Monday, July 21, 2014

The balancing act: Following Fisker’s folly

From page B8 | June 05, 2013 |

It’s been all over the news, another government backed plug-in hybrid car company bites the dust with about $200 million of federal government loans.  Henrik Fisker, the brainchild behind the debacle, is a famous and talented automobile designer with credits such as the BMW Z8 and Aston Martin DB-8 and DB-9. His PHEV, the Karma also received great design reviews as well.

However, his company Fisker Automotive only sold 2,000 of the $100,000 plus Karmas and it was plagued with problems. It also didn’t return very good fuel economy (it weighed 5,400 pounds) when the batteries ran out after about 20 miles (about 20-24 mpg )and performed relatively poorly. But it was beautiful. Just add the Fisker to the government’s spending billions of dollars trying to create markets that don’t exist.

While there are several specialized small production electric car manufacturers with cars that cost premium prices, perform poorly, have short ranges and sell very few units, none of them come close to the Tesla, made here in the Bay Area of Northern California. The Tesla is different than other electric cars. It has world class looks, ranges in excess of 150 miles and high performance.

Before you get too excited, Tesla too is the benefactor of government largess, in this case about $500 million in the form of a loan which Tesla has said it will repay early. Tesla has had its problems with a failure to meet delivery schedules although it is now producing about 400 cars a week at its Fremont plant.

But all is not rosy with Tesla. In the six years since Tesla’s founding, it has bled massive amounts of green, just a bit over $1 billion in losses, with the last two years of 2012 and 2011 showing net losses of $400 million and $250 million, respectively. By the end of the third quarter of 2012, the company burned through over $200 million in nine months leaving them in a dangerously low cash position of just $86 million. However, the company stock which went public with a $100 million IPO in early 2010 at an opening price of $19 now trades at about $50. Sounds like the companies of the 1990s, which had huge stock appreciation while losing ever more money. It’s CEO Elon Musk (he started Paypal) says the company will break even at 20,000 cars a year.

What did Tesla do for a billion dollars, it has produced about 7,000 cars. The first model is the now discontinued Roadster which sold for about $120,000. It terminated production last year. Total sales were about 2,000 cars. Tesla made big claims of performance for this model like a range of over 200 miles and 0-60 mph in four seconds. But those two performance parameters were mutually exclusive. One 0-60 run and your range dropped precipitously. The British car show Top Gear who hammered the car got a max range of 55 miles and that number was reported by many owners who heavily used its performance even with a more than 900 pound, 59 kWh battery system. And lately owners are reporting battery failures if the car is allowed to sit for as little as two weeks without charging. In that short time the battery can go to a zero state of charge, which means death to the L-i battery. That is a $40,000 cost.

Now the model “S” is their only product. It is a four-door sedan which has beautiful, fluid lines. List price is $69,900 with a 60 kWh battery pack. An optional 85kWh adds $10,000 to the price. They also make a high performance model with the same 85kWh battery for $94,900. There is a taxpayer funded $7,500 federal tax credit. Considering the price of the Tesla, it is a rich person’s car, which means another tax loophole for the wealthy, paid for by the middle class.

Tesla is a capable performer with claimed 0-60 mph times of less than 6 seconds and top speeds between 120-130 mph. The electric motors develop anywhere from 302 to 416 hp depending on the model purchased. EPA says the range in their testing is 208 miles for the base model  and 265 miles for the other two more expensive units. Tesla claims at a steady 55 mph (no A/C operating) ranges are 230 miles for the 60 kWh battery pack and 300 miles for the 85 kWh model. At a more realistic speed of 70 mph, that range drops by about 25 percent or about 170 miles for the base model. Of course if you drive the car aggressively your range can shorten to well under 100 miles. Batteries are guaranteed for eight years or 125,000 miles. Tesla would not respond as to whether this warranty is pro-rated. Selling a five or six year old Tesla could be a problem.

Recharging time is anywhere from four to eight hours, depending on whether you opted for the $3,000 high power charger. On the base $70,000 car, leather is not even standard. It will cost you an additional $1,500. Other desirable options will push the price of a base car to well over $80,000.  The cost of being stylish is not cheap. And an even bigger question is whether Tesla is making money at their price. One leading automotive engineering  expert inter viewed for this column thinks not. And at a price of $70,000 to nearly $100,000 or more, just how big is the market? A UC Berkeley study concluded that for people to give up their gasoline powered RAV4 and go to an electric RAV4, you would have to give the electric RAV4 to the consumer for free plus PAY him an additional $28,000. Tesla is a car for the wealthy. Perhaps it will assuage some guilt for also owning a Hummer, Rolls Royce or Bentley.

But the Tesla will always face two hurdles which  plague electric cars, range anxiety and recharging anxiety. After about 150 miles of driving, these two issues make drivers sweat.  And therein lies the biggest problem, the Tesla has limited utility and you will need to own another, more conventional car. Every time you park it at home you have to plug it in. If you forget, your next day’s use may be curtailed.

History will help answer the question of the electric car. In 1900 electric cars had 38 percent of the car market. By 1905 that market share had dropped to 7 percent. And that was with the issue of having to crank start a gasoline car. When the electric starter was introduced in 1912 by Cadillac, electric cars were sold next to the buggy whips.

Will the Tesla survive? History says no.  Tesla has other problems such as a high price of admission. Is there a market for electric cars? Sure there is but it has to compete price-wise with conventional cars, like a $15,000 price for a 100-mile range electric car which is highly unlikely. But it will never replace the conventional car, it will occupy a space next to your conventional car as a commuter car. And how many families can afford to have another limited utility $15,000 car?  In an interview recently with a  vice president of Ford and it’s director of electrification she said about selling the Focus electric car for $15,000 “If only the batteries cost $15,000.” Electric cars are not ready for prime time and may never be. Let’s hope we don’t take another Solyndra/Fisker haircut in the process.

News Bulletin: Tesla just announced an $11 million profit on sales of 4,750 units and revenue of $562 million. What wasn’t announced was that $68 million of revenue was for the sale to other manufacturers of zero electric vehicle credits. ZEV credits are a government creation and effectively fictitious profits. This $11 million profit also includes approximately $36 million in Federal energy credits as well. In other words, the operating profit from vehicle sales without government intervention would have been a $93 million loss. But the stock is now almost $70 a share, a 24 percent rise since this column was written.

News Bulletin: Nashville, Tenn., Nissan has announced a major price reduction for the all electric Leaf to about $26,000 or a net price of $18,800 when taxpayer paid credits are figured. Nissan will not make public their cost to build the Leaf, but considering the reduced price you can bet they are losing money on every unit. Sales are still dismal. And its range is an EPA 73 miles but on the highway at 70 mph, it is just 55-60 miles and don’t run the A/C. Leaf sold just 3,695 units in the first quarter this year.

News Bulletin: Coda Holdings announced on May 1st that their electric car company, Coda, has filed for bankruptcy. The Coda, which was priced at about $37,000, had sold just a hundred units over the last few years. It looked very similar in size and shape to a two generation old Honda Civic. It did not perform as well as a Leaf.

Larry Weitzman is a resident of Rescue.



Larry Weitzman



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