A Tale of Two Electric Cars

As Trade and Industry Minister Rob Davies mulls how to foster a domestic electric vehicle (EV) industry, here’s a tale of two projects in the US.

One will declare bankruptcy any day now, reinforcing the dictum of Larry Summers, President Bill Clinton’s last Treasury Secretary, that government is a “crappy venture capitalist”. The other, led by an entrepreneurial prodigy from Pretoria Boy’s High, will tomorrow announce its first profitable quarter, and could conceivably do for battery power what the 1886 Benz Patent Motorwagen did for internal combustion.

The Fisker Karma, a petrol-electric hybrid sports car with super spiffy styling and a price tag north of $100 000, has become the latest exhibit in the Republican effort to brand President Barack Obama as a crony socialist doling out taxpayer dollars to supporters who think they can do better than Adam Smith’s hidden hand.

The Karma’s karma was terrible from moment cars began rolling off the production line in Finland in 2011. The things caught fire, which, as Boeing recently discovered, is what happens when lithium-ion batteries short out. Consumer Reports bought one at full price to test drive. It was dead on arrival. “This is the first time in memory that we have had a car that is undriveable before it has finished our check in process.” There have been endless recalls.

The Karma was made possible by a $529 million low interest credit line extended by the Department of Energy (DOE) under a programme signed into law by President George Bush in 2007. Armed with this and celebrity endorsements from Leonardo diCaprio, Justin Bieber and Colin Powell, Fisker Automotive was able to raise $1.1 billion in private investment, nearly all of which has now gone up in smoke.

The largest backer was the Silicon Valley venture capital firm Kleiner Perkins Caulfield Byers, whose partners include former Vice President Al Gore, and which orchestrated $530 000 worth of political donations in the 2012 election cycle. Republicans see this and the DOE credit line as connectable dots, but evidence is wanting.

The department turned off the spigot with only $171million disbursed after Fisker failed to meet agreed milestones. The company’s founders were good at the wrong things. Their brilliance lay in body design not the technology under the hood, all of which had to be outsourced, along with assembly, in piecemeal fashion. That led to reliability and supply chain nightmares, including the bankruptcy of the Karma’s battery maker, A123. The last hope was to find a Chinese buyer. None bit.

Elon Musk and Tesla Motors also received a DOE credit line — $465 million – and have put all of it to work. Their current offering, the Model S, a pure plug-in with a range of 500 kilometres in clement conditions which sells for around the same as a BMW 7-series, is rolling off an assembly line in Fremont California at a rate of well over 1000 a month. It can be ordered online. The wait is two months.

Notwithstanding a hugely negative review in the New York Times last February – the reviewer was stranded after misjudging his battery use – Tesla’s share price has been climbing steadily, closing last Friday at $55.44 a few cents shy of its all time high at the end of April. Its market capitalization stands at $6.25 billion.

Musk is one of the great disrupters in an age of disruption. He cofounded Paypal, revolutionising online commerce. With SpaceX, he has become NASA’s new Wernher von Braun, upending the space launch business. He is chairman of SolarCity which is doing for solar energy what Henry Ford did with the Model T.

At Tesla, he has developed a line zero emissions cars with decent range which are starting to outsell conventional high-end brands like the Mercedes S class and which could, as production costs fall, soon start to be priced on a par with mid-range BMW’s and General Motor’s electric plug-in hybrid, the Volt. Add to that a growing network of solar powered charging stations that can give the Model S juice for 150 miles in 30 minutes, and you have the makings of a game changer.

Or would, were not the game itself also changing. The biggest downside risks for the Tesla are posed by a combination of the shale oil and gas revolution, improvements in the efficiency and environmental friendliness of combustion engines and loss of government subsidies. Barring a major breakthrough in battery technology or a massive jump in fossil fuel prices – fed, perhaps, by a backlash against fracking — the electric car looks likely to remain a niche mode of getting from A to B.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s