Tesla, but for Boats

Running is a hobby for me and a source of endless inspiration and frustration. I like doing it, reading about it, and complaining about it – swapping stories with other people and sharing in their misery or mastery. So when I was researching this week’s topic, I couldn’t help but be reminded of the story of the brit Roger Bannister, the first human being to run a sub-four-minute mile in 1954.

According to the legend, runners had been chasing the four-minute mile since 1886. In 1945, Gunder Hagg (a swede) beat another swede’s time by 0.2 seconds, setting the record at 4:01.4. For nine years after that, there was no progress. Some said it was an unbreakable barrier – the peak of human performance on a single, lucky day. But then Roger posted a 3:59.4. Two full seconds faster than the previous record. Then, 46 days later, Australian John Landy broke it again with a 3:58.0. And the record would continue to be broken again and again. Now at some point, even with better shoe technology and training, we might hit a true physical limit…but that’s not the point of the story.

What did Roger do, for himself and for all other runners? He proved it could be done.

The company I want to talk about today is the John Landy of the situation, trying to follow in the footsteps of a legend who already proved it can be done.

Today, I’ll share what I think about the Arc Boat Company. Like any good tech startup, it can be summarized as “X, but for Y”.

Arc is Tesla, but for boats.

Product Overview

Let’s start with the product itself, because it’s helpful context and it’s just cool. Here’s their Arc One:

The boat is pretty powerful, with a 500-horsepower inboard motor and a max speed around 40 mph. It also has a 220kwh battery, weighing thousands of pounds with 2x the energy capacity of a Tesla Model Y. Because heavier boats sit lower in the water and provide stability, that weight is a feature rather than a bug. The electric motor is also much quieter. You can talk to your friends without losing your voice yelling. The company says the boat can last an average of 3-5 hours on a single charge. Other features include: a large tablet display (which can receive over the air updates), premium speakers, and a pop-up pylon for skiing.

In summary, it’s a cool, modern boat. It’s on par with many gas-powered boats in terms of horsepower and speed, and it has the looks to match. But that’s not enough to make it a good buy for boat owners or investors.

Let’s dive deeper to analyze:

• Costs – How much does the Arc One cost to buy and operate?

• Behavior changes – What is Arc asking customers to do differently?

• Team & experience – Does Arc have the right team in place?

• Market size – How big is the market? How fast is it growing?

Costs

Operating costs: Charging an electric boat is definitely more cost effective than buying expensive gas at a marina, and it’s more convenient than lugging gas cans even if you have cheaper stations elsewhere. Let’s talk through an example of the fuel savings:

• Arc One – It gets 4-hours of boat time with a full charge. Average US energy prices are $0.16 per kwh, so the cost to charge the boat’s 220kwh battery is ~$35.

• Gas Boats – Boats that average 15-20 mph should get 3-5 miles per gallon. For an equivalent 4 hours of use, that’s 17.5 gallons of gas. If you bring gas cans and get the average US price of gas ($3.5/g), that’s a total of ~$61. If you buy at the marina (assume $5/g), that’s a total of ~$88.

At many marinas, you can also hook-up to electricity for free, so that pumps up the cost savings even more. But the people who can afford this boat probably don’t care about that…

Purchase price: A whopping $300K. The average price of a boat for most shoppers is $40-75K, so this is priced to be exclusive. The company did announce they want to bring down costs and mass produce a much cheaper second boat, but specific plans have not yet been announced.

Takeaways: 

Making this a mass-market product – at a much lower price – is the only way this makes sense as a venture capital investment. Selling a few of a very high-priced product generates much less revenue than a broader/cheaper version, and it’s harder to get cost efficiencies when you only make a dozen boats in a year. That’s why tasks you only do every once in a while (i.e. taxes, trimming a turkey, giving the dog a bath) are harder and more stressful than things you do all the time. You forget the quickest, easiest way to get it done.

Selling a mass-market product will also be easier, since customers that buy affordable boats value the fuel savings. Someone who blows $300K on a boat won’t care about saving 50-100 bucks per day, but that starts to add up (and increases the amount of boat you can afford) for any normal person.

On the other hand, the comparison to Tesla can even be extended to this “premium first, then affordable” strategy Arc is using. The Tesla roadster was a luxury car to prove that electric cars can be fast and beautiful – while also generating some revenue to reinvest in R&D – and this first boat accomplishes the same thing.

User Behavior

This cliche tech industry term will actually be quite important for Arc. They’ll need to minimize behavior changes they’re asking owners to make. Based on what I’ve learned about the company, I see two important changes:

1. Charging – Most docks don’t have a DC fast charger installed (the generic name for the Tesla Supercharger), but it would help Arc One owners get a full charge in 50 minutes. Otherwise, right now it’s 100 hours to a full charge using a standard outlet (120V), or 16-17 hours using a 240V outlet (the one for ovens and washing machines). This means just one boat ride a day. For vacations and holiday weekends, where fishing, skiing, and booze-cruising is an all-day adventure, a four hour limit sucks.

2. Ride Time – In the operating cost section above, we assumed the average gas boat needed 17.5 gallons to run for 4 hours, which is the average run time of the Arc. But that average gas boat usually has around 40 gallons in the tank, so it can go for more than 9 hours at a time. Asking boat owners to keep it short adds insult to the long-charge injury.

One behavior change Tesla faced that’s actually easier for Arc is the need for a robust charging network. While charging speed is too slow for now, at least you don’t have to plan ahead to have charging stations along a road trip route. Boat rides are typically not from point A to point B, but from A to A.

Takeaways:

Arc needs to work to reduce the burden on users. Helping marinas install fast charging units and improving hydrodynamics to increase ride time are good ideas to start with. Aqua – a Europe-based startup, has started to gain some traction offering fast charging stations to marinas, but it’s early days. They have 12 stations in Europe and 3 in the US.

Team & Experience

The team behind Arc will need a few superpowers.

Fundraising: Making boats is super expensive, so you need early funding to get things going. This seems to be co-founder and CEO Mitch Lee’s specialty. Here’s his 30 second pitch on Arc:

So far, investors are nodding their heads up and down. Arc has raised $35M total in two rounds of funding. The most recent Series A in November 2021 included elite VC’s like Andreessen Horowitz, Lowercarbon Capital, and Eclipse Ventures.

Manufacturing: While they have co-founder and CTO Ryan Cook, a former lead engineer at SpaceX, they need to supplement with real manufacturing experts. Rocket scientists can build incredible, single-use machines, but they need an efficient, scalable manufacturing process. Tesla ran into product quality snags while trying to scale up. Avoiding similar issues will help Arc keep pace with demand and maintain customer trust too. For now, it sounds like Cook is working full-time to optimize the design of the hull (currently freshwater, low-wave only) using aluminum. They can probably switch to fiberglass hulls and mass-production afterwards. Eclipse Ventures’ participation is a good sign on this front – they have a Partner (Greg Reichow) who previously worked for six years at Tesla as a VP of manufacturing.

Competitive Focus: Arc needs to thread the needle, avoiding Goliath car maker GM (moving fast to avoid being left behind this time), and David’s like other luxury boat makers and electric startups. GM doesn’t have the rocket scientists to design as fast/powerful a boat, so they’re doing a simpler Pontoon, but that means Arc should stay focused on the bowrider models. GM can crush them on manufacturing cost efficiency, so better to avoid veering the pontoon direction. On the other hand, competing against all the David’s requires different tactics. The Arc One is the best performing electric boat, with faster speeds and longer range compared to competitors like Magonis and Marian, though the other two are arguably more visually stunning (photos below as proof). Keeping manufacturing quality tight as you scale, and driving down costs, will be critical to beating the pack of startups in the space.

Here’s the Magonis electric boat:

And here’s the Marian:

Mitch Lee’s experience founding Penny, an app acquired by Credit Karma, seems relevant. Penny had to navigate the super competitive personal finance space (with its own David and Goliath dynamics), and Mitch led it to a successful exit.

Takeaways:

The Arc team does seem to have a decent balance of skills to address manufacturing, fundraising, and a tough competitive environment. However, as important as it is to have investors knowledgeable about manufacturing, you need that experience on the actual team, too. And all the superpowers can’t be concentrated into just two co-founders if they want to be successful at scale. Building a team around the founders is key.

Market Size

Part of why investors were so excited about Tesla is that cars are ubiquitous, especially in the United States. It was (and still is) a large and growing market. Look at how car ownership has expanded over the last 30 years:

As of 2021, that’s 282M cars. The US population today is 332M, so that’s approaching one car per person… even including kids.

Well what about boats? In the US in 2021, there were a measly 12M boats registered.

OK… well is it at least a growing market?

No… decidedly not.

Takeaways:

Venture capital firms tend to chase after opportunities that have huge upside, not markets that have plateaued. So I was pretty surprised to see how small and stagnant this market is. For Andreessen Horowitz and other VCs that jumped into funding Arc, that only leaves me with one theory about their strategy:

They want to be first to market, claim a large portion of the market share, and then exit the investment when it becomes too competitive.

Again, Tesla serves as a helpful comparison point. Even though other EV’s beat them to market (ex. Nissan Leaf in 2010), the 2017 Tesla Model 3 helped catapult them to market share near 80% in 2021, before declining to 58% in 2022. For Arc, the VC’s are betting that they can get in earlier and stay atop the market longer.

Wrapping Up

Since Arc is the John Landy of boat electrification, it’s easier for me to buy-in and see the potential. We will have to wait and see how they grow into that potential. My only major concern is the market size – Arc will need to get a head start on competitors, establishing a high starting point from which to defend market share. For the boats themselves, I predict we’ll see an Arc Two that solves for some of the issues (charging time, range, hull shape) before a mass market Arc Three.