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COMMENT: Can we stop talking about EV start-ups, please?

By QUBE | 9 May 2013

Will Tesla turn out to be one of the few electric car start-ups with staying power?

Will Tesla turn out to be one of the few electric car start-ups with staying power?

Far too many analysts and writers have spent time covering electric cars by focusing overly on start-up automakers that formed to grab a piece of the emerging market for plug-in cars.

And it’s really time to stop talking about them. Or at least to dial it back.

The parade of failing start-ups makes for catchy headlines, true. But as any rational person in the industry understands, the odds of any automaking start-up succeeding in the long run are about the equivalent of winning the national lottery: it could, statistically, happen, but in reality, it almost certainly won’t. In fact, you might say that starting a firm to make automobiles in hopes of building the company into a global brand is a task mostly for masochists and the deluded. 

Let’s recap, shall we?

Of the several dozen Chinese automakers founded over the last 25 years, most have funding and/or influence from regional governments. BYD, one of the few privately held automaking firms, faces specific challenges simply because it has no godfather to protect it. None of those firms has yet emerged to be a global player; at best one or two may.

Meanwhile, no one has successfully started a volume carmaker in Europe or North America since World War II. 

In fact, the last time a group of entrepreneurs founded an automaker from scratch in the US whose brand is still with us - after two notable bankruptcies, mind you - was December 1924. The entrepreneur in that case was Walter P. Chrysler. No one’s done it since.

Regardless of powertrain, privately held automakers were hardly likely to succeed. And anyone who went through the first Internet boom (1993 to 2000 or so) knows from experience that nine out of ten firms launched into a flourishing and much-hyped growth industry will still fail. That’s the way of the world.

But the Internet boom required little more capital than that needed to lock a group of smart people in a room, ply them with caffeinated sodas and salty snack foods, and get them to write code.

Automaking, by contrast, is brutally expensive - from US$500 million to US$1 billion per architecture, once every seven years - and has very long product development cycles. It’s also not hugely profitable, on average, and any automaker that wants to last must budget for the downs as well as the ups.

With that in mind, the only start-up that remotely qualifies as noteworthy is Tesla Motors. Thus far, it appears to have done - remarkably - roughly what it said it would: first, prove its concept by building and selling 2,500 Roadster two-seat all-electric sports cars, and then, second, take that knowledge and build a proper all-electric family sedan it could sell in volume.

Through a brutal economic downturn, the jeers and sneers of the established industry, political blowback over government loans, and more, CEO Elon Musk has managed to keep his ship on course. Now, Tesla says it is building and delivering 400 to 500 cars a week from its factory in the San Francisco Bay Area of California - perhaps the least logical and most regulated place in North America to manufacture any kind of physical good at all.

Musk has taken to tweeting teasers for near-weekly conference calls to announce operational changes like revisions to the residual lease value of its cars. But those details get relatively minor attention. Instead, the press slavers over the apparent demise of, most recently, Fisker Automotive and Coda Automotive.

The easier of the two to dismiss is Coda Automotive, which officially declared bankruptcy last week. It will pull out of the auto business to concentrate on its lithium-ion battery storage business. Coda may have been able to establish some kind of small foothold in the US market if it had managed to launch its plain-Jane Coda Sedan before the Nissan Leaf and Chevy Volt arrived on the market in December 2010.

Indeed, that was the plan, under a previous CEO, Kevin Czinger. But the Sino-American mishmash that was the Coda Sedan - starting life as a Hafei Saibao, with Chinese lithium-ion cells assembled into a battery pack and inserted into the rolling “glider” from China in a small California factory, along with the traction motor - was more than a year late, and filled with jaw-dropping detail deficiencies when it did arrive early in 2012. Rumor has it Coda sold no more than 100 cars all told. ‘Nuff said.

Fisker is a company that has managed to combine a breathtaking lack of attention to detail in its early cars with the sufferings and back luck of Job. It hasn’t, yet, declared bankruptcy. But while its most recent CEO Tony Posawatz managed to get the Chevrolet Volt out the door on time - and as a surprisingly good vehicle - he may not be able to save what was identified as a sinking ship as early as 2010. That characterisation, by the way, came from the US government whose Energy Department had granted Fisker loans of US$529 million just several months before.

Its sole assets seem to be a truly striking (if impractical) four-door sedan design, and some intellectual property around its series hybrid powertrain—which powered the least efficient plug-in passenger vehicle sold to date.

But if it’s not about the start-ups, around what should the electric car discussion revolve?

Well, how about the Renault-Nissan Alliance? Or General Motors? Or the Volkswagen Group? 

In other words, let’s pay more attention to the established automakers. Over the last five years, almost all of them have come to the realisation that while they may not much like the current prospects for electrified vehicles, they must have plug-ins in their portfolios to be able to meet the stringent carbon emissions regulations barreling down the road.

The fact that many buyers actually view electric cars as rather nicer to drive than petrol or diesel cars is presently an inconvenient truth. Manufacturers don’t benefit from the government purchase incentives that reduce the costs of these cars to end consumers, and batteries are still remarkably expensive.

But the rash of California “compliance cars” - battery electric vehicles built solely for sale in California to meet that state’s requirements for zero-emission vehicle deliveries by its highest-selling car companies - shows just how good electric cars can be even when the carmakers don’t want to build them.

The Fiat 500e has more power and better weight distribution than the base petrol version sold in the US. The Toyota RAV4, with its Tesla-engineered powertrain, has a genuine 100-plus miles of range and holds five people and all their gears. The Chevy Spark EV has a 100-kilowatt (130-hp) motor that easily outguns any other Spark sold anywhere in the world. And so on.

The numbers of plug-in cars are, of course, very low indeed compared to the industry as a whole. In 2012, roughly 110,000 plug-in vehicles were sold globally - half of them in the US. That total is expected to double for 2013. By 2020, cars with plugs will represent 1 to 2 percent of global annual vehicle production of 100 million.

It will take a longer time yet for those cars to make any impact on the global car parc, which now numbers more than 1 billion vehicles. On the other hand, the same could be said of the first cars equipped with catalytic converters in 1975. Catalysts now, of course, are standard the world over.

Gasoline and diesel fuel will not vanish from the vehicle fleet in our lifetimes - or likely even those of our children. But cars with plugs will come to be viewed as less foreign, less daunting, and far more practical in many applications than gasoline cars - especially in North America, where multi-vehicle households are now the norm.

Plug-in naysayers point to the 15 years of hybrid-electric vehicle sales as proof that electric cars will remain a niche for a long while to come. That may be, but two forces are about to collide which will improve their chances.

First, petrol and diesel cars are going to get vastly more expensive to meet the emissions standards in place by 2025 or so. The US Environmental Protection Agency estimates that from 2012 to 2025, the average price of a vehicle will rise US$3,000 in real dollars to meet the higher fuel efficiency standards signed into law last year. Most carmakers - for whom, admittedly, the sky is always falling - consider that a lowball estimate, and scoff at it, saying the real costs could be twice that. 

Meanwhile, lithium-ion cells improve about 7% a year in cost-performance. That means that by the third generation of cells for automotive use in the early 2020s, electric car batteries will cost less than half what they do today - while combustion-engine cars will be rather pricier.

At some point, the difference will fall to the point that buyers twig to the running-cost argument: Powering a car on grid electricity costs one-half to one-fifth as much per mile, depending on your baseline comparison car and your local electricity cost.

By then - 2020 or 2022, say - plug-in electric cars will be just another offering in the showrooms of known, familiar car brands. New entrants will have vanished (possibly excluding Tesla, which will then likely be owned by a global automaker) and more buyers will start to evaluate powertrain choices the way they compare body styles (wagon or crossover?) today.

So let’s pause for a moment of silence for Fisker, Coda, Think, and all the rest of the electric-car start-ups that never really had a chance.

And then let’s pay more attention to the plug-in cars from the global OEMs we deal with every day. They’re the only ones that will actually matter in the long run.

See also: 

US: Tesla posts first ever quarterly profit

US: Coda bankruptcy filing raises uncomfortable questions