The Year That Was

Electric Car
Electric Car

The year was marked with major turmoil and the survival of the fittest in terms of the electric car revolution. The major companies include A123 Systems, Fisker Automotive and Better Place.

One of the most noted struggles were three major companies that are aiming to be on the forefront of the electric car revolution. A123 Systems is a battery maker, Better Place, is a battery replacement/recharging business and Fisker Automotive is a luxury electric car builder. These three alone represent billions of dollars of investments and unfortunately, they as individual businesses, are facing both commercial and financial issues moving forward.

While each company represents a different area of the electric car revolution, the slow rate of adoption by the general public is what is bogging down the success of these companies. The cost of creating the next generation batteries and electric cars still remains prohibitively expensive. Examples would be Better Place’s layoffs in Israel, as its commercial turnaround is much lower than initial projections. The total round of layoffs can reach as high as 350 employees by year’s end. It was only able to register double digit sales in the country where it boasts of close ties to the Israeli government and a major government subsidiary, Israel Corp.

Better Place was launched back in 2007 and its main product is a electric charging infrastructure and support battery swap stations. Its other businesses include selling electric car chargers and a government subsidized electric car. While initially it was able to raise money and lay the groundwork in Israel and Denmark through its partnership with Nissan, the company has since floundered with the high capital expenses needed to be disbursed to build its networks. It was able to raise nearly U.S. $100 million but the capitalists grew tired of losing money and thus their future in 2013 is quite grim.

Another superstar in 2012 was Fisker Automotive, with its ultraluxury vehicle the Karma. It is now on life support, seeking a partner, acquirer and/or investor so that it can continue onto its next model, the Atlantic. It has since stopped building the Karma, as recalls conducted in 2012 as well as the major losses during the last hurricane that hit New York has put the company on the ropes in terms of its future. Much of its fund raising activities with investors has been marred with charges of misrepresentation, leading to many angel investors wary of putting money in the company’s coffers.

The third major company making headlines this year, even making it an election issue was A123 Battery Systems, which recently declared bankruptcy. Much of its assets though has been subject to an auction between Johnson Controls and Wanxiang. Because of the large Energy Department grant received by A123 during its heyday, as well as its military contracts, allowing a Chinese company such as Wanxiang to seize control has made many nervous about the company and the industry’s future. A123 was hit hard by Fisker cutting back on its orders, creating a sort of domino effect that has cast a long shadow on the future of the electric revolution in 2012.

The Allure of the Fisker Karma

FiskerKarma
FiskerKarma

Chelsea held its annual Luxury Review, where high priced items such as apparel, jewelry, liquor, confections and motor vehicles are showcased. Front and center at the Metropolitan Pavilion on West 18th Street was the Fisker Karma. This US$100,000 plug-in hybrid sedan is still the star of the show.

One of the major components of this plug-in hybrid sedan is its lithium-ion battery array supplied by A123 Systems. Just recently, the battery maker had just sought bankruptcy protection. According to Richard Beattie, Chief Commercial Officer for Fisker, “I learned about it when everyone else did.” He made the remarks during an interview during the Chelsea event and admitted he has not made any contact with Johnson Controls, the eventual purchaser of the automotive assets and factories of the bankrupt company.

Beattie does not expect any issues with the closure of A123 even it if the company is the single supplier of battery systems for all its Karmas. He said, “Like any bankruptcy, suddenly some contracts become null and void, but A123 is still here and I’m not concerned about matters of supply.”

A123 and Fisker share similar stories, as these two start-up companies were able to secure loans from the Obama administration. Both companies announced financing successes and at the same time experienced recalls of its marketed products. Fisker has been singled out by the Republican Presidential campaign as a clear example of the federal government’s lack of business acumen. As proof of such debacles, Fisker has failed to meet its performance based preconditions to the loan grant from the Department of Energy.

Beattie admits though that the company does not have the same flexibility as large corporations would have, especially when a critical supplier suddenly closes shop. Despite these difficulties, Beattie highlighted the company’s adaptability.

This was seconded by Fisker’s VP for Global Design in saying, “We cannot at any time be focused on one supplier. We have to be flexible.”

The company is restarting its midsized luxury car program after a push back to allow the company to raise much needed capital financing. This new vehicle was previewed in last April’s New York Auto Show, codenamed the Atlantic concept. Newly appointed CEO Tony Posawatz told investors in a conference call that the Atlantic “would be the company’s path to profitability.”

Klatt declared that the A123 battery pack is not part of the Atlantic’s overall design. He said “The A123 pack doesn’t fit naturally in the Atlantic. The car is already completely engineered and we’re focused on two or three suppliers. Soon we’ll be able to move forward.” He cited that the Atlantic has a shorter wheelbase compared to the Karma and said that it is a power train solution and not a battery solution.

Battery Maker Finds China Investor

china200
china200

A123 Systems, an American battery maker, has been able to lift itself from the economic doldrums when it signed a quarter of a billion dollar grant from the Department of Energy. Now, it has bolstered its finances when a Chinese auto parts maker has invested to take controlling stake of the floundering firm.

The Chinese company is the Wanxiang Group and the company is expected to infuse at least another U.S. $450 million into the battery maker. This would allow the battery manufacturer to continue in its operations of creating batteries for electric and hybrid cars. In its last financial projections, the company said it had only five months left of operating capital.

According to A123’s CEO, David Vieau, his company hopes to “do well in China, where there is a government mandated expansion of the market for electric and hybrid vehicles.” In response, Wanxiang’s CEO, Weiding Lu, said through a statement that the deal would essentially “help expand the company’s capabilities both domestically and internationally.”

The earnings report of A123 Systems illustrated the decline of the company, with reported losses for the second quarter at U.S. $82.9 million or about U.S. $.56 cents per share with a 53 percent drop in revenues to just U.S. $17 million. The cash on hand was half of the U.S. $47.7 million, down from the U.S. $113.1 million it reported available in the first quarter of 2012.

Despite such issues, A123 was able to raise about U.S. $600 million from capital venture investors and its IPO last 2009. Also back in 2009, it obtained a U.S. $2.4 billion grant from the Electric Drive Battery and Component Manufacturing Initiative.

For its part, Wanxiang is amongst the biggest private companies inChina, with annual revenue reaching more then U.S. $13 billion a year from auto parts sales to the country’s largest automakers.

Despite being positive, there is a bit of political turbulence ahead for the deal, as the election approaches and the rescue of an industry favored by the Obama administration may prove to be an issue. This, together with the Solyndra debacle, President Obama may face stiff criticism for decisions regarding billions upon billions of taxpayer dollars, especially now that it is in control of Chinese businessmen.

This issue can be avoided though as there is weak U.S. demand for electric cars, which in turn hurt the battery manufacturing industries. Two other U.S. battery makers, both also funded by the Obama administration, have filed for bankruptcy this year.

The deal between A123 Systems and Wanxiang Group is as follows, an initial U.S. $25 million immediately. Then, Wanxiang would gradually infuse a total of U.S. $465 million and in return, receive 80 percent ownership in the American battery manufacturer.