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Wednesday, February 22, 2017

Growth of the bio-industry

There is a family legend about my grandmother's brother Leo, which says that he was involved in the first airplane trip across the U.S. In order to find out more, and to try to verify the legend, I've been reading up on the early years of the airplane industry and its close cousin, the automotive industry. I have been struck by the similarities between these industries in their infancy, and the current state of the bio-plastics and bio-chemicals industries.

Wikipedia lists operating American automotive manufacturers and the years in which they operated. Copying all this to a spreadsheet allowed me to add up the number of operating companies in any given year, adding existing manufacturers to startups and subtracting failed or merged companies.

There were some surprises.

The number of automotive companies in the U.S. (bearing in mind that Wikipedia's definition of an 'operating company' may be a bit loose) peaked in 1913, at 165. The decline that followed was most likely due to World War 1, and a new increase in startups is apparent beginning in 1920, peaking at 158 in 1921.

But then something happened. By 1929, the total number of companies had dropped to 57. (Another 30 disappeared during the Depression.) However, this isn't the whole story: industry production increased from about 320,000 vehicles in 1913, to just over 4 million in 1929. And given that Ford and Chevrolet, between them, made 2.8 of those 4 million vehicles, the remaining 55 companies really only made about 1.2M units between them.

US auto companies in operation (left scale) and units produced (right scale). Data from Wikipedia. Up to 1942, Wikipedia provides production data by company, for the largest 8 firms only; data for smaller firms is probably not available or reliable. After 1946, production figures in the chart above are for the entire American industry. 

So clearly the industry was growing even if the number of companies was declining. Consolidation, mergers and acquisitions were matched with production efficiencies and increasing levels of standardisation and commoditisation, critical requirements for consumer acceptance. (If you are the proud owner of, say, a 1929 Stearns-Knight, but the only place to get spark plugs or tires for it is the Stearns-Knight factory, which has just gone out of business, your next car will probably be a Ford.)

What can this teach us about the bio-products business? and where are we on the curve?

Jim Lane's excellent Digest covers all the news in this area much better than I can, and is a great source of information on all the various companies out there. For every success (BioAmber), there are many failures, some of them catastrophic (KiOR). But we are beginning to see the development of mature technologies by companies with sensible business plans who are making progress towards being cash-positive without government support. There will surely be more failures along the way, but total tonnage of bio-chemicals and bio-materials produced from second generation biomass supplies is heading for the 7-figure mark.

So is the bio-industry at a point comparable to the automotive industry in 1910? 1929? For discussion ... I would say 1913. Lots of churn, lots of activity, and tonnage is low, but we are beginning to see that inflection point on the curve. Your comments please!

Oh, and Great Uncle Leo? I have no evidence yet that he actually participated in Cal Rodgers' epic transcontinental trek in 1911. The trip took 49 days, 25 of them on the ground rebuilding the Wright Model B after crashes. In fact, Rodgers crashlanded (twice) in the area where Leo was born, at a time when he would have been 25 years old, so it is not impossible that he saw Rodgers' plane, and may even have helped to get it airborne again. Leo went on the serve in the US Air Force as Second Lieutenant in World War I, and the fact he survived to tease an impressionable nephew in the late '60s is remarkable given the life expectancy of Air Force fliers in Europe in 1915 was about 3 weeks. Leo passed away in 1970 at the age of 84.

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