When you have Justin Bieber and Leonardo DiCaprio driving your cars, you must be doing something right.They are among the Hollywood glitterati who have bought into the dream of Fisker Automotive and its gas-thrifty, rule-breaking Karma that kicks sand in the face of Detroit and the world’s top luxury automakers.
When some of the auto industry elite were treating eco-friendly cars with disdain, dismissing them as largely unprofitable and giving them boxy, unappealing looks, upstart Fisker broke through with a luxury plug-in hybrid sedan.
Its sleek body raised eyebrows, while its ability to eschew a drop of gasoline for the first 33 miles or more of daily driving pleased the mileage-minded.
Yet with a year of deliveries of its first model behind it, Fisker — maker of sexy hybrid sedans — enters 2013 with a raft of problems.
For starters, Fisker can’t make any more cars until its battery supplier is up and running again. That supplier, A123 Systems, just went up for grabs in U.S. Bankruptcy Court. A Chinese firm won the bidding, but it’s not yet clear if the bid will be challenged or whether A123 is willing to keep Fisker as a customer.
Tony Posawatz, Fisker’s third CEO in a year, warns that the company will run out of cars in the spring if it can’t get more batteries and restart production.
And that’s not even the biggest challenge. There is the matter of finding more money to keep the operation going.
The privately held company is scouring the world to link up with another automaker or find more investors. It wants to buttress the thousands who have already kicked in about $1.2 billion so it can start production in late 2014 or 2015 of its next model, a smaller, cheaper hybrid, which is expected to be a much bigger seller than the Karma. “We need financing or a partner,” spokesman Russell Datz says.
It had one investor, a big one, that got away — the federal government. Fisker spent $193 million of a $528.7 million loan from the Department of Energy before the government blocked access to the loan in May, after Fisker failed to meet key government requirements.
At least Fisker doesn’t have Republican Mitt Romney kicking it around anymore. The former Massachusetts governor turned Fisker into a punching bag in questioning President Obama’s spending policies during the 2012 presidential campaign. At one point he told Obama, “You pick the losers.”
Fisker is the brainchild of Henrik Fisker, who designed luxury cars for Aston Martin and BMW. With Fisker, he was intent on making a splash right from the start. Only months after launching his company, he showed up at the 2008 North American International Auto Show with a concept version of his initial model, the Karma, a four-seat hybrid that was meant to compete with the likes of Jaguar and Mercedes-Benz.
It was a bold move to show up on Detroit’s turf with little more than a dream for the biggest auto show of the year. But Fisker was soon attracting big backers. Venture capital showed up with big money, including Silicon Valley firm Kleiner Perkins Caufield& Byers. Then Fisker landed the biggest backer of all, the federal government, with a massive loan that came with strings attached — the threat that the money spigot would be shut off if the company didn’t hit certain undisclosed milestones.
Fisker set up his headquarters and design studio in Orange County, Calif., just south of Los Angeles and not far from the celebrity customers he would later seek to woo. He began work on the Karma, which was expected to sell for about $87,000, and a smaller, second model, named Atlantic, which would sell for about $55,000 and be built at a former General Motors factory in Delaware.
Lacking the raft of engineers and infrastructure of the big automakers, Fisker plotted an unconventional path to get his first model to market fast. He outsourced many of the major systems instead of engineering a lot of the car in-house, and would have the Karma built in Finland on a contract basis by a firm called Valmet. The engine, for instance, came from GM and the hybrid system from an Orange County company, Quantum Technologies.
Since Karma deliveries began in 2011, the price has zoomed to $103,000 to $116,000, further limiting potential customers. Plus, the car had its share of start-up issues. It has been recalled three times. Last August, Fisker reported the potential for a cooling fan to short, causing a fire. And earlier in the year, Fisker said it had to replace batteries in 2012 models because of a manufacturing error in the battery by A123.
A fire in Sugar Land, Texas, was blamed, at least initially, on the Fisker parked in a garage. And Fisker received more bad press when more than a dozen of its cars caught fire in a storage yard in New Jersey after being submerged during Superstorm Sandy. All told, Fisker lost 338 new cars in storage to the storm, limiting some of the colour and trim choices available at its 36 dealers, says Fisker spokesman Roger Ormisher.
It didn’t help matters that the Karma was rated at only 54 miles per gallon, despite its ability to run on electric power alone for up to 50 miles. (After that, the car’s gas engine kicks in for a 300-mile range on a tankful of gas.) A plug-in Chevrolet Volt sedan, which retails for less than half that of a Karma, is rated at 94 mpg equivalent (mpg-e) and Ford Motor reported Friday that it expects its new plug-in Fusion Energi sedan will garner a 100 mpg-e rating.
Plus, the Karma, which sacrifices some interior to its batteries, was rated as a subcompact by the government even though on the outside it’s as large as a full-size car.
Some reviews haven’t been kind. Consumer Reports magazine, which plunked down $107,850 to buy a Karma for testing in September, hasn’t fully reviewed the car yet but reported in a blog posting that the car is “full of flaws” and that its engine has an “unrefined roar.” It blasted the sedan as cramped, with poor visibility and a poor instrument layout.
Others think Fisker is getting a bad rap. “I would never count these guys out,” says Ron Cogan, publisher of the Green Car Journal.
Sure, there are glitches, but major automakers often face some of the same setbacks in creating a new model. Ford, for instance, just recalled 89,153 of its 2013 Fusion and Escape models because their prized 1.6-liter turbocharged EcoBoost engines could have potentially caught on fire without a software patch.
“They are not perfect machines, but they are as close to perfect as you can make them,” Cogan says of Fisker. “They are facing issues like any other car company. Much of it has been politicized … (and) that draws even more attention.”
The Karma is a “high-end car aimed at a high-end market.” Its ability to attract star power with “unmistakable” styling is proof that Fisker at least nailed the looks, Cogan says.
To market its cars, Fisker harnessed the potential of Hollywood. Fisker announced in July that DiCaprio was not only a Fisker owner but an equity investor, and that Fisker was participating in the actor’s charitable foundation. DiCaprio, one of the first celebrity owners of a Toyota Prius, has long been one of the marquee names when it comes to showing up at high-profile events in eco-friendly cars.
The car got even bigger attention in July when pop singer Bieber was cited for reckless driving by the California Highway Patrol on the 101 freeway in Los Angeles. The chromed car was an 18th-birthday gift to the teen idol from his manager — presented to Bieber on The Ellen DeGeneres Show.
On a rainy night during November’s Los Angeles Auto Show, Fisker sought to cash in on its star power by throwing a bash at the Santa Monica home of TV personality Lisa Ling, but it became just as much a showcase for the brand’s challenges.
At the house, Henrik Fisher urged owners and press to dismiss the naysayers, saying there is everything to love about a plug-in car that drives gas-free for up to 50 miles. (The EPA rates Karma’s electric-only range at 33 miles.) He said sales showed promise in the Middle East. And he urged everyone to take a peek in the garage to see the company’s future, the Atlantic, looking very much like a slightly smaller version of the Karma.
In the living room, however, Posawatz was candid about the struggles. The longtime GM executive who headed the Chevrolet Volt extended-range electric car program there took the top job at Fisker last summer, about six months after former Chrysler executive Tom LaSorda had taken the reins.
In particular, Posawatz was talking about the problem of finding a source for the batteries in the Karma. Without a restart of A123’s production, Fisker will simply run out of cars to sell. At the auction for A123 Systems last month, Wanxiang Group outbid American rivals with a bid of $256.6 million for the defunct battery maker. But the U.S. government, through the Committee on Foreign Investment, would need to approve the deal that could transfer technology to China, home to a vibrant and emerging auto culture.
Until the battery issue is resolved, Karma production has been halted at about 2,500, far from the 15,000 cars a year that Fisker had predicted it would be selling when it was getting off the ground.
Before the recent holidays, Posawatz embarked on a tour of Europe to try to find a partner or rustle up investors for Fisker Automotive. In addition, the company has engaged Evercore, an investment banking firm with expertise in restructuring, for the search. Posawatz has denied Fisker will file for a bankruptcy restructuring, but the search underscores the company’s troubles. It has also gone into cost-saving mode: Its workforce, which peaked in 2011 at about 600, has been cut in half.
Fisker’s challenges seem to underscore the realities of automaking that have dissuaded newcomers since the days of Tucker. “The automotive industry is pretty old school,” says Rebecca Lindland, the New York-based research director for consulting firm IHS Automotive. “It’s not this glam, newfangled industry, but, man, is it an expensive place to live.”
Automakers constantly underestimate capital requirements, she says. Even established automakers are constantly wheeling and dealing with each other to share plants or models, or find other ways to cut capital costs.
Fisker, on the other hand, arrives as basically a boutique maker that can’t achieve those scales of operation. “Fisker is finding that even if things are going well, you still need billions of dollars,” Lindland says. In the end, she says it’s the basics that matter — management, personality and marketing — despite all the hype. Even then, “not everyone can win. We are going to have failures.”
With a little help from DiCaprio, Bieber and other fans of plug-in cars, Fisker is working to remain one of the survivors.
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