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Summary:

Three companies that made aggressive bets on the future of electric cars — A123 Systems, Fisker Automotive and Better Place — are now facing major problems financially and commercially.

We drive the new Tesla Model S thumbnail

Updated: This week witnessed some notable high profile struggles from three companies that are aggressively betting their futures on electric cars. A123 Systems, Fisker Automotive and Better Place — representing billions of dollars of investment in the future of electric cars — are now facing major problems financially and commercially.

The three companies suffered from different setbacks, though all are facing the fact that consumers and companies are adopting electric cars more slowly than expected. And the necessary next-gen batteries are still too expensive. Looks like Tesla is the last man standing when it comes to the aggressive electric car startups that launched over the past few years — and even it is not without risk.

If Better Place can’t make it in Israel. . .

Electric car infrastructure company Better Place started rounds of layoffs as its first network in Israel has been moving more slowly than expected. The Globes says Better Place Israel has already laid off 140 employees and will be cutting another 150 to 200. There were 400 employees at the company before the first round of layoffs. The company only sold 23 cars in November, its slowest month to date, said the Globes report.

Better Place IsraelThe layoffs are disconcerting because Israel is essentially the proving ground for Better Place’s business model. Yes, Denmark is another early market, too, but in Israel, Better Place — and founder Shai Agassi — had a particularly close connection to the Israeli government and important investor Israel Corp.

Better Place, which launched in the winter of 2007, builds out electric car charging infrastructure and battery swap stations and then sells electric car charging and a subsidized electric car (Updated: made by Renault, part of the Renault-Nissan Alliance) like a wireless carrier would sell cell phone service. The company made some amazing strides in past years by managing to convince Israel and Denmark to act as early markets, by partnering with Nissan, and by raising so much money.

But the problem is that it’s expensive to build out the needed network to make the service work optimally. Whenever I asked Agassi in previous interviews throughout the years about that issue, he always waved away the seemingly high capital expenditures needed to build these networks. He commonly would compare the costs of the network to the prices of oil imports.

But if you’re working with investors, at some point they want to stop losing money and they want to start making it back. Israel Corp certainly did, which is one reason why it reportedly replaced Better Place’s CEO.

Better Place still could make it. The company has raised another $100 million in two tranches, Better Place spokesperson Julie Mullins told me. So they have some breathing room to try to make the offer more attractive to Israelis car drivers . But this week’s news is a worrisome turn Ray Lane's Fisker Karmaof events for them.

Fisker on life support

Then there’s electric car startup Fisker, which is searching for a lifeline — a.k.a a partner or acquirer — to help it produce its second car, the Atlantic. It’s also stopped assembling its Karma cars and says it’s waiting to see what will happen with its now bankrupt battery supplier A123 Systems.

Fisker told the Wall Street Journal this week that it has hired investment bank Evercore Partners to help it try to sell itself, or raise more money. The company that had been helping it raise funds previously, Advanced Equities, is being shut down for lying to investors about raising money for another cleantech company, Bloom Energy.

A123CellFamily1If Fisker is sold off, I speculate that the valuation would be pretty low. I heard the company’s last fund raising round was at a far lower valuation than its previous fundraisings. Fisker has raised funds from Kleiner Perkins, NEA, and others. Fisker launched back in the 2007. The company has had a lot of problems and some pretty bad luck, too.

Battery bankruptcy

And finally, there’s the high profile bankruptcy of lithium ion battery maker A123 Systems. This week the company held an auction to see if American battery maker Johnson Controls or Chinese auto parts giant Wanxiang would win bids for the automotive division. There could be a lot of controversy if Wanxiang bought the company, as A123 was given a large DOE grant, and also had military contracts.

A123 Systems had a long slow death over its years as a public company. Fisker was one of its major customers, ad when Fisker had to downgrade a quarter of orders, it hurt A123 hard. A123 also didn’t scale up its manufacturing very well, and had problems with some of its batteries — particularly faulty batteries that caused problems for Fisker.

Green Overdrive: The Think City thumbnailLike the deadly combo of electric car maker Think, and battery maker Ener1 — which helped bring each other down — A123 and Fisker also have contributed to each others’ problems.

Tesla still going

One of the last really aggressive startup electric car bets left is Tesla. Yes, the company had to lower its estimates of production of its Model S this year, but now it’s on track with new numbers. And Tesla CEO Elon Musk tweeted recently that the company “was narrowly cash flow positive last week.” Musk can be a little creative, so wait for the next earnings report to check on that one.

In addition, Tesla also had some other good financial news this week. Investment management giant Blackrock has taken a 5 percent stake in the company, according to the Wall Street Journal and an SEC filing. Updated: That WSJ story was inaccurate and has since been corrected. Blackrock already had a stake in the company and reduced its share to just under 5 percent, selling some off.

So what’s the difference in these three struggling companies and Tesla? Well, for Tesla, strong leadership, strong technology, a little bit of luck and good investors. But I’ll go into that in another post, in a few weeks.

  1. How do you feel about the use of hydrogen as a sustainable fuel ?

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    1. Bryan Christy Seigneur Friday, December 7, 2012

      Hydrogen must be compared to batteries regarding storage efficiency and the transmission grid regarding transmission efficiency. While the physical plant for storing hydrogen is cheaper than batteries, the conversion from source electricity to hydrogen (from water via electrolysis) is hugely less energy efficient than battery storage. Regarding transmission, the story is completely lopsided against hydrogen and in favor of electricity.

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    2. Bryan Christy Seigneur Friday, December 7, 2012

      In addition to my points above, electricity for use in EV batteries can in the present tense be generated relatively inexpensively onsite by homeowners. There’s no hydrogen equivalent for homeowners to a $1000 4kW solar array. Any hydrogen generating system would be a additional cost ON TOP OF the cost of the PV array.

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    3. Go for it. Design the technology that will capture, store, and use hydrogen in some way that is not financially prohibitive and more efficient than the intervening steps getting there.

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    4. I think Hydrogen will never be ahead of EVs. Yes you can store more energy in 1kg Hydrogen but you also need bigger hardware to regain that energy.
      Also the amount of energy that you lose producing Hydrogen out of Electricity and gaining the the electricity back from hydrogen is a lot, over that route you lose 75% of energy, with batteries you lose only 30%.
      I think Hydrogen is only suitable for the industry like Trucks, or big Transport ships.
      As Elon Musk calls it the “Fool Cell” and I agree with that.
      Reason is all the big companies are pushing it is to keep the monopoly about the fuel supply of the world. Where with EVs esp. in combination with Solar cells it is a more autonomous energy form.
      So use every chance you get to promote EVs for an Independent Transpiration Energy form.
      Btw. I noticed that a lot of non techy people think that hydrogen powered cars only need Water to drive with. Like you can fill it up with a bottle of water and drive whit that. Thats a ridiculous is understanding in my opinion

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  2. Wayne Westerman Friday, December 7, 2012

    Fisker may be responsible for its launch glitches but they’ve worked through those months ago and its an amazing daily driver car. I much prefer it to commuting in my Aston Martin DB9 — much more comfortable, smoother launch, super quiet and perfectly snug handling, even better looks, with the carbon efficiency of a Prius! Within a few years, electric drive will become the luxury car ‘standard’ for the same reason power steering and power brakes became ‘standard’.

    Most owners (see the fiskerbuzz forums) are pretty ecstatic about their cars at this point. Fisker’s main problem now is unfounded doubt from the press, who copy one another’s negative stories in the usual echo chamber. That can happen to any company — look at the media turn on Apple the past couple months! Journalists should get out and drive a Fisker Karma for a few days and write a story about the difference between reality, i.e. customer experience, instead of just parroting one another’s negative stories.

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    1. lapperderlaggardo Friday, December 7, 2012

      There was a fairly comprehensive user review of a Karma on Youtube, and while the review did highlight a number of good points about the car, there seemed to be an overarching sense of disappointment in the customer’s review. It just didn’t seem as user friendly as, say, a Tesla Model S, and there seemed to be a number of quality issues.

      Then again, that’s just one review. I suggest you do your own review of the car so that there is a balanced set of opinions out there for prospective EV customers to base their own opinions/decisions on before taking the plunge. Cheerio!

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      1. Wayne Westerman Friday, December 7, 2012

        That’s the famous Brian Greene review. He was definitely disappointed last spring, to the degree that other owners got sick of hearing him whine incessantly and drove him out of the owners forum. He obsessed over the command center UI, since he’s an iPhone game designer, but that’s not nearly as big a deal as he makes out for must people since it’s a car to drive not futz with the command center all day. With the many fixes since even he claims to be happy now. The owner forum is relatively quiet now — which is a good thing not much to complain about!

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    2. Amen. I worked at Fisker in Ca. I can tell you we all worked hard to design and build the Karma. Some very smart designers and Engineers. 90% from Detroit.
      I also wish the media would just drive one. Do your job. Write your own material. Some very hard working American’s are counting on it. Just do your homework before you judge.

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    3. A Fisker AND an Aston Martin? You must be one of those 1&ers I kept hearing about recently.

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    4. Bernard J. Girardot Saturday, December 8, 2012

      I find my McLaren F1 to be more fun than my DB9 in any case …

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    5. oo-oo how does one Do that in the SF bay area?

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  3. Wayne Westerman Friday, December 7, 2012

    Especially you Katie. If you got the pleasure of driving a Karma to work everyday I bet you’d think twice about writing one gloom and doom story after another on Fisker.

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    1. I have driven a Karma — it’s a cool car. I am not in the financial situation to own one and drive it every day to work. But, I disagree with you. Press, is not Fisker’s biggest problem. Bigger problems include a bankrupt battery supplier that previously sold it faulty batteries, a lost DOE loan guarantee, a former investment broker partner that received an SEC charge and is being shut down, and that it needs to raise even more funding to make its Atlantic. . . this is not counting the launch problems you’re talking about.

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      1. Wayne Westerman Friday, December 7, 2012

        And how many of these problems would Fisker have had if Jalopnik, Consumer Reports and one major political party weren’t doing their best all year to sensationalize Fisker’s missteps with way worse attention than any existing non-electric car would have gotten? For what? A few extra page views and votes? If Fisker fails, somebody can make a movie about how sensationalist automotive blogs, not the big 3, killed the electric car, again!

        Positive press momentum and higher sales, as Tesla seems to have captured for the moment, heal the finances. In the meantime, continuing to raise big money is part of his job, as the Fisker CEO said.

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      2. FISKER is a 90% gas car

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  4. Tesla is going to fail. Give it time.

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    1. It’s possible. It’s still in a pretty delicate stage.

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    2. Nicu Mihalache Sunday, December 9, 2012

      Tesla has successfully negotiated the most delicate phase of the launch of the Model S – production ramp-up. Those who see it just as an EV just don’t get it. Model S is a real car that competes with the best of the best, not some dorky, slow, 1-2 star crash results EV. Reservations are accelerating as the car itself in the hands of owners it’s the best advertisement they could get – contrary to some sceptics’ opinion that there was some puddle of demand that will be over soon.

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  5. This news comes as disappointing yet unsurprising.

    These failures, IMO, point less to the shortcomings of any individual company mentioned in the article, than to the overall shortcomings of government, finance, academia, and industry to coaleace meaningfully around a systematic plan to make electric cars a reality.

    The challenge facing the electric car industry is that it’s building an infrastructure-dependent product without an infrastructure, tantamount to tasking a Facebook or Google with not just leveraging the web but building the structures, standards, and protocols that power it.

    I think that one of the major shortcomings behind #ElectroFail is a lack of open IP and standards. The internet (in particular) thrives because private, proprietary players swim within a larger ocean of open standards, accessible government and university research, and dense cooperation between and within various players in the ecosystem.

    To create a thriving, innovative milieu for the electric car ecosystem, we need a rich, open, accessible infrastructure and grid, patent-free standards to spur innovation, and a commoditized body of parts to supplant what are now largely proprietary assemblages of bankrupt (and now bankrupted) manufacturing.

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    1. Wayne Westerman Friday, December 7, 2012

      I will agree that the efforts and urgency are uncoordinated so far. We’d rather react to mega disasters with billions after the fact than methodically address the global warming problem. Fisker tries to work around infrastructure by being a plugin hybrid, but still needs an engine and so isn’t as simple mechanically as the Tesla all-electric design. A Better Place is trying to create a battery swapping infrastructure that let’s you swap batteries as quickly as filling a gas tank — but only one middlingly attractive car model is available. Tesla is trying to create an infrastructure with it’s interstate super-charging network to recharge while stopping for lunch. But I think only early adopters will be willing to plan their long-distance trips around such a sparse charging network, where the next station is over a hundred miles away.

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  6. Mark McAndrew Friday, December 7, 2012

    Maybe the three companies should form a JV then. Just a thought…

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  7. No doubt about it, keep it going Tesla and show us more what you really got.. :p

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  8. Better Place had / has a bad strategy. It should come as no surprise it’s failing in Israel.

    Take an expensive product. Make it more expensive. Offer the consumer no real choice of models. Base the whole thing on a Rube Goldberg-solution of battery swapping. Discourage the use of battery swapping. Make it so you are the monopoly provider of something readily available (electrons).

    It’s a bad business plan, strangely funded to the tune of a lot of money.

    Fisker, similarly, is a very odd business plan.

    Build a really large, heavy car that has no real space for people or stuff. Charge luxury, performance car prices but offer no real performance. Sell it as “eco” but offer nothing in the way of “eco” that you don’t get in a Chevy Volt for less than half the money. The Volt holds as many people, more stuff, is much less good looking, not as fast, and not as luxurious, but given the whole “the Karma ain’t too much in the way of eco”, you might spend the $70K you save on a BMW M3 for when you want to… >Drive<….

    A123 had no particular business plan.

    Let's make a commodity battery maker that happens to be in the U.S.

    Look, this stuff is hard.

    And of the four companies in question, the one doing the hardest stuff is Tesla. Which is the one that's succeeding. Go figure.

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    1. Actually battery swapping in neigther new or unsuccessful. Curtis publishing used CT Drayage EV trucks for magazine delivery from the early 1900s to the 1960’s as their bean counters had decided petroleum fuel, maintenance and such were more costly. They went out of business shortly after converting to gas powered vehicles – no connection, I’m sure

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  9. Black Rock did not recently acquire a 5% stake in Tesla. If you read the filing, it says they reduced their stake to a less than 5% position (4.99), which makes it a reportable move.
    A previous filing (http://files.shareholder.com/downloads/ABEA-4CW8X0/0x0xS1086364-12-664/1318605/filing.pdf) stated Black Rocks position as 5,897,207 shares, while this one gives the total as 5,679,716. They reduced their stake to, I imagine, take some profits.

    The Wall Street Journal is wrong.

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    1. Thanks Domenick_Y. Just saw they corrected their story. Updated this.

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  10. In the electric supercar domain, keep an eye on Croatian (yeah, I know… :-)) startup Rimac, now holding 5 world records for electric car speed: http://www.kernelmag.com/features/report/2507/mate-rimac/

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    1. Rimac = User of A123 batteries. ;-)

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