Small Firms Take Big Electric Leap

Upstart Automakers Face Long Odds in Wresting Energy-Efficient Niche From Giants
By Steven Mufson
Washington Post Staff Writer
Saturday, August 8, 2009

Coda Automotive employs 41 people. It has a headquarters in Santa Monica, Calif., but it doesn't have its own factory. It doesn't have its own dealer network. It doesn't have a coterie of designers. Its chief executive, Kevin Czinger, a one-time college football star and former assistant U.S. attorney, has spent most of his career working in finance.
Yet Coda claims it will beat General Motors and other companies to market with an affordable, all-electric automobile built for the average American. This may not be a completely wild-eyed idea. Czinger was recently driving one of the prototypes -- a plain-looking but smooth-running sedan -- around the streets of Washington.
Inspired by the prospect of a new market for electric cars, Coda and other small entrepreneurial companies are tapping into the expertise of others in bids to launch new vehicle brands featuring technology they say will leapfrog the major manufacturers.
The Coda car is assembled in China, where six of the company's employees work. The chassis is licensed from Mitsubishi and made by a Chinese firm, Hafei Automobile Group. Delphi supplies the power steering. BorgWarner provides the transaxle. Lear provides an on-board charging device for the battery. The front and rear bumpers, hood and lights were designed by Porsche's design studio. The battery -- the main focus of Coda's 15-person engineering team -- was made by Tianjin Lishen Battery, one of the world's largest suppliers of lithium ion batteries to firms like Motorola and Samsung.
"We don't want to be an integrated car manufacturer," said Czinger, who grew up helping his older brothers fix cars in Cleveland. "We piggy back off of other organizations that have great know-how and work with them in an integrated way."
Coda Automotive is just one of growing number of upstart automakers looking to carve out electric-car niches in an industry long dominated by a handful of giants. Other upstarts include firms like Bright Automotive, which says it is developing hybrid-electric fleet vehicles capable of getting more than 100 miles per gallon. Elite sports car maker Tesla Motors is looking to break into the high-end sedan market. And Fisker is looking to grab a piece of the electric car market too.
Significant Hurdles
Veteran auto industry analysts warn that even the best of these entrepreneurial car companies face daunting obstacles to success.
For starters, says veteran independent auto analyst Maryann Keller, it's one thing to obtain parts and expertise from various companies, but it's another thing to make sure they all work together. "You can't pick things off the shelf and be sure that your brakes are going to be appropriate for your car," she says. Keller notes that even major automakers rely on other firms' parts. She says, "it's the integration of those parts that is really key."
Distribution and marketing is the next challenge. "Everyone has historically underestimated the importance of the dealer network," Keller said. "It's all well and good to design a car out of some other company's parts, but then how do you sell it, finance it and fix it?"
Coda does not have a dealer network, and Czinger says he plans to deliver cars by "auto valet." Keller doubts that will be an economic model, though Czinger says it will save money to not have any dealers.
Coda, Bright and Tesla aren't the first entrepreneurial companies to try to break into the auto industry. In 1974, millionaire and Subaru of America founder Malcolm Bricklin launched his own sports car made in Canada, but the company went bankrupt in two years. In 1981, former GM executive John DeLorean launched his own car with parts made or designed by a variety of companies, but he failed, too.
Some larger companies that previously didn't dare tread on the turf of the auto giants are also looking to wedge their way into new parts of the business. Penske Group is shopping for cars to sell through the Saturn dealer network, which it has agreed to acquire from General Motors. Chinese or South Korean companies are eyeing the U.S. market. And India's Tata Motors is also a potential threat to the major automakers.
For decades in the auto industry, bigger was better. Size brought economies of scale from the design studio to the factory floor to the dealership. Indeed, Fiat chief executive Sergio Marchionne has been frantically trying to acquire other car companies, because he believes that the future of the industry will lie in the hands of just six global giants.
But Czinger is taking the opposite approach. "We have a one-guy bureaucracy," Czinger said. "Me."
Bright Ideas
Bright Automotive is another company trying to get a foothold. Launched by people at the Rocky Mountain Institute, idealistic home to well-known energy guru Amory Lovins, Bright Automotive hopes to market a hybrid-electric van that would get six to eight times the mileage current fleet vans get.
It wants to start production in 2012 and sell 50,000 vans in 2013. Using other companies' components and its own design, Bright says it can make vans that would travel about 30 miles on a battery and as much as 400 miles on a charge and a tank of fuel.
Based in Anderson, Ind., it has collected about $20 million in support from companies like Google, Alcoa and Duke Energy. "We have hundreds of trucks," said Duke Energy spokesman Tom Williams. "We could buy as many as 200 off the bat."
But Bright Automotive, which currently employs more than 30 people, needs much more and is seeking about $450 million in loans from the Energy Department authorized by the 2007 energy bill. If the money comes through, Bright wants to ramp up to a thousand people and will employ many more at supplier companies.
Many of Bright's engineers and executives are bruised veterans of the electric car business. Bright chief executive John E. Waters was the battery pack engineer for GM's EV1, an electric vehicle briefly produced in the 1990s that inspired a loyal band of followers but was eliminated by the company. Waters is proud of the vehicle and said "my phone never rang from one customer complaining about the range or performance of the battery." The disappointment at EV1's cancellation, he said, still stings. "Those of us who lived through that are cautious about experiencing that again."
Since leaving GM, Waters has worked on lithium ion battery technology at auto parts maker Delphi and EnerDel. He developed the lithium ion battery system used in the Segway Human Transporter.
Waters says that Bright's small size is an advantage, not a handicap. He says most major auto companies have relatively small teams of 200 or so people designing cars with parts from disparate suppliers.
In Bright's case, its car's interior will be made by Johnson Controls from recyclable materials. Alcoa will provide aluminum for the rust-free exterior. Door handles and brakes will come from the major manufacturers. Bosch will provide the rear axle. Several companies are hoping to make the batteries.
Keller says Bright's business model has a better chance of success because it is planning to sell to big companies with big fleets, most of them leased. For those companies, buying an electric van is a matter of dollars and cents. And they are easier to service.
Waters adds that once a car battery needs replacing, it can still be used by utilities for the storage of renewable electricity, thus giving the used batteries some value.
"This is a mission-based enterprise that makes environmental sense as well as economic sense," Waters said.