Tesla Motors (NASDAQ: TSLA ) has been on a stock price roller-coaster ride over the last year, and there remain plenty of ups and downs in the electric-car maker's path. Tesla is building out its Supercharger station infrastructure in order to provide convenient power for its electric vehicles. It's fighting legislation in a number of states that is attempting to prevent Tesla from using its direct-to-consumer business model, allowing the company to skip the dealership middle man. In addition to facing growing competition from established automakers, a new threat has recently emerged.
Let's dig into the questions surrounding this new competitor to better understand if Tesla investors should be concerned.
One man's trash...
Meet Lu Guanqiu, the Chinese billionaire who purchased Fisker Automotive Holdings at a bankruptcy auction earlier this year. Guanqiu is the chairman and founder of Wanxiang Group Corp., China's largest auto parts company, and plans to use purchased assets from Fisker Automotive to manufacture electric cars in the U.S. and eventually in China.
"I'll put every cent that Wanxiang earns into making electric vehicles," he said at Wanxiang's headquarters in Hangzhou. "I'll burn as much cash as it takes to succeed, or until Wanxiang goes bust."
While I admire the determination and willingness to go big or go home, look how well that worked out for Fisker Automotive. Taking on Tesla and its brilliant CEO Elon Musk will certainly be a tall order for Guanqiu, but his nearly $150 million purchase of Fisker Automotive added some interesting pieces to the puzzle.
Guanqiu plans to build on what's left of Fisker Automotive, and he has gained three-dozen current and pending Fisker patents, according to Bloomberg. One very important piece included in the purchase of Fisker is its abandoned plant, formerly a General Motors facility, in Wilmington, Del., that provides an entry point to producing and selling vehicles in the U.S. market. That's a feat that no other Chinese carmaker, neither the Warren Buffett backed BYD Co. nor Great Wall Motor Co., have achieved.
In addition to the patents and plant gained from purchasing Fisker Automotive, Wanxiang bought most of the assets to Fisker's battery supplier which collapsed under the cost of defective power packs. Adding those assets into the mix was basically a way to purchase additional production, operating, and marketing knowledge.
The purchase of Fisker Automotive and most of its battery supplier, A123 Systems, seems to have given the Chinese billionaire the needed parts to begin competing with Tesla. What's next?
Fisker Automotive produced a plug-in hybrid sports car named the Karma. It boasted a striking and sleek exterior that took three years and over a billion dollars to launch -- for more perspective, that is less time and money than it took General Motors to produce the Chevrolet Volt, according to Car and Driver.
It was produced in Finland with a starting price tag just over $100,000, and reaching $116,000 for the top model. Deliveries for the Karma hit roughly 1,800 units in North America and Europe before financial difficulties suspended production.
The Karma was marred with technical flaws, including risk of battery fires caused by coolant leaks, it's 5,300-pound curb weight, and embarrassing electric-only range rating of 32 miles per charge, according to Plugincars.com. In fact, when Consumer Reports purchased a Fisker Karma to test it for its magazine the vehicle broke down and couldn't be restarted. Consumer Reports noted it was the first time in memory a vehicle was undriveable before it finished the check-in process -- ouch.
Wanxiang plans to start production of the Karma vehicle in the U.S. market before designing and producing other vehicles -- the company has yet to release a time frame surrounding its plan.
All flaws aside, if Wanxiang proves it can produce a better vehicle from the leftover pieces of Fisker, the Karma vehicle certainly has the exterior appearance that could attract potential Model S buyers. Although, much more goes into a car purchase than simply being lured in by a striking appearance, and that's where Tesla has its advantage.
In the automotive industry your success is largely determined by two things: a quality product and customer service. Tesla has proven it can produce one of the best vehicles on the road -- the Model S has received endless praise from critics and was awarded the highest rating by Consumer Reports, ever. Tesla's swift and generous reaction to any and all vehicle problems, such as voluntary vehicle recalls, has earned the company much respect in the public's eye.
Tesla certainly may have a new competitor on the horizon, but it's not something for investors to be remotely concerned with until Wanxiang proves it can match Tesla's quality product and customer service -- and that's a very long way down the road.
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