Going against irony and long odds, there are presently at least eight startup companies trying to secure ground-floor footing within the nascent U.S. plug-in car market.
If not immediately obvious, that’s a lot of companies who’ve decided to reach for what could be but a needle-in-a-haystack opportunity against now-waking-up incumbent automakers flush with cash and decades of knowhow.
There are presently 34 brands selling vehicles in the U.S. light duty market, and to have at least a quarter as many trying to join them is reminiscent of the early wild west days of the first beginnings of the car industry.
Today the public more often hears of that most conspicuous startup – Tesla Motors – which for over a decade has plowed ground toward becoming the first to make it big since Chrysler did 80 years ago.
And while pundits and investors have a field day postulating the yet-unprofitable (last quarter excepted) California electric carmaker’s chances, a virtual crowd of other wanna bes are also taking the chance – with much less now to show, but often no less brash.
Names of some of the bigger ones include Faraday Future, Lucid (just renamed from Atieva), Fisker Automotive, and NextEV. Others smaller on the radar include the new Fisker run by its actual namesake, Sondors, ZAP/Jonway, and Green Tech Automotive.
Irony and Odds
An often overlooked fact is these companies are all fighting to win what today is still a very small prize. That is, they’ve been motivated to chase the teeny tiny all-electric and/or plug-in hybrid market which represents but 0.83 percent of total U.S. passenger vehicle sales.
On the face of it, one might wonder whether it would be easier to break into building simple eco cars, crossovers, or SUVs with gas engines – the types of vehicle that today sell in much higher volumes and garner much more profit.
As it is, the start-up-backing billionaires, venture capitalists and government funding agencies feel more confident wedging out a place in the plug in market. This is so, even though the car business is exceedingly tough to crack into, and today’s major automakers are still losing money on plug-ins, despite experience and other advantages.
What is it about electric cars that foments such apparent madness to give it a go in a new, still unproven industry?
Each startup has its own story and business plan hoped to justify the effort, and while plug-ins are a sub-set of the whole car market, they’re viewed as “the future,” thus a new frontier so a gold mining spirit can become infectious.
From that vantage, the playing field is arguably more level than making a suicidal attempt to try to build a better pickup than Ford’s F-150, or out-engineer Honda’s Accord, for example.
Buying time is the fact that even the majors are only now getting underway. Since 2011 most have sold only tens of thousands of units – if not less, or if any at all. That’s not much when best sellers sell on the order of 20,000-40,000 in a month, in what is today a 17.5 million vehicle annual market.
The biggest plug-in sellers are the Chevy Volt, Nissan Leaf, and Tesla Model S, which may sell a couple thousand units more or less monthly, and volumes are much less for other plug-in models.
What’s more, legacy automakers haven’t until now threatened to bear their full weight toward switching to electrification. Regulations are the core market driver, and legacy makers indicate if it were not for that electric cattle prod, they’d do much less, if not altogether quit proffering plug-ins.
Behind green-car-hugging facades, major carmakers have shown themselves about as keen on plug-ins as a kid being dragged by the ear to a scrubbing. They make more money in conventional cars, have established their brands with them, and selling plug-ins may even be tinged with conflicts of interest, as Tesla’s Elon Musk has said.
As we speak, the industry’s lobby arm – the Auto Alliance – is creating case studies and statistics trying to weaken federal 2022-2025 emission regulations. The Alliance, representing a dozen major manufacturers, is saying to regulators and legislators the rules will cost upwards of a million jobs in coming years, cost too much, and too few will buy over engineered green cars.
Advocates like the Union of Concerned Scientists have politely accused them of being intellectually dishonest, “cherry picking” data, and tantamount to willful liars with some of their arguments and opposition to federal standards called a ”shame.”
And meanwhile, plug-in startups have a clean slate and no legacy baggage. Like Tesla, they can focus on a new technology, and not be hindered by so many very expensive ties to a former technology, along with longing glances backwards, and digging in of heels to slow what they consider pure progress.
Michigan-based automotive analyst Alan Baum also notes regulatory and funding advantages exist for what may become globally selling companies.
For starters, plug-ins are a shoe-in to pass emissions tests. And whether a good thing, or “boondoggle” as others allege, Tesla has banked hundreds of millions selling California green credits to its competitors, and others stand to eventually do the same.
Further, federal, and in cases state and local tax credits or rebates are in place for plug-in customers, and the companies themselves may take advantage of low interest loans or grants suported by policymakers to spur the industry.
The formula for a few of the startups today has been to go big or go home. Brash hyperventilation touting cool new imagery, are attempts to position them as having fresher, smarter ideas than those of stodgy old companies.
But as true of the Wizard of Oz, who said “don’t look at that man behind the curtain,” aside from gee-whiz designs and trendy posturing, most startups have proven nothing in that most fundamental way – delivering satisfying vehicles, and making happy customers.
The sober minded might see a red flag here, and any venture capitalist who does not consider this is not worth his/her salt, but that has not prevented several unproven newcomers from garnering many millions, if not over a billion in initial funding.
Baum also observes that budding technology fields have seen new blood come in before and outfox the slow-moving, out-of-touch old guard. IBM, for example, forfeited a home court advantage to the likes of Apple, Microsoft, Dell, and others.
Investors looking for a payback are betting big, taking risks that they may lose a few bets, but getting in on the ground floor of the next Apple of the car world is quite the allure, as evidenced by the bloated market cap of TSLA.
Car Company/Tech Company
Just as true however, is while electric cars share hardware and mindshare with computers, they are automobiles.
Even institutional investors can be fuzzy on this, as has been seen in discussing and defining Tesla – automobile company or technology company? – but they shouldn’t be.
Without a doubt, if a company manufactures motor vehicles – even if propelled by a lithium-ion batteries and motors, nuclear fusion, or a Flux Capacitor – it’s by definition a car company even if, like Tesla, it has a broader technological portfolio.
Challenges still faced therefore include walking through the same gauntlet all the majors face in direct proportion to the intended volume to which a Johnny Come Lately aspires.
Unavoidable challenges – any one of which can be fatal to a cash-strapped organization – include designing and engineering vehicles to meet strict safety standards, while providing quality design, execution, customer management, sales, marketing, and all at a profit.
Hoops beyond these, Baum observes include supplier relations, plant engineering, other “hands-on things” amongst a gazillion details that eat money like few other businesses, and which carry huge liabilities besides.
If a given automotive startup intends to become more than a boutique brand, this is what it faces. This said, while hype thicker than a New England fog has escaped the lips of some startups, none have shown they are executing quite so defined a master plan as Tesla has, as it aims for a million units in 2020.
If any of the startups want to really follow Tesla, they have much more to show, said Baum.
“It’s not good enough to have one car, you have to have a series of cars,” said Baum. “In other words, when you finally get your first car made, you better have your second car ready to go within a couple of years to at the very least improve the current product.”
“And of course that’s what Tesla is trying to do, they started with the Roadster, and went to the Model S [and Model X],” Baum continued. “Now they’re going to the Model 3. You need that, unless you want to be making a 100 cars a year at $500,000 a pop. If that’s what you want to do, OK, I guess you can do that.”
The jury however is still out even on Tesla, said Baum, and the startups – some so secretive as to have been accused of “vaporware” by a jaded public, will sooner or later have to prove their market value.
Meanwhile on they go, yet setting the stage. Following are a few of the bigger ones.
Not at all humble, Faraday Future has basically said it is the next big thing.
“You don’t need a 100-year legacy in the automotive industry to define what the next generation of transportation needs to look and feel like,” said Senior VP Nick Sampson in 2015.
Even Tesla was not considered so special by Sampson who noted it took over a decade to get where it is, and then-18-month-old Faraday was hiring faster than Tesla was when it was one-and-a-half-years old, and Faraday was positioned as not in danger of going bankrupt.
Backed by Chinese billionaire Jia Yueting who in his home market is also developing LeEco, Faraday has broken ground in Nevada on what it says is a $1 billion factory. Promised next is revelation of its first pre-production car – thought to be an electric autonomous crossover – at CES 2017 in Las Vegas.
This year at CES Faraday showed a supercar concept that never was shown driving except by computer animation but claimed to be good for 200 mph.
But Faraday is not being dismissed despite the over the top self praise.
As of early this year it had 750 employees, and is hiring from companies like SpaceX, Apple, Ford, Ferrari, Lotus, Jaguar, Tesla, GM, the U.S. government, and elsewhere.
The latest news is it was late to make a $21 million factory construction payment due last month.
The contractor threatened to stop working, but Faraday and the contractor, have otherwise said they are working out what has led observers to otherwise muse whether it is not as deep pocketed as claimed.
Being privately held, Faraday does not release its finances, but said “the business relationship between AECOM [contractor] and FF is strong, and we remain committed to building our factory in N. Las Vegas.”
The Chinese auto parts giant Wanxiang came in and scooped up failed Fisker Automotive’s business in a U.S. Department of Energy sponsored fire sale for $149.2 million at taxpayers’ expense.
Also nabbing battery supplier A123 Systems at deep discount, both those federally backed startups failed due to mismanagement, giving fodder for Mitt Romney in 2012, but the new Chinese owner is otherwise making a go of the new opportunity.
In May 2014, Lu Guanqiu, the chairman and founder of Wanxiang Group Corp. – himself worth an estimated $3.1 billion, said he was determined.
“I’ll put every cent that Wanxiang earns into making electric vehicles,” he said at the time of a dream he has held for years. “I’ll burn as much cash as it takes to succeed, or until Wanxiang goes bust.”
Like Tesla, it has said it wants to go down market, but obviously is not as far on the timeline.
Lucid (Formerly Atieva)
Just renamed “Lucid,” this company that has been quietly at work in the background as was Faraday says it will have a fully autonomous 900-horsepower electric car in 2018.
An 87 kilowatt-hour battery is said to provide range of 300 miles, and a 400-mile option also being considered.
Atieva was formed in 2007, and initially developed batteries and electric drivetrains. It filed more than 100 patents and delivered battery packs for electric buses in China.
Since then, investments by Chinese state-owned carmaker BAIC and LeEco, another electric car company that has also invested in Faraday Future, appear to give the company a solid financial backing.
So far all we have are teasers and a grainy image grabbed from a patent filing. This is another dark horse, that has more to prove, but which cannot be dismissed.
You may notice a China connection in all of these. China is the world’s biggest plug-in market, and entrance into the U.S. market is part of larger global plans.
Other Chinese companies on our shores include Warren Buffett backed BYD – not a startup, and actually a seller of more plug-ins that Tesla, thanks to strength in the China market.
For now, it’s building electric buses, and doing small-scale car fleet service from its California base, but has an eye on eventually selling passenger cars in North America.
Another seeking to tap into Silicon Valley talent is NextEV, founded by Chinese entrepreneur William Li who built the successful online car sales company Bitauto.
So far it has not gotten as far in its U.S. market endeavors in terms of salable product, but is working on its global plans.
NextEV has 250 employees in San Jose, and just opened a Silicon Valley office for hundreds of engineers to work in, with a few hundred more employees projected to be hired.
It was also approved by California to begin testing autonomous vehicles. Its ties are to the home market however, where it is most focused, and in April announced a ¥3 billion ($444 million) investment in its Nanjing High-Performance Motor Plant.
“The plant will have a production capacity annual output of 280,000 units when it goes into operation in the second half of this year, and we will focus on NextEV’s proprietary intellectual technologies such as our world class motors and electronic modules, for the first phase,” NextEV Co-founder & EVP, XPT CEO Jack Cheng said.
Other names plowing along less conspicuously include crowdsourced startup Sondors, ZAP/Jonway, and GreenTech Automotive, among others – and it would be a fair guess to surmise others are yet in “stealth mode,” who we may hear of in time.
Planned is an EV with over 400 miles range, a new battery chemistry, and of less doubt will be Henrik’s signature swank design suitable for readers of the Robb Report, Dubai billionaires, and others with crème de la crème tastes.
Fisker has penned James Bond cars for BMW and Aston, and his original Karma is only being tweaked by Wanxiang, while former Chevy Volt protagonist Bob Lutz also wants to stuff these with Corvette engines.
For his encore, Fisker previewed his new car in teaser image, while teasing the potential being offered.
“We have really been working in stealth mode,” Fisker said. “For the last two years I have been looking at battery technologies and wanted to see if there was something that could really give us a new paradigm. We had the strategy of developing the technology as fast as possible without getting tied down to a large organization, which would hold us back. Now we have the technology that nobody else has. And there is nobody even close to what we are doing out there.”
Those estimating startups with yet-vague plans as wanting to be the next Tesla may be missing the point in some cases.
Only a couple have said they may be shooting for something so ambitious, and while all are patting themselves on the back as is standard operating procedure in the current market climate, much is open ended.
“I am obviously skeptical of these operations, although the ones with staff and actual product plans deserve some notice,” said Baum. “It is interesting that in general even those are planning high cost low volume vehicles with mainstream products well off in the distance.”
And, as Baum noted, we have not seen even the equivalent of Tesla’s grand sweeping Master Plan which says it will start high, go downmarket, and become high volume, though some hint they may have this in mind.
Thus until more is divulged, all aspiring companies are receiving benefit of the doubt – while others still allege “vaporware” and dubious integrity – and each startup aims to confound these naysayers in time.
And so it goes in the new gold rush of the plug-in market, as it’s believed to be, and which is inspiring prospectors to set their claim and dig.