Green Jobs and Cow Farts: An Interview with Paul Elio

After contemplating the Elio in our "How Crazy is Paul Elio?" article in March, we subsequently had the opportunity to interview Mr. Elio about his three wheeled, high efficiency vehicle. We learned more about how the company's founder is aiming to create new green jobs, develop a new class of affordable "AND" vehicle and produce less pollution per Elio than a flatulent bovine during the course of a year.

Interview with Paul Elio of Elio Motors

Rob Freeman: Hi Paul, thank you very much for you know agreeing to the interview we really appreciate it. When I learned about your three wheel vehicle I was pretty excited about it. The people on our network are interested in green building, and LEED specifically, so I thought the mileage aspect of your new vehicle, in addition to the fact that it is very creative and entrepreneurial, would really be interesting for our audience.

Paul Elio: Well and I appreciate that you know I think we have not messaged the green aspect of this product very well and it is a very green project.

Rob: So the three wheeled vehicle is a very interesting concept. What’s your background Mr. Elio how did you get the idea for the Elio three wheel vehicle and what was the impetus for wanting to create this product?

Paul: Well I got my Engineering Degree from General Motors Institute in Flint, Michigan and then I started a consultancy where I did the product development in automotive and built it up into doing that kind of work (for a living).

In 2008 oil was going through the roof and I watched the news every night and just got angry at all this wealth pouring out of our country. And so one day decided that instead of getting angry about it, I should go do something about it. So I went into work the next day and I kicked the project off. Really what drove the design was the front to back seating, not necessarily the three wheels. The three wheel design fell out of that.

Rob: Why is that important?

Paul: So, at highway speeds most of your fuel goes to moving air and so because we’re half as wide and move half as much air, so we double the mileage. The basic premise kind of vehicle is that most households have one vehicle that is primarily single occupant, or at least a vehicle that’s most its time is primarily single occupant, right? And there’s really not a solution for that.

Rob: Ok so the when you came up with the idea did you initially envision it as a three wheel vehicle from the start? Or did you envision more of like a smart car type thing?

Paul: No, no like I said it was always three wheels like you know once you sit on the front and the back seating and then you tuck a wheel behind the occupants and get it out of the (air) stream, then it just kind of fell into place.

Rob: How long did it take you to put the initial prototype together?

Paul: The green one we did in about eight weeks believe it or not. We went from a paper napkin sketch to having it on a track in eight weeks.
It was very crude it was just proof of concept validating spatial relationships and you know those sorts of things. The silver one or P3 is much more accurate and the P4 is much more accurate again, so there’s certainly evolution in the prototypes.

Rob: So once you had the idea and prototype, you took it to investors and how much capital did you have to raise initially to be able to start to produce working prototypes that more closely resembled the final product?

Paul: Well the original funding happened through ESG Engineering, my engineering firm, so at the time it was doing very well and was profitable and we were just getting funded through there and then in 2009 if you remember the bottom of the economy and auto was hardest hit and the first thing you cut in hard times is new product development and the very, very thing you cut is outside guys doing new product development which was my old business.

So I went from forty six guys in a building with a very profitable company to zero in the course of about four months.

Rob: Wow.

Paul: Yeah there’s just no backup plan for that... I mean no one customer was more than 20% of my business so if the customer had a problem I didn’t. I was in two different industries so if there was a problem in the industry I would still survive but there’s just no backup plan for the economy crashing you know what I mean?

But this project was far enough along and so at that point I couldn’t fund through ESG anymore so I started looking for funding in other areas and when the DOW hits 7000 it doesn’t matter what your pitching nobody’s interested. So there was a couple rough years there, and then about a year ago in January we got the first “non ESG” round done and then we’ve been rolling ever since.

Rob: Wow that’s great yeah so that’s that you persevered through that. So I read somewhere that you had raised around $50,000,000 for the company. Is that true?

Paul: That is correct.

Rob: And are you still raising capital now?

Paul: Yes.

Rob: Do you think that, that capital is sufficient that you have now to get you to your launch date?

Paul: No. Nor would it be prudent to raise it all at once. The further along you are the project the cheaper the capital is, like so you don’t want to raise it all in one fell swoop... it would be too expensive. So you raise for the next thing you’re going to do, we have a very sound capital plan and things are going according to plan and were pretty comfortable with where we’re at.

Rob: That’s great. I read about the initial price of the Elio and it seems like it’s incredibly affordable, obviously. Is that something that has changed, or is the $6,800 sticker price still forecast to be the same?

Paul: Ah, yes so we are slightly over budget, I believe we can reign it back in but yeah were a few hundred dollars over budget right now. But as long as we’re in that range if we launch at, you know, $6,900 or $7,100, did we fail?

It’s a target and I really want to hit it and I know were gonna come close just how close can we actually hit $6,800 or is it gonna be slightly more, there’s no way its eight grand you know what I mean.

An Affordable and Customizable Vehicle

Rob: You know the parts business obviously very well so I understand that there’s, yeah there’s typically over time there’s parts price creep where everything kind of inflates obviously generally and then as people start to expect more fancy controls and features in their car, the base model car becomes more expensive... So what comes with the base model Elio in terms of features and are there any fancy unique features that the car will have?

Paul: So the standard is air conditioning, power windows, power door locks and the radio. We only have two transmissions, standard and automatic, so it will have two things and each will have all that stuff. And part of why we can hit this price point is, like you said there’s content creep... It’s nuts.

We will have everything you can find on any other vehicle, but it’s all going to be designed to be installed post manufacture.

I’m driving a minivan right now because I have three kids. I’m a single Dad and on Daddy days I need a minivan and on Mommy days I don’t. (So the Elio exists because) there’s not an alternative that’s cheap enough that gets enough gas mileage you know. So now I’m driving this thing by myself today because it’s a Mommy day, and if there’s an Elio, I can drive an Elio.

But back to the question at hand, so I’m looking around this vehicle, and to get what I wanted I got (rid of) all sorts of stuff I don’t want. I mean, I live in Phoenix Arizona it’s got heated seats... I don’t need those. You know, its 96 degrees today... I really don’t need heated seats. It’s got two light up vanity mirrors, and I don’t put make up on. I don’t need a lighted vanity mirror.

A lot of people do want that content, or if you live in Minnesota you want the heated seats, so all that content will be available but were not packaging it together and you can select what makes sense for you... So you spend a lot less but you get a lot more of what you want.

Rob: Exactly, I agree with that approach and if you’re buying one of these you’re probably not going to be looking for all the bells and whistles your gonna be buying it for another reason.

Paul: I disagree. We have incredible traction at the high end I know at least two reservationist’s that own more than one private jet, and you know usually if you own local private jets you’re not income constrained, right?

Because it’s cool, you know, the product’s cool and I don’t care how much money you got... Paying three fifty for a gallon of gas and wasting it... it just doesn’t feel good...You know what I mean?

And so there’s the obvious entry level buyer and the folks were struggling that this price point really resonates with, but it resonates all up scale and that’s why we need this content.

Because it comes standard with the cloth manual seat and they (the high end folks) haven’t sat in a cloth manual seat in a couple of decades, right? So they want leather and power.

The other powerful part of this business model is there’s really cool technology that’s fully developed and ready to go that only 15%-20% of people want and so it never makes the package, and consumers never get to see it. Because when your packaging things you need half the people to want the thing or you don’t put it on.

So because of the only pay for what you want philosophy I think there will be features that you can’t find anywhere else that will be easily available on the Elio.

Rob: So it comes in two styles automatic and manual. For the manual version, where is the stick shift?

Paul: It’s in the typical position. Have you seen either of the prototypes?

Rob: I have but not the inside.

Paul: So on the non-door side, it would be the passenger side if it was a full width vehicle right where you’d expect it that’s where the gear shift is for both the standard and the automatic.

Rob: Got it, OK. Well that’s great I, so do you think it’s gonna be a bigger hit with the affordability minded customer or do you think it will be a bigger hit as a novelty item for the super wealthy?

Paul: What we’ve seen is it just kind of cuts cross demographics. It really does and I think one of the unique features of this vehicle what differentiates us between everything that came before us is at this price point and mileage this vehicle can be an AND instead of an OR.

Even a smart car at $14-$15,000, for most folks they have to either pick that or something else - they can’t have both. And that’s why smart cars haven’t gotten traction, because most of us need a big car occasionally and so we step up for that occasional use and then end up driving it everywhere.

So our research shows 73% of the folks interested in Elio are gonna just buy it and not trade anything.

Elio Vehicle Safety

Rob: Do you think that the Elio is as safe as a smart car?

Paul: Yes. We have spent a lot of time and effort in making sure that this is gonna be a very safe vehicle.

If you notice we have very long nose and that’s to accommodate a long crush zone. So you know but the problem isn’t going from 35 MPH to zero, right... You do that every day over and over again, it’s how long does it take you to do that? That’s what determines whether you get hurt or not, and so by creating lots of space between you and the event we have lots of crush zones to absorb that energy and extend that time.

Rob: So what I was thinking about was the potential for a side impact... Is that a much less common type of an accident? What about the side impact... Are there side impact airbags?

Paul: Yes so we have a front and two side airbags and because of our architecture we fire all three airbags in every event so it can actually hold you in this cocoon of airbags unlike other vehicles that only fire one.

And side impact is not intuitive but it’s actually you’re better off in an Elio than a heavy sedan. So what happens you have let’s say a Crown Vic it weighs you know 3,500 LBS and the impacting vehicle hits the door because of the mass of the vehicle it wants to stay put. So it rocks the outside wheels lock into the pavement, the bumper comes through the door hits your hip and that’s when the bad things are starting to happen.

We only weight twelve hundred pounds, and we don’t have outside wheels. So, the impacting vehicle hits we start to spin about our center mass which is the engine and then spinning about the engine throws you back in your seat which is an inherently safe motion.

As you’re thrown back in your seat it fires all three airbags and holds you in place until you come to rest and then deflate. So it’s not intuitive but you’re better off in an Elio than a heavy vehicle, also we have a little bit more room between the centerline and your chest and the door than most vehicles.

Rob: Hmm. That’s interesting. So it spins like a top almost if it’s hit from the side? Ok and I mean it sounds like a really wonderful vehicle and are you offering test drives now for people?

Paul: No not yet so you know we only have the thirty prototypes, they’re crazy expensive but more importantly there’s no service parts for them right now. So, if you have somebody drive it and they get in a fender bender and now we don’t have it for three months for while we rebuild parts, right so were just not at that point yet.

Vehicle Pre-Orders and Investors

Rob: Ok got it. Do you have any specific concerns about Elio? Obviously running out of money and not being able to fund the development would be a big one... but what other concerns do you have about Elio when it comes out, and what is the projected launch date?

Paul: So 2015. We were saying 1st quarter, but that date is slipping so our last monument happened four months late and now that is propagating through the time line, so it’ll be hopefully the first half of 2015 and my biggest worry is how to keep up with demand.

I think that there is gonna be more demand than we can possibly handle.

Rob: And you’re accepting pre orders now. The pre orders are limited to $100 per car or is it you prepay for a car for the full price?

Paul: No, so we have four levels: $100, $250, $500 and $1,000. And we have two programs: Non-refundable and refundable.

So it’s an ordered list. The $1,000 non-refundable receives their vehicles first so if you put a $1,000 down non-refundable, you get a production number because nobody can get ahead of you.

Then for the $500 non-refundable, $250, $100 and then the $1,000 refundable and then on down and we are over fourteen thousand dollar reservations today.

Rob: Wow that’s great. How many of them have production numbers?

Paul: About 3,700 of them. And what’s equally important is we had about 6,300 reservations in 2013 and were over 14,000 today so there’s a real velocity to the reservation rate. And think about it one of our core demographics, which is, you know, entry level buyers, they aren’t going to be making reservations, right. They are not in the position to put that kind of money down on something there not going to see for 14 months.

Rob: What’s the hardest decision that you’ve had to make over the last twelve months or eighteen months with respect to your company?

Paul: The hardest decision. I am drawing a blank. I mean I’ve made a bunch of tough decisions but not one of them would come to mind you know I mean every day I make tough calls and I trying to come up with one example I can’t think of any.

I think the most important decisions are our partners and the internal folks... Right? At the end of the day any company is about the people right. Anybody can buy machines anybody, can go buy computers right, but what determines how well something’s going to do is the people and so that means the partners and the internal folks. So that’s definitely the most critical decision that I make on a regular basis.

Rob: When you were out raising money how did you find your capital raising process and who are your investors now?

Paul: Well it’s tightly held, there’s only a few of us and were in the process of doing private placement right now so the investor list is about to expand.

Rob: And did you personally invest your own money in the company?

Paul: Well, via ESG. ESG I own the controlling industry in ESG Engineering which funded Elio Motors and it owns the controlling interest in Elio Motors.

Rob: Ok got it.

Paul: Indirectly I did, but I didn’t directly do it, no.

Rob: Got it. OK, and how much money did ESG put into Elio?

Paul: I don’t like getting into all the details but it was over $5,000,000. It wasn’t a couple hundred grand.

Rob: Well, that’s admirable and respectable. That’s certainly nothing to scoff at in terms of skin in the game.

Paul: Well, that’s what takes it to get something far enough along for somebody else to believe in it. Because you know when it’s just an idea, cause let’s face, it I think that’s the biggest factor holding back reservations quite honestly is because nobody believes us, you know?

That you can produce a $6,800, 84 MPG car. And you know right now like I said were a few hundred dollars over budget and were running about 81.4 miles per gallon in our latest simulation... So, we’re not quite hitting the targets, but we’re damn close and close enough that the value proposition holds.

Like I said, if we went to production at $7,100 and 81.5 MPG, did we fail? So I think that it took a substantial amount of money to get it to a point where other people might believe, you know.

Entrepreneurial Challenges

Rob: I’m a big fan of entrepreneurs and big thinkers and people who want to change the world and I've been an entrepreneur since I was 24, and so it’s been about 20 years now, so I know that there’s certain things that I read when I’m struggling personally. What’s your favorite self-help book?

Paul: My favorite self-help book. I like “The Goal”. It’s not exactly self-help, but are you familiar with that? And I like “Built to Last”.

Rob: Yep, Jim Collins.

Paul: Yeah you know where they take a look at a decent performing company and extraordinarily performing company and look at the differences between them.

Rob: Yes I do and actually now that you’re saying “The Goal”, is “The Goal” a hypothetical sort of human interest story about a manufacturing company?

Paul: Yeah.

Rob: Ok I read that in business school, actually.

Paul: Yeah it’s just learning to work together and management workers, and you know, common sense stuff.

Rob: Wow that’s a name I haven’t thought about in like 15 years, so that’s really good. That’s a good one.

Relative Pollution Mitigation

Paul: We didn’t talk about the impact of the project much so here’s some stuff that I think is kind of interesting. If you drive an Elio 20,000 miles a year, and the average person drives about 15,000) at 20,000 miles a year, you create less greenhouse gas than one cow’s farts during the same time period.

Rob: Ha! That’s fantastic.

Paul: We are thinking of doing an Internet ad. You know, have me in a three piece suit sitting on top of a cow and then have somebody driving by in an Elio and saying Paul’s polluting more than the guy in the Elio, and he’s not going to get to work soon either.

Rob: You gotta do that... That’s a viral video if I’ve ever seen one.

Paul: So, you know, we can reduce total U.S. gas consumption by .35 percent after five years of sales. .35% of total U.S. gas consumption... That’s a meaningful number. There’s not another project that can touch that, I don’t believe... At least not that I’m aware of.

So, you know, the pure electric (vehicles) are interesting but because of price points and infrastructure issues they have to resolve still, they can’t put enough on the road to make a meaningful difference into our fuel usage profile you know. But because of our price point and our mileage we can make a difference now you know were a great transition and like I said I think the other thing that we do is a new form of transportation that we can access folks who aren’t interested in a Prius.

I talked to a potential investor and he said, “You know were a truck family, but we’d buy an Elio,” because it’s an AND it’s not an OR you know and so that’s where I think we have this huge impact that other projects don’t. Actually, you know, we’re probably not going to do very well with the traditional “green buyer”, if you already have a Prius then an Elio as an AND doesn’t make a lot of sense... But if you have an Escalade it makes a helluva lot of sense.

Helmet Laws

Rob: Are you expecting people to obey helmet laws or do you expect to helmet issue to be something that causes a problem for Elio? Have you spoken with municipalities about it?

Paul: Yeah so if you go to AAMVA’s website, AAMVA, its American Association of Motor Vehicle Administrators website, we are changing the laws across the nation for how the laws of motorcycle endorsement... So we’ve gotten it through multiple states, multiple is definitely accurate and based on the language we got through AAMVA is recommending that language to be adopted across the country.

So basically what they do is they monitor legislation and recommend best practices so the other state legislatures don’t have to reinvent the wheel. And so we are going state by state where there are helmet laws, getting most changed and the next level triage is the motorcycle endorsement and so far we’ve been 100% successful. I believe in all the states we’ve attempted, we’ve had four no votes between house and senate in multiple states combined... So it’s a pretty common sense thing to do right cause the reality is, is you are less safe without a helmet on if your belted in than without a helmet. If you add additional mass your neck and you are belted in, bad things happen in an accident, a la Dale Earnhardt .

Rob: What was it that happened to Dale Earnhardt?

Paul: Well, he was belted in... And he didn’t have the helmet device which is a little belt that goes from his helmet to the seat to keep your head from going too far forward.

F=MA, so the more mass you have the more A you have, or the more force, so that extra mass of helmet accelerates and it can snap your neck. So, you know so like I said with the three airbags and a seatbelt you’re actually worse off with a helmet than without a helmet.

And because of those facts and also, you know almost invariably half the committee that reviews it wanna buy an Elio and ask about what colors they can get and you know its real hard for a state legislature to say no I want to make it difficult for my continuants to drive and buy this low priced high mileage man made vehicle you know now there’s a lot of controversy here you know.

Green Job Creation and Direct to Consumer Car Sales

Rob: Now you’re manufacturing them in Detroit? Is that where you are now?

Paul: Our headquarters are in Detroit, but the manufacturing facility is outside of Shreveport, Louisiana. So 90% of North American content assembled in Louisiana.

Rob: And how many jobs have you created so far?

Paul: Well we’ve guaranteed 1,500 jobs at the site. So we bought the equipment and site from Racers Trust out of the GM bankruptcy and their mission was to make sure these sites got repurposed and not demoed. They were about the jobs... So we guaranteed them 1,500 jobs at the site.

And the economic development folks give you give you credit for six in the community for every direct manufacturing job... So, you know it’s 6*1,500 is 9,000 plus the 1,500 so it would create 10,000 new jobs in that community and probably the same across the country and the supply base so over the next year and a half we’ll create about twenty thousand new American jobs both you know, both directly and indirectly.

Rob: Are you expecting to roll out dealerships as well?

Paul: We are going to have company owned stores.

Rob: Company owned stores. So the Tesla model?

Paul: Yes, or Apple or you know there’s a whole bunch of folks to retail that way... But for some reason if you’re a car it’s controversial.

Rob: Right which I completely agree with... Because it seems absolutely absurd that you can’t buy a car from directly from the car company.

Paul: Yeah well you know my shtick on the auto industry is that you have a bunch of brilliant people working in a horrible system... And the horrible system was created by brilliant people who made the exact right decision at the time.

So, you know, when Henry Ford decided on the franchisee model, it was 1909, and literally the only way to get data across the country was via telegraph... So if you wanted to sell cars in L.A from Detroit you need an entrepreneur looking after your interests, right? That’s the only way that was going to work back then. Today it’s not necessarily the only way to do it, right?

Rob: Do you think it’s just a like you said an antiquated model that just has never been reinvented or disrupted?

Paul: Well gets to be a lot of bureaucracy around the whole thing and I don’t think its antiquated I think franchisees work very well, I just don’t think it’s the only way that works very well... so I think in 1909 that was the only choice like Henry Ford he couldn’t have done direct sales, you know what I mean? But today, well...

We were just talking about Apple, Apple does a nice job at selling direct. Their competitors sell through other retailers and they do a nice job as well you know what I mean. There are multiple business models, and applied well they all work, right?

I mean Neiman Marcus makes a ton of money and so does Walmart and they have very different business models... There’s not a right one, you find what works for your product and philosophy you know so I don’t think that the franchise either bad and that everybody should go away from them I think that for us right now what we’re doing, company owned stores work better.

Dealing with Skeptics

Rob: What do you think of the people, you know online, who are hyper critical of the Elio concept I mean do you think there just doing that to just generate page views or do you think that there genuinely concerned that people that the company won’t succeed or what are your thoughts on that?

Paul: Well first of all I am amazed at how the folks who like Elio come to our defense before we do, you know what I mean? Whenever anybody says something bad about us there’s like a dog pile and I’m really grateful for that... I think there are true skeptics out there and the only way you can overcome true skepticism is having done it. Until you have actually built and sold vehicles one can always point to why it can’t happen, right and that’s true skepticism.

And then there’s extreme skepticism... that even after you’ve done that they still say you can’t, right? I mean there are people who are saying that the moon landings didn’t happen... That it all happened in Hollywood, right? So and that’s what I would call extreme skepticism.

So I think there are people who are truly skeptical and the only way you’re going to overcome is actually do it, and then you have a person who is extremely skeptical even doing it doesn’t prove it so, you know... and that’s never going to change right.

Rob: Well, I hope that in the spirit of the Apple advertisements for “the crazy ones” I hope that you will have great success and that you are you know admired as one of the crazy ones someday you know with the rest of the guys in that Apple commercial.

Paul: Well thank you, but I’m definitely crazy... We’ll see if we can put the rest of it together.

Rob: Well I really appreciate your taking time to speak with me and I know that our readers and are the members in our network are going to be excited to read more about it and I really appreciate it and I’ll send you a link to the article when it’s published.

Paul: alright thank you, take care.

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Photo credits: NYTimes.com, The Car Connection, Engineering.com.