Niche EV Maker CODA Rebounds After Troublesome 2010

LOS ANGELES – CODA Automotive is building on new momentum with a boost of added capital and a new CEO with extensive automotive experience on both sides of the Pacific.

The 2009 spin-off of Southern California-based Miles Electric Vehicles, a manufacturer and distributor of electric vehicles designed mainly for fleet use, CODA is an American company that figured out early it could develop a quality EV at a comparatively low cost by working in tandem with foreign suppliers.

The start-up auto maker earned instant name recognition when Henry M. Paulson Jr., who had served as U.S. Secretary of the Treasury under President George W. Bush, signed on as an investor.

In the autumn following CODA's founding, company representatives attended the U.S. Department of Energy’s first U.S.-China Electric Vehicles Forum in Beijing, where they soon forged strong ties with a Chinese vehicle manufacturer and suppliers.

Among these is the successful joint venture with Tianjin Lishen Battery, a worldwide supplier of lithium-ion battery cells to companies such as Apple, Motorola, Samsung and Vodafone.

A plan quickly evolved among the partners to develop an electric car based on Hafei Motor’s Saibao sedan that would meet U.S. consumers’ tastes and be produced in California.

After a number of fits and starts, CODA’s positive outlook today follows a leadership shakeup in late-2010 and the postponement of the electric sedan’s launch to the third quarter.

Analysts were wary when Kevin Czinger stepped down late last year as the Santa Monica-based company’s CEO only days after Michael Jackson, CODA’s senior vice president-global sales, resigned to pursue other ventures.

CODA sedan based on Hafei Saibai.

News about the sedan’s later delivery date, which broke on the eve of the Los Angeles Auto Show, prompted one local blogger to establish a daily “Coda Automotive Death Watch.”

However, CODA since has received $76 million more in equity financing, increasing its total funding to $200 million. It also has gained two new board members:

Giving CODA further credibility was the naming of industry-veteran Philip Murtaugh as the company’s top executive in mid-January.

Murtaugh had worked for General Motors for more than 30 years in various roles, including executive vice president of Shanghai GM and chairman and CEO of GM China Group.

Leaving GM in 2005, Murtaugh served as executive vice president-international operations for GM-partner Shanghai Motor and then CEO of Asian operations for Chrysler. He is credited with bringing more than a dozen new vehicles to market.

K. Forrest Beanum, CODA vice president-public affairs and communications, tells Ward’s in an interview Murtaugh’s experience will prove crucial as the company transitions from a mainly research and development operation to a mass manufacturer of its premiere CODA sedan, a 4-door, 5-passenger plug-in electric vehicle.

“Our main challenge is brand recognition,” says Beanum, noting CODA’s EVs will be up against those developed by auto makers in Detroit and Japan. “This truly is a David vs. Goliath story.”

It’s also a case study in high-tech direct marketing, as CODA forgoes traditional dealerships for what it calls “education centers,” where consumers can learn about the auto maker’s products and take test drives.

Buyers eventually will be able to secure their CODA vehicles through a direct-to-consumer system that a company release says “will eliminate the additional costs associated with a more standard dealer model.”

The CODA sedan “is not just a car, but a movement,” Beanum says. “It’s a new industry, isn’t it?” CODA is preparing for its sedan rollout even as the economy “is still being dragged through the mud,” and companies face a tough, even hostile business climate, he adds.

That’s particularly true in the Golden State, where the industry long has decried California’s strict regulations, high taxes and often-meager business incentives.

Tesla Motors, for instance, announced its intention to build an assembly plant here after then-Gov. Arnold Schwarzenegger pushed through a $28.8 million tax break that reportedly saved the EV maker an estimated $320 million in equipment purchases.

“We want to be in California. In a lot of ways, it’s the perfect place to be located,” says Beanum. “But, California needs to become more competitive.”

On the other hand, Beanum says CODA doesn’t necessarily welcome plans to expand the list of models eligible for the federal government’s EV consumer-purchasing incentives.

Even though easing the qualification standards may raise public awareness of electric transportation, “our focus is on electric vehicles,” he says. “The tax incentives are an advantage for what we do.”

CODA is equally affected by what happens in China, as it anchors its business model on its JV with Tianjin Lishen. About 65% of the CODA sedan is made in China. Manufacturing of the chassis is done by Hafei, a state‐owned car and airplane manufacturer that currently produces 200,000 vehicles per year.

The CODA sedan’s batteries are supplied by the CODA-Tianjin Lishen JV, known as Lio Energy Systems. The balance of the car’s parts are made and assembled in the U.S., where the vehicle also undergoes its final inspection process.

Every step of the development, manufacturing and delivery process with Lishin and other overseas suppliers must be managed through the lens of Chinese culture, says Beanum. Along the way, “there are lots of little tweaks, basic logistical challenges, issues involving shipping, customers, safety.”

The geopolitics between the U.S. and China also greatly impacts how CODA and other U.S. companies conduct business with their Chinese counterparts.

That’s why Murtaugh, perhaps better than anyone else, will be able to lead CODA through the ins and outs of the Chinese automotive market, says Beanum. “This is the guy who knows everyone in China.”

CODA is looking to establish a secondary assembly plant in the Bay Area community of Benecia, about 35 miles (56 km) northeast of San Francisco, on the site of a former Amports’ facility, a company that processed Hyundai-Kia Group export car shipments.

The auto maker also continues to scout possible sites for a final-assembly operation in Southern California.

When Murtaugh spoke about developing off-grid, energy-storage systems during his recent introductory press conference, it wasn’t a hint, as some media reports suggest, that CODA is “shifting our focus from EVs (to battery making) at all,” says Beanum. “We think multiple business lines are healthy for competition.

“We’re keeping all of our options open,” he adds, noting CODA is a battery company first and foremost, and since day one has maintained a multi-track approach to bringing electric-drive technology to consumers and pulling America off “the oil and gas crack pipe.”

Coda currently is awaiting approval of a $500 million DOE loan for a new LIO Energy Systems plant, expected to be located in Columbus, OH. The project reportedly already has been promised up to $15.9 million from the Ohio Tax Credit Authority, $33 million from the city of Columbus and another $2 million Third Frontier grant.

The 750,000-sq.-ft. (69,675-sq.-m) facility is expected to bring more than 1,000 initial jobs to the community.

The CODA sedan, which hasn’t yet received a crash-test rating by the federal New Car Assessment Program, initially will be marketed in California, as well as to public- and private-fleet customers.