Bloomberg News

Fisker Sees DiCaprio Driving Away Doubt for Plug-In Karma

March 26, 2012

Fisker Automotive Inc. wants its $107,000 Karma to compete for buyers of high-performance luxury cars. Photo: Fabrice Coffrini/AFP/Getty Images

Fisker Automotive Inc. wants its $107,000 Karma to compete for buyers of high-performance luxury cars. Photo: Fabrice Coffrini/AFP/Getty Images

Fisker Automotive Inc.’s dream of a profitable plug-in luxury-car business still entices investors, even as the California startup fixes glitches in its first model and is pulled into a political fight over a U.S. loan program.

The company wants its $103,000 Karma to compete for buyers of high-performance luxury cars with Porsche AG (PAH3), Fiat SpA’s Maserati and Volkswagen AG’s Bentley. It’s working to raise at least $100 million in new funds to reach about $1 billion of private money by the end of the month, two people familiar with the matter said last week.

Fisker has gained symbolic importance beyond its size. The company is a test of whether electric-drive luxury cars can be sold profitably. Its first model, the Karma, has had stumbles, including a recall and a car shutting down during testing by Consumer Reports magazine. With approval for as much as $529 million in loans from the Energy Department, its future also will be part of debates over U.S. policy.

“It’s not unusual, even for big automakers, to have some stumbles out of the gate with a new product, particularly for exotic” vehicles, said Eric Noble, president of the Car Lab, an industry consultant in Orange, California. “With this political element, they’re going to be lucky to get through all that.”

About 630 Fisker cars have been delivered, mostly to U.S. buyers so far, according to the company. Customers include actor Leonardo DiCaprio and singer Justin Bieber. Walden Schmidt, the television character played by Ashton Kutcher on CBS Corp.’s “Two and a Half Men,” has driven a Karma on the show since late last year.

‘Crony Capitalism’

Fisker’s future hinges on continued investor support after its access to U.S. loans was suspended when the company didn’t meet a timetable for making a second plug-in model in Delaware. Critics include Republican presidential candidate Mitt Romney, who calls the Obama administration’s loans to startups such as Fisker and solar-panel maker Solyndra LLC, which filed for bankruptcy last year, “crony capitalism.”

The company had drawn down $193 million in U.S. loans when Fisker disclosed in February its access was suspended last year. Fisker had raised $896 million in private funds as of Feb. 10, according to a regulatory filing.

While it’s fair to question whether the government should be lending to any company, particularly startups, Romney’s criticism of Fisker isn’t, said Ray Lane, a board member and managing partner for Kleiner Perkins Caufield & Byers, a Silicon Valley investment firm backing the carmaker.

“The problem I have with Romney is he doesn’t check his facts,” said Lane, who is also chairman of Hewlett-Packard Co. (HPQ) and describes himself as a lifelong Republican who’s never voted for a Democrat.

‘He’s Just Wrong’

“When the debate goes to: This president is handing out taxpayer dollars to his buddies, he’s just wrong,” Lane said.

Fisker applied for its federal loan before Lane knew the program existed, he said in a March 24 phone interview. Lane said he never met with anyone at the Energy Department and doesn’t talk with President Obama. Al Gore, who was U.S. vice president in the Bill Clinton administration and is an investment partner at Kleiner Perkins, wasn’t involved in the Fisker application, Lane said.

Closely held Fisker’s goal is to lure environmentally conscious buyers seeking a rechargeable luxury car able to go as far as 50 miles (80 kilometers) on lithium-ion battery power before a gasoline engine engages. The Karma has had two defects related to Waltham, Massachusetts-based A123 Systems Inc. (AONE), which is also an investor.

Fisker recalled 329 Karmas in December to fix clamps on battery packs made by A123. This month, Consumer Reports said a Karma it purchased shut down during testing on the magazine’s track in Connecticut. A123 said this morning that faulty cells it produced in Michigan caused that car to break down.

CEO’s Stance

Tom LaSorda, the carmaker’s chief executive officer, said in a March 13 statement that the car responded correctly when it shut down after detecting an error. The company created a team of more than 50 engineers and technicians to identify and solve any additional defects, he said.

Next week in New York, Anaheim, California-based Fisker is to show the Nina, the plug-in it wants to eventually build in Wilmington, Delaware, and to provide an update on business.

“Quality has become the number one focus and priority of the company,” Lasorda said in a March 24 phone interview. “In that comes putting the customer first, before anything.”

Fisker and other automakers are trying to create a market for cars powered mainly by electricity amid tougher fuel economy rules and concerns over carbon pollution and oil prices. General Motors Co. (GM), Toyota Motor Corp. (7203) and Nissan Motor Co., as well as startups Tesla Motors Inc. (TSLA) and Coda Automotive Inc., offer plug- in vehicles.

Plug-In Demand

Even as gasoline prices rise, sales have started slowly and demand is hard to predict.

“No one really knows,” said K. Gopal Duleep, president of HD Systems Inc., a Washington-based consulting firm. “Market share for plug-ins is likely to be very small, perhaps 50,000 a year by 2015.”

Combined sales of GM’s Chevrolet Volt plug-in hybrid and Nissan’s all-electric Leaf, the first two mass-market rechargeable cars, were 17,345 last year, falling short of annual targets for both. GM this month temporarily halted Volt production in Michigan because of a growing supply of unsold cars.

Demand for such autos outstripped supply last year, Phil Murtaugh, chief executive officer of Los Angeles-based Coda, told reporters in Los Angeles this month after the company delivered battery-powered sedans to its first two customers.

Karma Delays

A shortage of components caused by natural disasters in Japan was one factor, he said.

“There truly is 55,000, 60,000 units of demand” for electric cars this year, Murtaugh said. Within a decade, rechargeable autos should account for as much as 2 percent of U.S. sales, he said.

Shipments of the Karma, designed by company co-founder Henrik Fisker, began in late 2011, more than a year behind an initial goal. Engineering and design are done in California, with Karmas built under contract in Finland by Valmet Automotive Oy, a specialist in luxury-auto assembly.

While the Karma was selected as “Luxury Car of the Year” by the BBC’s Top Gear television program last November, initial reviews in the U.S. have been mixed. Dan Neil, automotive critic for the Wall Street Journal, last month called it “the world’s most interesting car.”

Jason Harper, auto reviewer for Bloomberg News, found more faults, including powertrain noise and vibrations and relatively slow acceleration for a premium sports car.

“Fisker argues the Karma’s major selling point is its blend of sportiness and green credentials,” Harper wrote in his review last week. “I’m not convinced. Luxury consumers don’t like compromises, and the Karma is full of them.”

Loan Program

Fisker’s choice to simultaneously develop the Nina sedan, projected to cost half as much as Karma, while also refurbishing the aging Wilmington plant to build it may have been too big of a stretch.

Funding for the factory came from an Energy Department loan in 2009 that’s part of an Obama administration effort to spur development of energy-efficient technologies.

The program, initially proposed under the Bush administration, has drawn congressional scrutiny since the September 2011 bankruptcy of Solyndra. Beacon Power Corp., an energy-storage company, and Ener1 Inc., a supplier of batteries for electric cars, also filed for bankruptcy protection after receiving Energy Department aid.

Romney, Gingrich

Romney criticizes the loans in his campaign stump speech for usurping the private sector’s role in spurring new industries.

“The right course for America is not to have a president to take your money to give it to his friends, but instead to let the free market choose those that have the greatest prospect for success,” Romney said last month in Lansing.

Newt Gingrich, vying with Romney to be the Republican nominee, derided GM’s plug-in as a “liberal’s” car. “Here’s my point: You can’t put a gun rack in a Volt,” Gingrich said while campaigning in Georgia last month, according to the New York Times.

Criticism is to be expected, said Murtaugh of Coda.

“It’s an election year,” he said. “There’s lots of things said in an election year that five years later nobody remembers.”

‘Second Wives’

Fisker’s investors include Palo Alto Investors LLC as well as Kleiner Perkins and A123 Systems.

The Energy Department may let Fisker resume drawing on the loan funds after “they see us deliver the monthly numbers,” LaSorda said in a conference call last month. “We have a new business plan and we’re getting strong support from our financial partners.”

The company’s initial goal of specializing in premium plug- in cars was a “solid business,” said Car Lab’s Noble. “In terms of price, performance, package, accouterments, Karma stacks up well against Porsche Panamera.”

The early technical glitches are fixable and may not be fatal for the brand, he said. Wealthy customers may also be more forgiving than mass-market drivers, Noble said.

“Let’s be honest: This is a car for plastic surgeons and their second wives,” he said. “It’s a $110,000 car and anyone who buys one isn’t expecting it to be a Camry. They want something emotional.”

To contact the reporters on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net; Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net; Tom Giles at tgiles5@bloomberg.net


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