About 16 miles down the turnpike in Delaware from the old General Motors where startup Fisker Automotive plans to build an upcoming plug-in hybrid vehicle, Elon Musk, CEO of rival Tesla Motors, yesterday told an audience at the University of Delaware (and more joining via Second Life) that he has “some reservations about the feasibility of Fisker’s approach.”
According to the Delaware News Journal, Musk said, “It’s very tough to create a car company,” noting particularly high hurdles for engineering an electric car, adding, “Fisker is very far from overcoming those.”
Musk’s comments come at an interesting time for the two startups, which have each secured multimillion-dollar conditional loans from the Department of Energy to help accelerate them toward a new phase: higher volume production of more affordable vehicles.
Founded in 2003, San Carlos, Calif.-based Tesla has enjoyed a lead over its Southern California rival, which wasn’t founded until 2007 (Tesla later brought, and lost in arbitration, a lawsuit against Fisker and its founders, alleging they had stolen design ideas and trade secrets).
But at this point, while Tesla has entered production and delivered more than 800 of its luxury electric Roadster, and Fisker has yet to bring its swanky plug-in hybrid Karma to market (it’s due out next year), neither one has proven long-term viability.
Fisker and Tesla have mapped out different routes to producing large numbers of lower-cost vehicles, notably in their distribution strategies. Fisker is opting for a more conventional dealership model, while Tesla handles its own distribution (its showrooms are modeled after Apple stores). Darryl Siry, Tesla’s former marketing chief explained yesterday in an article for Wired’s Autopia, “In essence, Fisker is content with building a car company and partner with retailers while Tesla aspires to build a car company and build a global retail distribution company.” According to Siry, this makes Tesla’s business model more capital intensive and risky, but with potentially higher rewards.
Tesla announced in August that in the previous month, for the first time ever, it achieved “overall corporate profitability,” with $1 million in earnings on $20 million in revenue. But the company is working for (and investing in) much bigger game. Tesla aims to supply battery tech (beyond its deal with Daimler), sell an electric sedan priced for high end for the mass market, and eventually other models as well. Those cars would be displayed in brick and mortar stores and maintained via a mobile service fleet of “Tesla Rangers.”
Whether those investments will pay off remains to be seen. According to Siry, “For Tesla, it amounts to a more highly leveraged bet on its success – if it wins in the the marketplace, it will win big. If volumes are lower than anticipated, however, Tesla may find its bottom line under significant pressure from high overhead costs.”
Fisker Automotive founder Henrik Fisker, meanwhile, has said he expects his company become profitable by 2011. As Autoblog Green reports, the company claims it will be able to break even with just 5,000 sales, and it has already brought in more than 1,500 pre-orders without a marketing campaign. The key, Fisker said, is the company’s low overhead and its decision to outsource production (to Finland’s Valmet) of the Karma.
We’re getting closer to seeing more competition for actual buyers of plug-in vehicles — rather than for venture capital investment, DOE funds or merely buzz. As Musk said, it’s tough to create a car company. He is probably right to have reservations about the feasibility of Fisker’s approach. Like Tesla, the company and its backers, which now include U.S. tax payers, are making very big bets that are far from guaranteed. They’re trying to reinvent the car business. Let’s hope they succeed.
Photos: Tesla Model S (top) and Fisker Karma (bottom), courtesy of Tesla Motors and Fisker Automotive