Another Green-Car Startup Hits the Wall

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Another green-car dream appears to be biting the dust. Fisker Automotive said this week that it will lay off 75% of its workforce, as the maker of the hybrid Karma luxury sedan appears to be running out of cash.

In recent months, Fisker had been seeking a major automaker to partner with in an effort to fund continued operations. But after talks with a Chinese automaker collapsed in March, it became clear that Fisker was running short of options.

A promising debut, followed by a streak of challenges
Fisker, based in Anaheim, Calif., drew global headlines when it launched the Karma, one of the first "plug-in" hybrids, way back in 2008. The sedan drew raves for its sharp styling, created by company founder Henrik Fisker, who had previously worked as a designer for BMW (NASDAQOTH: BAMXF  ) and Aston Martin.

The Karma also helped launch the idea of a luxury "green" car segment, a market that several global automakers -- as well as another California green-car start-up, Tesla Motors (NASDAQ: TSLA  ) -- have since entered.

But that was arguably the high point in the company's history. Years of delays in getting the car certified for U.S. sale -- a complex and expensive process that has undone many prior auto start-ups -- meant that Fisker didn't actually start delivering Karmas to customers until late 2011.

Production cars lead to even more troubles for Fisker
But even then, things didn't go well. A Texas house fire in early 2012 was blamed on a malfunctioning Karma, which fueled concerns about electric-car batteries that had arisen after a crash-tested Chevrolet Volt had caught fire the year before.

The fact that the Volt was eventually declared safe didn't help Fisker much, especially after 16 more Karmas caught fire in New Jersey after being submerged in the wake of Hurricane Sandy. Nor did the collapse of Fisker's battery supplier, A123 Systems -- a collapse that had a lot to do with Fisker's struggles -- and its subsequent acquisition by a Chinese firm do much to help matters.

By then, it was too late. Fisker had run through much of its capital, including $193 million in loans from the U.S. government. No more loans were likely, as the feds had halted further financing in 2011 after Fisker had failed to meet a series of milestones.

Its only hope was to seek a partner, but after talks with China's Dongfeng Motor Group collapsed last month, hopes faded.

The upshot: Tesla notwithstanding, sarting a car business is really, really hard
Fisker's experience points to just how hard it is to launch a new automaker from scratch. While Tesla Motors is on the verge of a profitable quarter, thanks to near-flawless execution on an audacious business plan, Tesla is really the exception that proves the rule.

The last automaker to be started from scratch and become an enduring presence on the global stage before Tesla was tiny supercar maker Lamborghini, way back in 1963. Lots of ventures have been tried since then. But as Fisker's experience shows, the obstacles to success are formidable.

Designing and building cars to modern global standards of quality, reliability, and safety is hard, as several Chinese automakers have discovered the hard way.

Securing the funding to take a car from design to production -- a process that can take years, and require big investments along the way -- and securing the necessary government approvals to offer the car for sale are also daunting tasks for anyone who isn't an established global automaker.

So far, Tesla has succeeded where Fisker and countless others have failed. But even for Tesla, a still-tiny player in an industry dominated by global giants, the challenges ahead remain formidable.

Worried about Tesla?
Near-faultless execution has led Tesla Motors to the brink of success, but the road ahead remains a hard one. Despite progress, a looming question remains: Will Tesla be able to fend off its big-name competitors? The Motley Fool answers this question and more 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 (7) | Recommend This Article (1)

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 April 07, 2013, at 6:32 PM, ronaldlcook39 wrote:

    The US government needs to apply this simple test when they feel taxpayer money should be used, that is, is there a stampede by the private sector to invest. Simply look around and see what companies still exist that the government has provide taxpayer money.

  • Report this Comment On April 07, 2013, at 9:40 PM, Charlie11Delta wrote:

    So that means that I can get a Karma for cheap(10K or less)? I wait until they are out of business to get one.

  • Report this Comment On April 07, 2013, at 9:50 PM, autoinsider wrote:

    Tesla won't be far behind. After the first adopters run out, what's left? There is no MASS market for electric cars.

  • Report this Comment On April 07, 2013, at 9:51 PM, mottledtool wrote:

    The Fisker just didn't really add up. For any vehicle trying to be 'efficient' the well over two ton curb weight was a major problem. It's still just a bit early for battery dependent EVs because the batteries are expensive, bulky and the most energy dense LiIon versions still have an annoying tendency to catch fire. Add an entire internal combustion drivetrain to manage customer range anxiety and efficiency has largely disappeared.

    An important consideration to keep track of is that the petroleum companies face potentially HUGE losses of revenue at the point where this technology does click and work seamlessly. Big Oil is rooting for EVs to fail with all that they're worth (which is a lot).

    New batteries are imminent. They will deliver 3x the range of current batteries and should cost no more. This fledgling EV industry will have it's stumbles and it's casualties, but it's important for consumers and the environment that it succeed.

  • Report this Comment On April 07, 2013, at 9:57 PM, Dadw5boys wrote:

    If they could apply the New Technology Graphene to their electirc cars the company would be saved !

  • Report this Comment On April 08, 2013, at 10:26 AM, TMFMarlowe wrote:

    @autoinsider: I keep asking that question (re Tesla) myself (and the related question, which is that if there DOES turn out to be a real market, how does Tesla fend off the big automakers?)

    I'm a fan of Tesla's cars, but not so much the stock.

    Thanks for reading.

    John Rosevear

  • Report this Comment On April 08, 2013, at 1:19 PM, AjitC wrote:

    The big differences between Tesla and other BEVs is the range, performance and design. Deep pockets, flawless execution, passion of Elon Musk helped too. LEAF is just lame.

    Fisker was just form over function. It was essentially a fancy plug-in. Poor quality. Porsche, etc all offer better choice with hybrids.

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