These Companies Think the Next Big Thing Is Very Tiny Cars

Relative to a conventional sedan, an Arcimoto vehicle lacks: One wheel, two doors, three seats, a heater, an air conditioner, a trunk, a combustion engine and scads of airbags and cup holders. Of course, minimalism is the point of creating a vehicle that needs less parking space, requires smaller driving lanes and doesn't directly emit carbon dioxide.

For those who subscribe to a less-is-more aesthetic, this electric vehicle may be a high point of auto design. It's going to become either a prophecy of the weirder future of urban transportation or an anemic, goofy-looking golf cart looked back on as a joke.

Arcimoto Chief Executive Officer Mark Frohnmayer, an engineer who made his fortune in video games, is betting that the cars of tomorrow won't always resemble those of the present. "To me, this is the sweet spot between the motorcycle and the car," he said. "It's perfect for 85 percent of our daily trips - going to get coffee, going to work, going to the gym, you name it."

You might not want to own an Arcimoto - that's OK by Frohnmayer - but the idea is that you might not need to. The concept of owning a vehicle is quickly starting to look passé as ride-hailing and car-sharing fleets expand. Arcimoto and its ilk of differently designed cars invite us to imagine that this trend will continue to free drivers from the pressure of finding one vehicle that can do it all. Instead, the theory goes, we might choose a car to fit the mission of the day. And maybe that car will need to be just big enough to complete a short trip.

A shift in ownership patterns could bring about a step change in automotive evolution that opens space for odd critters like the Arcimoto. Biologists call this punctuated equilibrium: Everything in an ecosystem seems pretty much the same for quite a while, and then suddenly there's a new species.

In the case of the tiny, squirrel-like cars, there are a few popping up. A crowd of engineers has rolled out itty-bitty designs at other startups, motorcycle makers and even the skunkworks of automotive giants Renault and Toyota Motor Corp. US drivers are deep in the grip of SUV fever at the moment, but that doesn't mean there won't be a role for these minimalist cars.

Consider Marseilles, France, where public transport operator Keolis runs a system that costs EUR 50 ($57) a month and comprises a range of options, from rail to ride-hailing to shared bikes. "I'm a big fan of these ultrasmall vehicles," said Andreas Mai, executive vice president for market development at Keolis. "It's all part of a scalable transportation system."

In Detroit, May Mobility is ferrying workers in six-person driverless shuttles that carry passengers on predetermined routes. Zafar Razzacki, the startup's product chief, said a two-person pod might work even better in certain situations, such as getting across a college campus or shuttling to an airport parking lot. "I'm a believer in the multimodal future, depending on your particular use case," Razzacki said. "I don't think anyone would have envisioned scooter-sharing would be a $1 billion market, so I think there's a lot of space for this market to develop."

There's compelling evidence that the age of auto ownership, while not ending, is steadily declining. Goldman Sachs Group predicts that ride-hailing and car-sharing networks, in total, will be a $285 billion business by 2030. That kind of market share eventually has to eat into private car ownership.

What's it like to drive in a minimalist car? The Arcimoto turns heads in traffic-clogged Manhattan, making the silent crawling crosstown in the pod something like a 5-mile-per-hour press conference. The questions come from all comers on all corners. "We call it 'parketing,' " Frohnmayer said. "You park them, and they market themselves."

Driving the thing is a giddy experience. Two electric motors linked to the front wheels have enough power to reach 80 mph. With the low center of gravity common to all vehicles powered by a big, heavy battery, the Arcimoto careens around corners with little drama and can travel as far as 130 miles on one charge.

The ultracompact size means that when Frohnmayer makes the rounds in New York, he never parks more than half a block from where he wants to go. On a recent trip a traffic cop, no doubt familiar with the challenges of legal parking, inquired about where to order an Acrimoto.

"The only people who don't get it are the ones who overthink it," said Arcimoto Vice President Jesse Fittipaldi. "Children understand it immediately - and, for some reason, homeless people."

It's easy to overthink it, however, on a rainy day in gridlock. Doors would be nice, though apparently the startup is working on a version with this feature. The throttle is touchy, with little subtlety between a slow roll and a sprint. There's a similar harshness in the regenerative braking, which charges the battery while slowing the vehicle. Between the two systems, a rookie can spend much of the trip lurching forward and back in the seat like a teenager learning to drive stick.

The promise of these minimalist vehicles hangs on their ability to do an end run around traffic. That might be the biggest problem, since the Arcimoto is still too wide to split lanes in most Manhattan streets. And, more critically, Arcimoto drivers would need a motorcycle license in 39 states, at least as regulations stand now.

At $15,000, the price is not nearly as spartan as its design. A similar-size chunk of money fetches a midrange Harley-Davidson or a Fiat 500 with a backup camera and seven air bags.

Japanese drivers, in particular, may find the Arcimoto overly expensive. Every year, they buy almost 2 million "kei" cars, which are by law shorter than 12 feet. These minimachines are tooled for Tokyo's tight spaces and yet still packed with the amenities of a traditional car.

Elio Motors, a rival three-wheeled startup, promises a fully enclosed vehicle for half the cost. Founder Paul Elio said his plan wasn't to replace the beloved pickup truck but rather to offer drivers a superefficient vehicle they could afford to add to their fleet. "You can't carry a sheet of plywood in a Prius, and it's too expensive to buy two cars," he said. "With Elio, though, it's not an 'or' choice - it's an 'and' choice."

Elio has amassed 65,000 reservations since 2013 and has lined up an impressive roster of major auto suppliers as well as a dormant old General Motors Co. factory in Louisiana, where it plans to eventually turn out 250,000 little highway-capable tricycles a year. Unlike the Arcimoto, Elio's machine will have three air bags and an internal combustion engine - albeit a small one.

Once production starts, Elio expects a second tide of orders from thrifty customers who would otherwise buy new cars. The capital for the rollout won't come from an initial public offering, though, since the startup in April decided to withdraw its filing and pursue other options.

In the meantime, the scooter factories continue to spit out a parade of three-wheeled iterations, including Peugeot's Metropolis, Piaggio's MP3 and Yamaha's Tricity. And the major automakers are getting interested. Toyota has built a nifty little three-wheeler dubbed the i-Road that leans into corners like a motorcycle, an engineering marvel that trumps the flat, somewhat detached feel of the Arcimoto.

Renault continues to gain momentum with its Twizy, a jewel box of a four-wheeled electric vehicle that it's made since 2012. "The main argument was to find something safer than a motorbike, but at more agile than a car," said former Chief Operating Officer Patrick Pelata.

Of course, the future can be a long time coming. The much-hyped Segway has been relegated to airport cops and neighborhood tour operators. The BMW C1, an enclosed scooter, didn't last two years before it crashed out of the product pipeline. Renault still sells only around 20,000 Twizys a year, about a third of what Pelata and company had hoped for at the outset.

Both Arcimoto and Elio have been at it almost a decade already. Despite the proliferation of car-sharing platforms, at no point along the way were they snapped up by a major automaker or drowned in a pile of venture capital. "I went to Sand Hill Road, and the echo of laughter was resounding," Frohnmayer said.

Arcimoto had a modest IPO in September 2017, using new US Security and Exchange Commission rules carved out for small, unproven companies. While its shares have foundered, the company still plans to ship the first of its machines to buyers early next year.

Elio, meanwhile, has gone crypto. Late last month it began selling the ElioCoin security token, an alternative to venture firms and private equity groups. Elio said the former were put off by the size of its spending plans and the latter lacked the patience to wait on a profit. The company hopes to collect at least $25 million in the cryptocurrency sale and start delivering cars in 2019 or 2020.

"We are Columbus," Elio said. "We're in the middle of the ocean, and I don't know how far land is." While the metaphor may be apt, the journey is in a much smaller vessel.

© 2018 Bloomberg LP