In the fall of 2009, high-end hybrid auto startup Fisker dispatched an urgent appeal to the U.S. Department of Energy: Send money. Fast. “We are oversubscribed…with the DOE support—and nowhere without it,” company executive Bernhard Koehler explained in an e-mail. His timing was impeccable. The federal government was eager to support green ventures, and the electric-car industry was filled with promise. One month later, the government extended to Fisker a US$529-million lifeline.
At the site of Fisker’s proposed plant in Delaware, U.S. vice-president Joe Biden called the clean-energy investments “seed money that will return back to the American consumer in billions and billions and billions of dollars of good new jobs.” With respect to the Fisker loan, that confidence, in hindsight, seems delusional.
Fisker’s fate rode on its success as a tech outfit and as an auto manufacturer. “They failed at both,” says Ben Schuman, an analyst at Pacific Crest Securities. The company is now in its death throes. Production ceased months ago. The staff has mostly been laid off. Bankruptcy looms.
Co-founded by acclaimed Danish auto designer Henrik Fisker, whose resumé includes stints at BMW and Aston Martin, the company positioned its hybrid sedan as combining the virtue of clean-tech with unashamed luxury. With a base price of $104,000, the Fisker Karma was stunning, at least from a distance. But it didn’t bear close scrutiny.
Both Fisker and its investors drastically underestimated the challenge of mass-producing vehicles for the U.S. market. Loans were based on an unrealistic timeline for development. The company said it expected to sell 100,000 cars by its third year of production. In 2012, fewer than 900 Karmas were sold.
Corners were cut in the rush to bring the car to market. Fisker relied heavily on engineering contractors over in-house staff. Design flaws weren’t caught. “Fisker itself had a very bad business model, and its suppliers did as well,” says Khurram Malik, a clean-tech analyst at Jacob Securities.
Almost right from the time of launch, the Karma had serious problems. An embarrassing Consumer Reports test drive ended when the car broke down, sparking a recall. And the hybrid’s battery had a pesky habit of catching fire. Then, in October, the company’s battery supplier, A123 Systems, also a recipient of federal clean-tech funding, went bankrupt.
Betting on A123 proved Fisker’s fatal mistake. The greatest financial and design hurdle for a manufacturer of electric and hybrid vehicles is the cost, size and weight of its lithium-ion battery. “In terms of cost competitiveness, battery technology is definitely first and foremost,” Schuman says. Competing car company Tesla has kept its costs down by using the same kind of batteries as laptop computers. Each Tesla Model S is propelled by about 7,000 laptop batteries, which are mass produced and relatively cheap. Fisker chose a next-generation lithium-ion battery designed specifically for vehicles by an unproven manufacturer. The result was large, expensive and defective.
The mainstream adoption of the electric car is still held back only by overdue battery innovation, Malik says, although a technology breakthrough is bound to come. Unfortunately for Fisker, it won’t come soon enough.