Posted by: David Welch on September 22, 2009
The U.S. Government sure is hot on these electric car programs. The Energy Department granted Fisker Automotive, a California electric-car startup, a $528 million loan to finish work on its $88,000 Karma plug-in electric sports car and to develop a smaller, cheaper model. The loan deal follows a $465 million loan to Tesla Motors, another California electric-car startup, made by the DOE in May.
In both cases, the government is betting on technology that has yet to prove its way with consumers. Electric cars are still too expensive and in most cases can’t drive far enough on a charge to appeal to the masses. Tesla has delivered 700 of its $109,000 roadsters and is trying to get its $50,000 Model S sedan ready to sell in 2011. Fisker has yet to sell a car, but plans to launch its Karma sports car next summer. Fisker, started by former Aston Martin designer Henrik Fisker, expects that its sports car will go 50 miles on electric drive before the gasoline engine kicks in. It’s a similar concept to General Motors Corp.’s Chevrolet Volt, which will likely go 40 miles before the gasoline engine kicks in to recharge the battery. GM got a preliminary city fuel economy rating of 230 miles per gallon for the Volt.
Is this money well spent? It’s a big gamble. Both companies will need to get their less expensive cars on the road and in big numbers to lower production costs and start showing consistent profits and positive cash flow. If not, paying those loans back could be a tall order. Fisker’s second project, called Nina, is designed to do just that. The company wants to sell 100,000 of them a year at around $40,000 apiece. Maybe at that kind of sales volume they can make money. At lower sales volumes, electric cars are a money loser. GM, which expects to sell about 10,000 Volts in the first year of production, is likely going to lose money on the first-generation car. It’s hard to see sales of 100,000 Fisker Ninas since the BMW 3-series sells that many cars in the U.S. in a year at about the same price. And it’s an established brand in the marketplace. Another big point: Battery costs need to come down to gin up consumer appeal and improve the profit picture.
Using government funds for technology projects always sparks a hot debate. On one hand, if the government is going to dole out loans to businesses, why not spend the money on something that could change the game? Electrification of the car could do that for an industry that has made gas burners for more than 100 years. On the other hand, promising new technologies have usually been funded by risk-taking venture capital firms and daring investors. To date, Fisker has raised more than $100 million in private capital. Tesla has raised much more, including $82.5 million in private funds and $50 million from Daimler AG recently. For Fisker, that means tax payers are being asked to gamble roughly five times more than the private players who invest in technology. In other words, if the true believers who think electric cars are the future don’t have enough conviction to invest more money, why should the public? There’s nothing inherently wrong with public funds spurring new technology. But at a time when the nation is running huge deficits, it would be nice to see the private players match Uncle Sam’s skin in this game.