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As Detroit Struggles, a New Auto Emerges

After a 70-year hibernation, Detroit Electric lumbered from its cave on Tuesday and tossed its Stratoliner hat into the electric-vehicle ring. What was old is new again, and Detroit Electric might just breathe new life into an ailing city and an uncertain industry.

A rose by any other name …
It’s hard not to glance at Tesla Motors (NASDAQ: TSLA  ) to see her reaction, considering that Detroit Electric showed up to the party wearing basically the same dress. Detroit Electric's first product to market will be a limited-edition, two-seater sports car that will cost "in the neighborhood" of $135,000. That sounds a lot like Tesla's now-discontinued Roadster!

But the similarities don't end there. Detroit Electric will use Lotus platforms for at least its first two vehicles. What other car was based on Lotus' Elise platform? That's right: Tesla's Roadster. 

So on the face of things, it looks as though Tesla's dominance of the high-end EV market may have just come under serious threat. Interestingly, though, Tesla's shares are trading noticeably up since Detroit Electric's announcement. Investors seem encouraged, not panicked. Why might that be?

While Detroit Electric is starting with a sexy new sports car, it plans to offer a "diverse family of all-electric production cars," which seems to suggest that the company won't confine itself to the expensive top of the pyramid. EVs' success will live and die on the development of a battery-charging infrastructure to support them, and such development will be spurred only by broad adoption of EVs. Investors may be betting that high-end purveyors like Tesla will be buoyed by Detroit Electric's potential offering of more affordable vehicles.

Pistols or swords?
Detroit Electric plans to announce "a major partnership with a global carmaker" at the Shanghai Motor Show on April 20. The company's CEO of North America operations, Don Graunstadt, said this mysterious partner is a "much larger Chinese OEM," or original equipment manufacturer.

I can't help speculating that the obvious suspect is BYD. If that were the case, it would constitute Warren Buffett's indirect throwing down of the gauntlet to Elon Musk. Pistols at dawn, gentlemen! Still, as my colleague John Rosevear astutely cautions, "There are probably several other possible candidates, and one should be prepared to be surprised."

The economic ecosystem
It's worth pulling back a bit for a broader view. In a brilliant recent article, Bloomberg New Energy Finance Chief Executive Michael Liebreich laid out his case for analyzing our energy future in terms of a complex ecosystem. As I mentioned, EVs are dependent on infrastructure development. They're also complementary to renewable-energy deployment, particularly solar. As Liebreich observed in his article, "The value of a solar rooftop in a world of electric vehicles is very different from the value of the same solar rooftop in a world without."

Tesla has a partnership with SolarCity (NASDAQ: SCTY  ) -- another Elon Musk vehicle -- to provide Tesla drivers with solar-fueled battery-recharging stations. SolarCity also announced a deal in February with Honda (NYSE: HMC  ) , whereby Honda drivers will receive discounted solar rooftop installations in SolarCity’s service area. A Forbes article observes, "going solar accelerates the return on investment for drivers of cars like the Honda Fit EV … and owners also get to zero out their carbon emissions by fueling from the sun."

This isn't the first deal between a solar developer and an automobile manufacturer. In 2011, Ford (NYSE: F  ) teamed up with SunPower (NASDAQ: SPWR  ) to offer Ford Focus EV drivers a deal on a custom rooftop solar system. The Ford/SunPower team offers the educational "Drive Green for Life" program for Focus EV drivers. SunPower has also partnered with Nissan to provide Leaf owners with education and systems that will provide solar power.

Potential ecosystem pitfalls
There are a few risks to electric vehicles in the broader energy picture of the future. A recent McKinsey analysis of the Japanese market found that roughly one-third of early EV buyers say their next car may not be an EV. Early adopters lost enthusiasm when faced with higher electric bills and a lack of charging-station infrastructure. McKinsey cautions that manufacturers "should adopt retention and education programs to avoid negative market feedback that could 'poison the well' for new buyers."

Detroit Electric should analyze the cautionary case of Better Place, which was seen six years ago as the world's most innovative EV start-up and has hemorrhaged $500 million and sold only 750 cars since then. Some analysts think the issues that have dogged Better Place won't affect other EV manufacturers. Others say the case underscores fundamental problems with the EV model, including limited range and long charging times.

Author Marc Gunther concludes his analysis of the Better Place story perfectly.

[T]he industry has yet to provide a clear answer to a simple question about electric cars and companies like Better Place: What, exactly, is the consumer problem that EVs are trying to solve? Are they about saving money in the long run, not having to worry about rising gas prices, reducing the environmental impact of driving, or just enjoying the ride? Put another way, if electric cars are the answer, what's the question?

Detroit Electric and Tesla may just answer that challenge together. Near-faultless execution has led Tesla Motors to the brink of success, but the road ahead remains a hard one. The Motley Fool answers the burning questions in our most in-depth Tesla research available for smart investors like you. Thousands have already claimed their own premium ticker coverage, and you can gain instant access to your own by clicking here now.

Read/Post Comments (6) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 23, 2013, at 3:24 PM, not12say wrote:

    Ummmmm............I'll believe it when I see it...Although, Motor Trend gave their latest COTY to Tesla Motors. I guess anything can happen.

  • Report this Comment On March 23, 2013, at 3:37 PM, Freddbe wrote:

    I'll never buy another car that needs to suck up to the rip off oil companies.

  • Report this Comment On March 23, 2013, at 6:18 PM, dr2casto wrote:

    I bought a 2005 Chevy "hybrid" pickup truck to "save the world", It turned out to be a very bad idea. The Chevrolet trucks are not ready for market. Sure Florida seemed a nice "FLAT" state to kick off its intro of a hybrid vehicle. The trucks engine cuts off @ every stop, all things being redundantly electric, except for the fact that when the driver takes his/her foot off the brake and gives it gas, the vehicle (my vehicle anyway) "rolls backwards" at first on inclines, which, you guessed it! Spins out and burns a little rubber after nearly running into whomever happens upon you tail end on the hill. After several near misses "rolling backwards" into other vehicles who pulled up behind me on small hills, I returned the vehicle to the Chevy dealership in Tallahassee, Florida and explaining my dilema and experience to the Dealership manager, he agreed to let me leave the lot with a 2005 HD Chevy Quad cab, AFTER fining me $1000.00 for the week and 350 miles that I put on the Chevy Hybrid I was willing to try. You are hearing it righ, I PAID dearly for my efforts to go green. It is my fault these cars arent ready for the market, therefor I should have to foot the tab for Chevrolets screw up bringing this vehicle to market. I should be penalized for trying right. WRONG! My next auto/truck purchase will be a FORD. It should have been where I took the hybrid back to trade out of it! I shouldnt have allowed chevy to get it back. Lesson learned!Chevrolets attempt at bringing a poor quality concept EV hybrid to market like this is soooo wrong. Fining or otherwise penalizing the public for patronage will cost them patronage FOREVER! Oh by the way, the 2500 HD Chevrolet I traded to, the head liner is falling out, none, I repeat NONE of the guages work properly and I have to depend on my Garmin GPS for speed readings, how sad is that. I will never buy another Chevrolet as long as I live, I will burn coal first! FORD, here I come. I want my man step!

  • Report this Comment On March 23, 2013, at 8:45 PM, CrankyOldGuy wrote:

    Marc Gunther hit it out of the park! Gas could go well past European levels and it still wouldn't make sense to buy a $100k electric car. In the urban environment where electrics make (some) sense, mass transit is a far better option (no $200/month to park it, for one thing). I suppose it's more practical than a new Rolex?!

    And what's with solar rooftops? What's it going to charge if you drive the car to work (generally the sunny part of the day!)?!

  • Report this Comment On March 23, 2013, at 10:38 PM, cieara wrote:

    As a hybrid owner, I believe all electric may be an unnecessary effort. For the sake of reliability, regardless how great the electric elements in the car, it still should couple with a gas engine like hybrid is doing.

    Until then, you will always have risk of running out of power.

  • Report this Comment On March 23, 2013, at 11:12 PM, carlajaxson wrote:

    Uhm...why would any of you buy a Government Motors product? EVER??? Don't you realize that they're STILL indebted to the government? They will remain Government Motors until they repay their debt. When, and IF they repay that debt, they will be called General Motors (or Chevrolet), as some of you continue to call them.

    Why do you not buy a Ford? They did NOT take...did not NEED to take...the buyout. They have cars that get great gas mileage. It's all in the way you drive. If you feel that you need to drive like a maniac, you will get poor mileage. If you drive like the average driver, you'll get great mileage. Even my 2006 Mustang GT gets 28 miles per gallon and that's good for a sporty car. That's around town; of course it gets a lot better on the Interstate.

    If you don't like Ford, why not go with Chrysler; now Fiat? They have some nice looking cars and so me that get good gas mileage.

    Didn't you take your Government Motors car for a test drive? I always take a car that I'm considering buying for a test drive....I put at least 100 miles on it; you can't possibly tell anything about a car by driving it around the block. I've sometimes put 250 miles on it...after all, if you're really serious about buying it, you should know what you're buying. Be serious about it. It sure saves complaining later.

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