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Tesla, Fisker, and what could have been: A tale of two electric car startups

Watching the bifurcating trajectories of electric car makers Tesla Motors (s TSLA) and Fisker Automotive is like witnessing two siblings grow up over the years, only one becomes Prom Queen and the other drops out of high school. Was it nature or nurture? How did these companies turn out so differently? I’ve been following both startups over the last six years, and have a few ideas as to why these two, who had so many things (including executives) in common, turned out so very differently.

The state of affairs

This week Tesla hit an all-time high of $46.68 per share, which is over two and a half times the company’s share price when it went public back in the summer of 2010. The stock boost follows Tesla’s announcement that it would be profitable (on both a GAAP and non-GAAP basis) for the first time ever for the first quarter of 2013, and would deliver 250 more of its Model S electric cars than expected.

Tesla Model S

While Tesla had already announced a solid fourth quarter and fiscal year last month, the raised guidance calmed some Tesla naysayers, and started to convince many that Tesla could actually morph into a more mainstream and full-fledged auto maker.

Tesla’s CEO Elon Musk also plans to make an announcement on Tuesday afternoon that could send Tesla’s stock even higher. Some speculate that Musk could be buying up more shares and putting his money where his mouth is in a very major way (as he put it on Twitter last week).

Fisker on the other hand, seems to be nearing the final sunset of its life. Last week media reports said that Fisker had hired a law firm to advise it on bankruptcy options. It owes a loan repayment to the Department of Energy this month, and is now cutting costs and furloughed its employees last week. The company hasn’t made a car since the summer of 2012.

Ray Lane's Fisker Karma

Fisker’s potential bankruptcy news followed reports that its attempts to make deals with Chinese auto makers had fallen through, which seemed like the company’s last chance to find a deep-pocketed partner of investors. Fisker also announced last month that its celeb designer founder Henrik Fisker had resigned over internal disagreements. Let’s face it, the writing has been on the wall for months.

Cut from the same cloth

While Tesla and Fisker were founded about four years apart (Tesla first), the companies had similar aims from the beginning. Both companies wanted to build a sexy electric sports car that would be coveted as an awesome performance car, and would also happen to be electric. Before Fisker’s Karma and Tesla’s Roadster, the majority of electric cars being built were slow so-called neighborhood vehicles that had tiny ranges, snail-like speeds, and boxy designs. These neighborhood cars were for a niche audience only and didn’t inspire much excitement about electric cars.

Fisker and Tesla also had similar Silicon Valley DNA. Both companies were founded on the premise that a startup electric car maker, with backing from Valley venture capitalists, could use a cool car as a launching platform to become a more mainstream auto maker. Tesla was backed by Draper Fisher Jurvetson, DBL Investors, Elon Musk’s personal funds from his PayPal payout, Technology Partners, VantagePoint and others. Fisker was backed by Kleiner Perkins, NEA, Qatar Investment Authority, battery maker A123 Systems and then later thousands of wealthy individuals organized by now defunct broker Advanced Equities.

Here Comes the Fluff: Tesla's Roadster 2.5!

Tesla and Fisker also both received loans from the Department of Energy out of the exact same program. Tesla and Fisker were the only startups that received these loans, while the other funds went to large auto makers. Fisker wasn’t able to draw down on the majority of its loan, but it still received significant funds, while Tesla received its entire $465 million.

Fisker and Tesla also directly shared some things, though some people might have forgotten their connected past. In 2006 and 2007, Tesla actually hired Henrik Fisker and Bernhard Koehler (who later went on to found Fisker Automotive) to do design work for the body of Tesla’s sedan, later named the Model S. Tesla alleged that after working on the designs for Tesla, Fisker and Koehler left with trade secrets and started a competing company, Fisker Automotive. Tesla sued Fisker in the spring of 2008 for breach of contract.

The divergence

So what led each company to the brink of success or the brink of failure? First off, Tesla had about four years of technology development and experimentation with car building, and auto supplier sourcing, before Fisker began working on its Karma car.

Tesla Taps First Loan Funds, Shrinks Roadster Gap with Lotus Deal

Tesla ran into a variety of problems with delays and recalls of its first car — the Roadster. In particular, it relied heavily on some suppliers which didn’t deliver parts on time or delivered faulty parts. Tesla used these experiences and issues to — many years later — perfect the sourcing, manufacturing and testing of its second car, the Model S. Tesla then used its Department of Energy loan to fund production of the Model S. Tesla was able to spend many years experimenting with its few thousand early adopter customers and the Roadster before it took on the DOE loans and gained international attention through that spotlight.

Fisker encountered those same types of problems, with recalls and supplier issues, when it built its first Karma car. Developing a car as a startup is hard. But Fisker used part of the DOE loan to fund production of the Karma, and it emerged in the international spotlight before its car and car production were perfected. The company also had placed the cart well ahead of the horse, as it was often talking about its second car long before its first cars were functioning at an acceptable level. Fisker’s timing with the DOE loan was off from the beginning.

Toyota and Tesla's RAV4 EV

Tesla and Fisker also had very different approaches to technology development, which over the years made Tesla far more valuable than Fisker. Tesla spent a lot of money on developing the battery pack, battery management system, and power train. That core technology is what makes up the base of the Model S, and eventually the Model X.

Over the years Tesla has made revenue from selling this core technology to big automakers like Toyota and Daimler for development projects. Toyota is using it in its RAV-4 EV, and Daimler is using it in its EV Mercedes. Tesla has made hundreds of millions of dollars off of its development deals and has used these funds to push forward production of its cars.

Fisker, on the other hand, is a design firm first and foremost. Much of its core technology comes from other companies and suppliers. For the Karma, it had a long-term supply agreement deal with Quantum for the powertrain tech and software, and A123 Systems for the batteries. Fisker never had aims to sell its car tech to other companies.

Fisker Surf

The X-factor

Finally, Tesla wouldn’t be the same car company without its charismatic tour de force Elon Musk. Musk used his personal funds to carry Tesla through its difficult years in 2008 (at one point it had $9 million in the bank and Musk had to borrow money to make ends meet). And he is now likely doubling down on investing in Tesla’s stock. Musk is a visionary of the same ilk as Steve Jobs.

Fisker’s founder Henrik Fisker is a successful and well-known car designer, but didn’t have the same type of personal wealth that could single-handedly carry a company. He also clearly hit some hurdles moving from founder into management (which is very common in startups). Fisker stepped down as CEO a year ago, and resigned from the company last week over disagreements.

Tesla CEO Elon Musk

As you can see, it’s a few differences that seem to be minor details, but later in the life of the companies emerged as transformational characteristics. So what can other startups learn from this tale?

Focus on your core technology. Understand that timing is everything. And recognize that it takes strong vision and leadership to make it to the finish line.

13 Responses to “Tesla, Fisker, and what could have been: A tale of two electric car startups”

  1. Although only slightly pricey, u get what people want in an electric car…distance ( most important ) speed ( exciting ), style, technology and beauty!

  2. Kent Redwine

    For high-end consumer goods, uniqueness and quality count. Both cars are electric drive. One has a large battery and utilizes a small (but growing) network of chargers to fuel up. The other has a small battery, plus a gasoline genset, and a large (but static/shrinking) network of gas stations to fuel up. Of the two, Tesla’s all-electric approach and the fact that it’s on its second vehicle platform (now better quality) provide the more compelling product.

    Btw, even Ford now offers a plug-in hybrid.

  3. unfiltered

    Tesla intelligently addressed the core technology risk: thermal runaway. As Boeing recently discovered with the 787, large format lithium ion batteries can be difficult to control and, when they fail, failure leads to the potential for the ignition of the various components inside the device (micronized graphite, organic binders/separator, oxygen evolving cathodes and aluminum collector plate).

    By building an effective containment solution, Tesla was able to quickly use widely available and low-cost commodity Lithium-ion cells. Fisker (like most EV companies) likely switched battery suppliers multiple Times before settling on A123 – much to their misfortune.

    Tesla’s battery strategy minimized supplier and technology risk and allowed the company to focus on product development rather than chasing multiple, unproven battery suppliers.

    Btw Boeing’s decision to enclose their 787 batteries in a box, vented to the atmosphere at altitude, is further validation of Tesla’s approach.

    • Thanks for the insight. How about the engine technology difference? I understand Fisker offers a gasoline range extender, that charges the electric motor, in addition to the battery, whereas Tesla is battery only. Was that difference of relevance in customer acceptance?

  4. Name of the game is money money and money. Elon had money and he crammed down all his investors out and got a huge (33%) stake in Tesla back in 2006 when the company was going bankrupt by investing $40m of his money that he made in Paypal. Yes his timing on DoE loan was great…but i guess even Elon is not that amazing to have predicted that Solyndra would go bankrupt and Republicans would use this in the elections and the DoE would freeze all loans including Fisker! Now Tesla has just started so lets just see how this goes and how sustainable a car with a limited range. I thought the automobile existed so we could have freedom…not so we could compromise and save the environment!

  5. Greg D

    The Big Oil Companies are far more scared of EVer technology. I am not saying this to defend or attack either side because I believe we need both EV and EVer vehicles and companies to make them.

    In a crawl, walk, run approach to going to EV the EVer would represent “Walk”. We are learning how to use Electric Vehicles but we are not subjected to the limited battery range (even a car with 280 mile range is limited). The Big Oil Companies feel the EV will be sold to a niche market only and may get some steam but will not dramatically effect there profits because we do not have the infrastructure in place to make EV a viable option to the mass buying public. We do have the infrastructure in place today to support EVer and it can immediately effect there profits and this scares them. The agenda driven media made sure that Fisker would not get the Atlantic out because it was estimated to be priced at $55,000 to $70,000 making it much more affordable to many more people especially when you compare the total cost of ownership to a traditional gas consumption vehicle.

    Fisker was attacked at every turn and allegations were laid on them without facts to back them unfairly creating a fundamental hatred for the company by half of the country. This company should have been revered by the American public as a start up American Car company that was making a difference in the automotive industry.

    The Ever technology that Fisker was using is getting people from 20-400+ MPG. The Volt using the same EVer technology has about 70 of the most efficient drivers getting 1,000+ MPG. See for yourself at the data comes from OnStar.

  6. Fisker laid off engineers before rank and file…then laid off rank and file before management. That alone should give some insight on how the company was run. Fisker was a selfish organization as a whole. Tesla pushes forward for the greater good.
    Oddly, this is the same exact scenario raised by Solyndra and many other “high tech, leading edge” companies. I think the government needs to stop looking at mushrooms in wind (top heavy with small stems) and start looking for oak tree business models that understand anyone with money automatically starts to look sexier. Face it, no matter how sexy a design is…prostitutes got it right…sexy doesn’t do anything if you don’t have real money but with money (aka SALES) the possibilities are endless! Hopefully taxpayer can negotiate a repayment plan with the DOE.

  7. Once will be designed in Tesla electric car nice and cheap, and it will be launched in the series, other automakers try to buy a license and get production up. Tesla will only design company, and in the future it will buy Fisker.

  8. The difference between Tesla and Fisker is Elon Musk. That one difference drives everything else.

    Not sure? Name one other electric car maker that’s been nearly as successful as Tesla.