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Road for electric car makers full of potholes
San Carlos, Calif.
On an overcast Friday in February, about 100 people gathered behind Tesla Motors Inc. headquarters, awaiting the future of transportation. A truck pulled up with a trailer, which disgorged a sleek black electric sports car that promises to change the world as much as the Model T did a century ago.
The crowd toasted with champagne as Elon Musk, Tesla's chairman, climbed a staircase and made a triumphant speech. "This is the culmination of an enormous amount of work," he said.
What he didn't mention was that Tesla's Roadster had arrived months behind schedule with an improvised transmission that reduced acceleration by 40%. Or that the San Carlos, Calif.-based company's visionary co-founder had been abruptly ousted months before. Or that Tesla plans to make fewer than 1,000 of the cars this year -- and sell them for $100,000 apiece.
Tesla and more than two dozen other start-up companies -- most based in California and backed by piles of venture capital -- are in a feverish race to develop a viable electricity-powered alternative to the internal combustion engine. Electric cars, they argue, offer less pollution and noiseless operation for a fraction of the per-mile cost of traditional automobiles, while weaning drivers off oil.
Yet even environmentalists and investors who want to see these companies succeed question whether they have the know-how or leadership to replace the nation's gasoline fleet with one that runs on electrons. Despite increasing competition from rival technologies such as ethanol and hydrogen fuel cells, many of these companies seem bogged downfighting lawsuits, issuing breathless press releases, pummeling their rivals on blogs and bickering internally.
Last week, California's top air regulator voted to reduce the number of all-electric vehicles it would require large automakers to market in the state in coming years. That, combined with the start-up industry's challenges, could further delay technological advances and shift momentum away from electric cars altogether.
"There are real questions about whether they can do this," said Chelsea Sexton, who worked with General Motors Corp. on electric cars in the 1990s and is now executive director of Plug In America, an advocacy group. "There's a lot of talk, but it's still vaporware."
Even investors have doubts.
"It's very cute for people out of Silicon Valley to want to bolt an electric motor to a chassis," said Ray Lane, managing partner at venture capital firm Kleiner Perkins Caufield & Byers, which has invested in two electric start-ups: Irvine's Fisker Automotive Inc. and Think! of Norway. "But that's a long way from actually making a real car."
Most traditional automakers have programs to develop electric, fuel cell and biofuel cars, and are under government pressure to improve the fuel economy of their fleets, adding to speculation that they may gobble up any start-up that produces a viable electric car.
"Even if these start-ups are successful, I worry their prize will be that they're forced to compete with Toyota and GM," said Silicon Valley venture capitalist Vinod Khosla, who put money in ethanol rather than electric cars. "That's why I never invested."
A closer look at four of these California companies -- Tesla, Phoenix Motorcars Inc., Fisker and Zap -- illustrates the challenges facing start-ups trying to build the car of the future.
Ontario-based Phoenix plans to build an electric vehicle using a Korean Ssanyong pickup powered by a battery that can be charged in as little as 10 minutes.
Faced with production costs that suppliers say are more than double the truck's $47,000 retail price, the company cut ties with its motor supplier and engineering firm last year, leading both to take legal action against Phoenix.
As a result, Phoenix blew its goal of delivering 500 trucks in 2007 (it produced none). That, in turn, threatened its contract with Nevada-based battery supplier Altairnano. Last month, Phoenix said it had severed relations with its co-founder and chief technology officer, Daniel Riegert, after an outside inquiry about his history of convictions for forgery and possession of stolen property. Now, the privately held outfit says it plans to design its own motor and switch from rear-wheel to front-wheel drive, major challenges for a company that didn't develop the technology in its prototype.
"The feeling is that they aren't bringing anything of their own to the table, which is problematic," said Spencer Quong, head of the Union of Concerned Scientists' Clean Vehicle program.
Chief Executive Daniel Elliott said Phoenix hoped to deliver its first trucks by May. "We're heading down the final stretch."
Riegert could not be reached for comment.
Another player, Fisker, made a splash at January's Detroit auto show with a sculptural sedan, the Karma, that it says will reach 125 mph and cost $80,000. Unlike competitors' vehicles, the Karma is a plug-in hybrid, powered by a battery and gasoline.
Fisker's chief asset is founder Henrik Fisker, a former designer at Aston Martin and BMW. His experience could be crucial because the company intends to create the Karma from scratch, rather than installing an electric drivetrain in an existing vehicle. Fisker has raised $20 million.
Yet the company has declined to reveal information about the Karma's technology except that it comes from Quantum Technologies. Quantum, also of Irvine, has worked on hydrogen fuel cell and plug-in hybrids but has significant debt problems and stock market compliance issues.
Henrik Fisker says a test model will be available before summer, with production starting by late 2009. As to his company's secrecy, Fisker said: "Everything is so proprietary that we don't see the need to show it to anybody. We will fulfill the milestone we've established."
Lots of promises
Santa Rosa, Calif.-based Zap has repeatedly made promises that it hasn't been able to fulfill. The publicly held company sells electric scooters and low-speed, three-wheel cars, and CEO Steven Schneider says Zap plans to sell a highway legal three-wheeler starting next year.
Online stock trading message boards accuse Zap of operating as a "pump-and-dump" shop that attempts to raise the value of its stock temporarily by aligning itself with hot transportation trends. Schneider denied that, saying "moving the stock around doesn't help us."
The company has put out 26 news releases this year, and in December issued one headlined, "Zap not acquired or bombed by warplanes according to news reports." In the last several years, it has announced plans to sell a hydrogen fuel-cell vehicle, an ethanol vehicle and a 644-horsepower electric sports sedan. None has materialized.
Zap is in litigation over its 2005 attempt to sell Daimler's Smart Car in the U.S. without a license from the automaker. Zap purchased them from European dealerships and shipped them here. It also faces nearly a dozen unrelated suits, including fraud and breach of contract.
In the last four years, Zap's stock price has gyrated between 26 cents and almost $5. It hit its 2008 high of 89 cents in January, shortly after announcing that it had created an "electric car made for iPod" -- one of its low-speed models with an input jack for the digital music player. The shares are now at 52 cents.
"We put out a lot of news because it's a vicious market and we need to remain in the news," Schneider said. "Shareholders call screaming, 'We want news, we want news,' and so we give it to them."
For the moment, Tesla is free from stockholder pressure. Although execs have been hinting at an IPO, the company is privately held and has raised $145 million from VantagePoint Ventures Partners and others.
Last month, the company said it had begun full production of its first-generation vehicle, the $100,000 Roadster, which runs on 6,831 laptop computer batteries stuffed in a car assembled by Britain's Lotus. So far, 900 people, including Gov. Arnold Schwarzenegger, have put down deposits.
Delivery was delayed by about six months, however, thanks to a transmission problem that forced Tesla to switch out its original, two-speed version for a single speed, reducing zero-to-60 time by 1.7 seconds. Also a factor in the delay was the ouster of company co-founder Martin Eberhard and about 10% of its employees late last year.
Despite the challenges, Tesla says it hopes to complete nearly 1,000 Roadsters by year-end and to open three retail outlets, including one in Santa Monica.
"It is something we absolutely can do," Musk, the chairman, said.
Even if it lives up to its vow, whether the company can take the next step -- making good on its intentions to build a $50,000 electric sedan and a $30,000 economy car in mass quantities at a new plant perhaps in New Mexico -- remains to be seen.
The problem, skeptics say, is that high-volume production is an expert's game, involving the kind of capital-intensive work -- from stamping out body panels to designing high-tech air bags -- that traditional automakers have perfected.
The start-ups "mistakenly believe that they have the problems all worked out," said David Patterson, a Mitsubishi Motors Corp. executive. The company is developing its own electric car, set to go on sale in Japan next year. "They're butting up against some of the biggest challenges of the auto industry itself."
Some suggest that could play into Tesla's long-term strategy. In addition to Mitsubishi, Nissan Motor Co. has announced plans to sell electric cars, and GM and Toyota are working on a plug-in hybrid.
"I don't think anybody would be shocked to see Tesla partnering with one of the larger automakers," said Alan Salzman, chief executive of VantagePoint Ventures. "There are things that a little player like Tesla just can't do."