Less than a year ago, electric car startup Tesla Motors took a gamble that funding or loan guarantees from the Department of Energy would come through for the Model S sedan manufacturing plant, a project that would be key to the company’s future as something more than a niche luxury green car maker. The risk came with a big reward: the government made a conditional loan commitment for $465 million in low-interest loans this summer.
Lately competitor Fisker Automotive, which plans to start production of its luxe plug-in hybrid Fisker Karma later this year, has been giving us a bit of deja vu, laying out a series of ambitious goals and hopes for Department of Energy funds. We like to see a startup aiming high, and Fisker may be able to deliver on its plan to become profitable in 2011 and start mass production of a lower-cost vehicle by 2012 — but a series of hurdles can be expected along the way.
Fisker’s goal for 2011 is to sell at least 15,000 units of the Fisker Karma, priced at $87,900. So far, the company has scored 1,400 orders for the vehicle, and CEO and founder Henrik Fisker tells Reuters, “Our break-even point would be 5,000 units for the Karma project.”
The vision for a $39,000 model is on a much larger scale, with annual production targeted at 100,000 units. Fisker has raised about $100 million since its founding in 2007, but it’s counting on swift allocation of DOE funds (the company hasn’t said how much) to roll out the second-gen vehicle in the next few years.
When we spoke with Henrik Fisker in April about the likelihood of government funds coming through, he emphasized that the DOE funding was not in the bank and the company is not counting on it. Still, he said the startup’s concept for a lower-price model is further along than many concept cars at other companies. “We have the business plan all laid out,” he said.
Securing a loan under the highly competitive $25 billion Advanced Technology Vehicles Manufacturing (ATVM) initiative — even after energy chief Steven Chu has taken steps to accelerate the long-delayed program — is tricky business. As the Wall Street Journal notes, the program represents “one of [the] most desirable sources of funding for developers of clean vehicles.”
As Tesla’s Diarmuid O’Connell told us back in December, the program is designed specifically for fuel-efficient cars and offers relatively favorable terms. Two years after its creation, ATVM is still reportedly receiving an average of one application per week. (Secretary Chu did away with hard deadlines for applications in March.)
Rules established by the DOE favor projects involving factories that are at least 20 years old. Fisker is on the hunt for a facility to refurbish, but even Tesla, having already secured the loan commitment, is still looking for a suitable site for its Model S plant.
The DOE is also looking for a demonstration of financial viability for the term of the loan (up to 25 years). In other words, there has to be reason to believe they’ll be in business for years to come. For a startup that has yet to launch its first commercial vehicle, that can be a tough case to make. Fisker was able to squirrel away an additional $3 million in venture capital early this year, in a time when credit markets had all but slammed shut, and it has been making steady progress — meeting or beating deadlines and signing up key partners — over the last two years.
As Henrik Fisker told us last year (you can read the whole Q&A here), “We believe we are a very different type of startup, as all of our people come from the automotive industry and have extensive experience with the automotive industry. We are therefore taking a different approach, knowing how complicated it is to bring a vehicle to the market.” Soon, we might find out if the DOE agrees.