Is Tesla Motors' Revived Competitor a Legitimate Threat?

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's Karma electric vehicle. Source: Wikimedia Commons.

Enter Karma
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.

Bottom line
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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Read/Post Comments (7) | Recommend This Article (4)

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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 June 08, 2014, at 8:07 PM, peteroo wrote:

    IMO, the question is, if you are a buyer for a $110-140K hybrid, which would you rather purchase a Karma or a BMW i8? Kind of a no brainer, don’t you think?

  • Report this Comment On June 08, 2014, at 9:15 PM, normgarry wrote:

    I've driven both the Fisker Karma and the Tesla Model S Performance.

    The Fisker Karma is actually the better car because "range axiety" doesn't enter the picture thanks to the Volt-derived gasoline backup and the far better interior materials which were between Jaguar XJ and Aston Martin Rapide.

    The Karma lost the battle because the interior was a horrific waste of space. The Model S gets around this by having a flat platform and a spacious interior.

    The Model S interior feels like a $30,000 car - less "luxurious" than the Charger's. Then there's the range anxiety which means you won't be able to drive further than 300 miles on a charge without setting aside huge chunks of time to recharge at Superchargers.

    The simple fact is that gas/plug-in Hybrids are a far superior choice for the next 25 years than pure-EV. Most people don't have the charging spots to consider an EV. Most people live in apartments and work at offices without charging spots.

    Gas/plug-in hybrids allow people to have infinite range, while charging the car for work weeks where they don't need to worry about driving more than 20 miles per day.

    The Volt and ELR are far too expensive, but someone who actually has the money and is considering a Plug-in for short range driving will more than likely choose the Tesla Model S.

    Hopefully, TESLA will deliver a more affordable "Model E" soon to bridge the gap between hybrids and luxury plug-ins.

  • Report this Comment On June 08, 2014, at 9:50 PM, NYCTokyoLondon wrote:

    The Karma lost because it was a slow, unreliable non-gamechanger which didn't bring much to the table to justify its cost over any other hybrid. It had nice looks going for it, which are more exotic looking than the Model S, but that's it. I actually prefer the uncluttered minimalist approach that Tesla went with in its interior, and you really feel like you're in a car of the future and it makes dozens of buttons and switches everywhere seem old-fashioned. You can already get new features and improvements over the air through software updates, and soon you will be able to install apps on it just like a smartphone. Also the level of support that Tesla gives, I've never seen anywhere close from another car company. They are also constantly making improvements to the car.

    The Tesla Model S is not for everybody. But for someone who lives in a house and doesn't mind stopping for 40 minutes every 3 or 4 hours of driving on a trip, there's no comparison. If you don't travel far often, then you can wake up to a fully charged car every morning and never have to visit a station again. I've taken this car between NY and PA many times, for free, and others have gone all the way to Florida and back. And with no gasoline element, there's no more spark piugs, transmissions, oil changes, water pumps, fuel pumps,exhausts, and all the complexities of an ICE vehicle. All you need is a home solar/wind array and you can be free of the energy market manipulation for good!

    To put it in perspective, given a choice between fire-sale Karmas at up to half-price and paying twice that amount for a MS, I still went with the MS because the Fisker is just another car, while there's nothing else like the MS. I hope that Fisker has success and becomes a viable alternative to the mainstream, and in that sense they should be viewed as allies, but Fisker has a lot of work ahead of it.

  • Report this Comment On June 09, 2014, at 9:11 AM, tyler91988 wrote:

    Elon should buy Fiskar and just shut it down.

  • Report this Comment On June 09, 2014, at 1:41 PM, deeageaux wrote:

    There are no cars with unlimited range. There are no perpetual motion machines. They all have set ranges, then you must refuel before driving again.

    Fisker is an inferior design because it is a hybrid. It takes the space and weight of TWO propulsion systems. Therefore you can only fit 4 people and it is a very tight fit. In a Model S you can sit 5 adults plus optionally add the jumper seats for two children.

    And the Karma has a higher center of gravity where the handling is compromised. The superior handling implied by the Karma looks are not delivered. The Karma patents are next to worthless. The name and exterior design like the front grill are symbols of failure and poor quality.

  • Report this Comment On June 09, 2014, at 10:36 PM, joeinslw wrote:

    I don't understand how this writer or anyone can compare the Tesla Model S with the Karma/Fisker? This car is so much smaller, it holds only four, and is much slower 0 to 60 in 6.3 compared to the Tesla Model S at 4.2 seconds, and to top all that off the Fisker is a hybrid with a gas engine that will boost the mileage to 250. The Model S gets at least 265 miles on one charge without the need of a gas engine, so how can anyone criticize the Model S car without looking at all these facts?

    When you look at the fact that when the Supercharger system is complete you can go anywhere in the country FREE with no gas to buy or use, making the Model S a complete electric transport with out the use of fossil fuels.

    If our Country would get behind this technology, i.e. buy it use it and praise it, we could put an end or at least a great big dent in C02 pollution which is a real cause for all the destructive weather we have been seeing and in some areas of the country...experiencing.

  • Report this Comment On June 10, 2014, at 8:52 AM, ThosEM wrote:

    With problems fixed, the Karma could be a strong competitor for the BMW i8, but not for the Model S.

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