explorations in driverless technology made me think about the issue of autonomous vehicles and other innovations in mobility in entirely different ways.

While many of us think companies will use driverless technology simply to replace drivers, the more immediate scenario is that those systems will help existing drivers do their jobs better and, crucially, expand the pool of prospective drivers.

For example, Cook reported, with autonomous tech, truckers “sidelined by physical or medical limitations” could remain in the driver’s seat, helping combat the persistent shortage of vehicle pilots. “All of those [disqualifying] things are shrinking the pool of people who may be able to drive a truck,” Shannon Newton, president of the Arkansas Trucking Association, told Cook. “I would hope that opens or broadens the pool from which we can attract individuals to become truck drivers.”

2) It’s really about the supply chain. It’s not merely the driver shortage that’s driving autonomous investments. It’s companies’ realization that consumers are only going to grow more demanding when it comes to getting their stuff and getting it quickly.

As supply chain pressures mount, companies must create the most efficient systems possible to move product. Walmart sees its driverless efforts, part of a hub-and-spoke strategy it says results in more pickup and delivery availability for its customers, as key to meeting that goal.

3) It’s an expensive — and risky — bet. On the electric vehicle side of mobility, Canoo Inc.’s first-quarter financial results on Tuesday showed the cash-hungry electric vehicle maker in a precarious financial position. It also showed the risks involved running a young, capital-intensive enterprise.

Once again, the company, which is moving its headquarters to Bentonville and opening an advanced manufacturing facility there, reported a quarterly loss, this one ($125.4 million) much greater than the loss in the same quarter last year ($15.2 million). On top of that, it ended the quarter with just $104.9 million in cash. That’s a problem, because Canoo expects up to $115 million in operating expenses and up to $105 million in capital expenditures in the current quarter as it gets its vehicle manufacturing operations up and running.

To bridge the gap, Canoo announced deals to put within reach more than $600 million in accessible capital. CEO Tony Aquila tried to project confidence and, citing the company’s “significant experience raising capital in challenging markets,” said that about half of that amount could be available in the coming weeks.

But the potential cash shortfall forced Canoo to state, per disclosure rules, that “due to the timing of our announced funding,” there’s “substantial doubt about the company’s ability to continue as a going concern” — a declaration no company wants to make.

EV manufacturing is expensive, and Canoo is not the only one burning through cash. Lordstown Motors Corp. of Lordstown, Ohio, and Rivian Automotive of Irvine, California, are spending big to produce their first electric vehicles.

In its quarterly report, Canoo said it expects more operating losses as the company implements its business model, and that it will continue looking for other sources of capital. It faces a challenging road ahead.

I’m encouraged by Gov. Asa Hutchinson’s creation earlier this year of the Arkansas Council on Future Mobility, tasked with finding ways to help the state’s growing electric, autonomous and advanced air mobility industries.

But I wonder about the fate of its recommendations, which are due to the governor in November, just before his term ends. How important will advanced mobility be to the next governor and General Assembly, and what will come of the mobility council’s work?

Lance Turner is the editor of Arkansas Business.
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