Special Report

Survival of the Fittest

DETROIT – Basking in the glow of a $2.5 million Progressive Automotive X Prize for production-viable design, Li-ion Motors plans to join the growing throng of electric-vehicle makers later this year.

Against this backdrop, Li-ion Motors carries an upside-down balance sheet, with millions of dollars in liabilities to creditors and the U.S. Internal Revenue Service. According to a regulatory filing, the company figures it needs an additional $2 million to bring its cars to market, starting with the six-figure Inizio supercar in July and the sub-$50,000 Wave II hatchback in December.

Industry pioneers Henry Ford and David Dunbar Buick built their empires on tighter budgets. But the case of Li-ion Motors highlights the disparity of today’s EV industry, which features a few favorites with deep pockets and a stable of cash-strapped long-shots surviving on federal money and private-equity infusions.

The betting is fierce. And only a few are expected to make the home stretch.

The Chevrolet Volt extended-range EV, which reportedly took more than a billion dollars to develop and produce, makes GM one of seven auto makers with a highway-certified EV on the U.S. market. And the paint is still wet on one of this group – the $100,000 Fisker Karma EREV is in its second week of production.

Including plug-in hybrids, more than 70 EVs are expected to hit roadways around the world, according to a Ward’s survey of sellers and intenders.

“You will see some spectacular failures this year. Absolutely,” says Micky Bly, executive director-electrical system, hybrids, electric vehicles and batteries at General Motors.

Tesla founder and CEO Elon Musk recognized early the auto industry’s intricacies and leveraged the engineering expertise of Lotus Cars to integrate his propulsion system with the sports-car makers’ Elise platform. The resulting Tesla Roadster boasts a range of 244 miles (393 km) from a single charge.

Bly says some EV makers will falter “very soon” having realized “that becoming a car manufacturer is not easy.” But if he were to wager on a survivor among the startups, he says his money would go on a company such as Tesla Motors.

The success of a partner approach is debatable. Musk, who made his fortune as founder of Pay Pal, says he would start from a clean sheet if he were to do it all over again.

“You end up spending more than if you just built the thing from scratch,” he told journalists in Detroit recently.

So Musk has adopted that approach for the Model S, due out next year. While the car owes much to Toyota engineering and production expertise, a benefit of Tesla’s partnership with the Japan-based auto maker, its chassis was developed in-house.

Still, the associated costs were onerous, as the auto maker recently warned in a quarterly regulatory filing.

“Our Model S production model will require significant investments of cash and management resources and we may experience unexpected delays or difficulties that could postpone our ability to launch the Model S on our planned timeline or result in cost overruns,” the document reveals.

Musk tells Tesla investors the Model S launch remains on schedule and plans for a platform-mate, the Model X cross/utility vehicle, also are on track with a prototype expected by year’s end.

So far, Palo Alto, CA-based Tesla has delivered some 1,500 Roadsters through 14 dealerships in North America and Europe but has yet to yield a profit for investors, which includes the U.S. government. The U.S. Department of Energy gave Tesla a $465.1 million loan, in keeping with the Obama Admin.’s strategy of promoting advanced-propulsion technology.

Tesla’s losses total $273.9 million against revenue of $144.5 million, according to regulatory filings.

Fisker Automotive takes Tesla’s strategy to the extreme with its Karma EV, outsourcing everything including production. Output of the 4-passenger Karma began March 21 at Finland-based contract assembler Valmet Automotive.

Fisker claims 3,000 pre-orders have been placed for the Karma, which travels up to 50 miles (80 km) on its lithium-ion battery before the range-extender, a 2.0L turbocharged I-4 from GM, sends it another 250 miles (402 km).

California-based Fisker also is scheduled to deliver a PHEV dubbed the Nina. Due in late 2012, it will be significantly less expensive than the Karma.

It will be built at a former GM plant in Delaware. Fisker acquired the site with a $528.7 million DOE loan.

The company wants to sell some 15,000 Karmas globally, and upwards of 100,000 Ninas by 2014. Fisker spokesman Roger Ormisher tells Ward’s the auto maker has raised $1 billion, including the DOE loan, to help launch the Nina and fund its business.

Brandon Mason, an analyst with PriceWaterhouseCoopers, likes Tesla’s chances. Fisker’s, too. “They will be capped to an extent by capacity restraints,” Mason says of Fisker.

“Their business model suggests you can be profitable selling 30,000-40,000 vehicles a year, because it’s a premium vehicle and they can charge more,” he tells Ward’s.

Coda Automotive also takes a piecemeal approach to its EV development. Spun off in 2009 from Miles Electric Vehicles, a Southern California manufacturer and distributor of EVs for fleet use, Coda works mostly with foreign suppliers. Coda uses a Li-ion battery pack from Chinese cell-supplier Tianjin Lishen Battery, packaging its propulsion system into a Hafei Motor Saibao sedan, also from China. The Saibao is based on a Mitsubishi chassis.

The EV maker plans to assemble the Coda sedan in China for export to the U.S., starting in the second half of this year. Coda originally planned to launch the 5-passenger car in 2010. It has a range of 100 miles (161 km) and is expected to cost $44,900. The company thinks it can build as many as 14,000 units this year.

So far, Coda has raised some $200 million to support production and marketing of the sedan and has submitted an application for $500 million in DOE loans for a proposed battery-system manufacturing plant in Ohio.

Washington lawmakers are closely scrutinizing the battery-plant plans due to Coda’s partnership with Lishen, which would have a stake in the Ohio venture.

Best-known for the 2-passenger City urban car, Norway’s Think has been in the EV game for two decades. Later this year, the company expects to begin selling a 4-seater City to U.S. retail customers after focusing exclusively on Europe as part of a post-bankruptcy strategy that began in 2009.

Last year, Think sold 1,042 of its 2-seaters. “We expect our volumes to be considerably higher this year, as we expand in the U.S. and other key markets,” Think CEO Barry Engle tells Ward’s.

Engle says the auto maker also is working with partners on joint-venture opportunities in Asia for its drivetrain technology.

Engle expects the EV market to emerge slowly, as cities develop charging infrastructures and permit protocols for home installations, while consumers become more comfortable with the technology and dealers more expertly qualified to sell and service the vehicles.

“When the market does develop, we think that EV adoption rates are going to increase very quickly, because of the environmental and social benefits, low cost of operation and suitability for urban usage,” he says in an email.

Engle thinks it’s too early to predict winners and losers, but adds, “there are so many new players that are getting into the EV market, it would be reasonable to expect that some manufacturers are not going to make it.”

One of the more eagerly awaited EVs comes from China’s BYD Automobile. But the anticipation likely stems from the auto maker’s credibility rather than the viability of its proposed product.

In 2009, BYD promised its e6 cross/utility vehicle would arrive in the U.S. before 2011. Reports now say 2012, as a test fleet takes to the road in the second half of this year.

The global recession was unkind to the battery-producer-turned-auto-maker, slamming the brakes on its vehicle sales in China and putting the U.S. launch of the e6 behind schedule.

The hiccup prompted a visit from billionaire investor Warren Buffet, who owns a stake in the company, perhaps to motivate executives.

BYD also recently revised the e6’s range downward to 205 miles (330 km) from 250 miles, and U.S. distribution plans remain murky. The company has priced the e6 at $40,000 for the American market and says it has the capacity to produce 50,000 units annually.

Dan Cheng, a partner in the Southfield, MI, office of industry-consultant A.T. Kearney, envisions three camps of EV makers as the industry matures:

  • Companies that fail because of the complex demands of commercializing a product.
  • Companies that are acquired by established manufacturers or folded under a parent’s wing through a major equity stake.
  • A handful that make it on their own.

“That last category would contain very few companies,” he says. “Very few companies are going to have the wherewithal to join the elite group of global OEMs.”

Even the biggest auto makers are migrating their businesses to global platforms, testimony to the premium placed on economies of scale.

“This is a scale business,” Cheng says, adding profitability will be “very challenging” for companies targeting annual volumes of 30,000 to 40,000 vehicles, which is the range of many EV makers.

The embryonic recharging infrastructure in the U.S. also will have a polarizing effect on sales and, ultimately, the number of manufacturers. For example, Cheng thinks sprawling suburban areas will develop infrastructures more quickly than urban ones because the latter lack space.

A handful of EV makers could find a cozy niche in the delivery-van market, he adds, given the fleet channel’s simpler sales, marketing and service demands.

Bright Automotive, an Anderson, OH-based EV maker spawned from a Rocky Mountain Institute consortium, hopes to market a multipurpose PHEV to commercial and government fleets.

The Idea is powered by a Li-ion battery pack with a range of about 40 miles (64 km). Then it switches over to a hybrid-propulsion system. The combination promises 100 mpg (2.4 L/100 km), the company says. The Idea is expected in 2013 or 2014.

Bright’s technology drew a $5 million equity investment last year from GM, which supplies the Idea’s 2.4L internal-combustion engine. In return for the minority stake, GM gained access to Bright’s work in advanced lightweight materials.

Three-year-old Bright also gets access to GM’s advanced engine, transmission and other technologies.

In addition, Bright wants to tap DOE funding for advanced-propulsion vehicles.

Ford is taking the same route to introduce its first EV, an electrified TransitConnect van for fleet customers. Ford and partner Azure Dynamics, an EV engineering house, combined to bring the vans to market.

Launched late last year, the Transit Connect EV will go about 80 miles (129 km) on a full charge, backed by a 20-kWh Li-ion battery pack that takes between six and eight hours to charge on a 240V outlet.

If successful, Ford could take over the program fully, including production. AM General currently assembles the vehicles.

“If we really do see a larger volume potential, we would transition to doing a lot more of this in-house,” Sherif Marakby, director-electrification programs and engineering at Ford, told Ward’s at the TransitConnect EV launch.

“If you look at hybrids, we’ve done the same thing, where we’ve taken sourcing and purchasing, gone from doing the work outside to practically doing everything in-house.”

Ford, which tapped $5.9 billion in DOE funding last year, also will launch its Focus EV in 2011, while Mitsubishi will import its iMiEV, which launched last year in Japan.

Ford has said the Focus EV will travel about 100 miles (160 km) on a single charge, taking three hours on a 240V outlet or 12 hours on a standard 120V. The car is backed by a 23 kWh Li-ion battery pack. The auto maker has not issued pricing.

Mitsubishi targets iMiEV’s sticker under $30,000. The 4-passenger sedan has a range of 100 miles (160 km) and packs a 16-kWh Li-ion battery, which takes 14 hours to recharge on a 120V outlet.

Major global brands such as Audi, BMW, Smart, Hyundai, Kia, Mercedes, Subaru, Toyota and Volkswagen also promise EV products within the next 18 months.

Meanwhile, offerings from tiny startups such as Mindset, Detroit Electric and Green Automotive appear in doubt. Requests by Ward’s seeking business updates from the sample trio went unreturned.

Engle says the U.S. must continue to aggressively support development of EVs and advanced battery technology. Otherwise, the nation risks being overtaken by competitors.

The DOE reportedly has been reviewing more closely what companies receive money, which has slowed disbursement of the $25 billion earmarked for the purpose four years ago.

“If (the U.S.) wants to ensure that the very best electric vehicle manufacturers and battery development companies continue to operate and do business in the U.S., it’s important for them to support the industry,” Engle says, calling the U.S. a leader in EV policy development.

“If that policy changes, you could very well see the next generation of EV and battery development occurring in other countries,” he adds, pointing to China. “We could see (Chinese) consumers leap-frog the U.S. in terms of EV industry development and go right to vehicle electrification.

While many EV players may find themselves cash-strapped, as federal money dries up and private-equity backers see dim profit pictures and tighten their wallets, a dearth of alternative propulsion strategies in presents additional challenges in coming years.

Cheng expects increased dialogue in the U.S. soon over “the appropriate alternative powertrain portfolio,” weeding through biofuels, EREVs, PHEVs, compressed natural gas and even particular battery chemistries.

The amount of money invested in EV development is “staggering,” he says. “The question is, where would you get the biggest bang for the buck?”

In that case, success for Li-ion Motors would not be defined by seeing an Inizio racing down the freeway, or a Wave SE coasting through a supermarket parking lot.

Says Frank Ziegler, the fledgling auto maker’s vice president-new business development : “I would love to go to Ford or General Motors, one of the major American companies, and say, ‘You know what? You don’t have to spend a gazillion dollars to do this. Allow us to be the anonymous partner. You can put your name on it. We can take the back seat.”

jamend@wardsauto.com