Noel Adams - Charging Ahead

It's not easy making cars

Apr 07, 2012

Buiding cars has never been easy so it should come as no surpise that some EV carmakers don't make it and here's why.

I recently read a new story in the New York Times which said, “The state of the electric car is dismal, the victim of hyped expectations, technological flops, high costs and a hostile political climate.”  This wasn’t a hatchet -job on the electric car, but a fairly balanced report that included comments by “Revenge of the Electric Car” director Chris Paine.

One sentence the caught my eye was, “A number of start-up electric vehicle and battery companies have folded” which set me thinking about the problems that starting a new car company entails.  Designing an automobile, whether it’s electric or internal combustion, is the easy part, getting it ready for production, is the difficult bit.

A car like the Chevy Volt can take one of the big car companies five years and a billion dollars before a single car comes off the production line and is delivered to a paying customer.  The whole process is very capital intensive with a whole barrage of regulations that have to be met before a car can be sold.

Since 1887 when Karl Benz sold a vehicle to Emile Roger starting the modern era of the automobile, thousands of companies have been formed to build cars and only a few have survived.  Some have disappeared into oblivion while others have been absorbed by bigger manufacturers.  Even Panhard et Levassor, the company that, in 1891, produced the first automobile with the engine in the front and rear wheel drive through a simple transmission that is now considered the standard layout for a car, was absorbed by Peugeot.

Just as an example let’s take a look at Henry Ford.  In 1898 Henry Ford, who had been experimenting with gasoline powered vehicles since 1893, resigned as Chief Engineer at Edison Illuminating Company and formed the Detroit Automobile Company.  Detroit Automobile Company lasted until it was dissolved in 1901.

Ford went on to build a race car and raced it successfully in October 1901.  With backing from some of the stockholders of the Detroit Automobile Company he went on to found the Henry Ford Company in November 1901.  In 1902 Ford was forced out and Henry Leland was brought into the company.  Shortly afterwards it was renamed to the Cadillac Automobile Company Cadillac which was purchased by GM in 1909 and is still in production today.

Henry Ford partnered with Alexandra Malcomson to form “Ford and Malcomson Ltd” to make cars, and contracted with the Dodge brothers to supply parts.  Sales went slowly and the company couldn’t meet the first payment to Dodge.  Malcomson brought in additional investors and persuaded the Dodge brothers to accept a portion of the company as payment.  On June 16, 1903 Ford and Malcomson was reincorporated as the Ford Motor Company and is still in business today.

Some of the same challenges that Henry Ford faced are still in play today for a small startup company.  To add to this there are now regulations like crash testing that weren’t around at the turn of the 20th Century.  Building a car is very capital intensive from the ten to twenty million dollars it can cost to go through the full series of crash tests to the cost of opening a factory, setting up tooling, building a distribution network, and advertising so people know about your marque.

To add to this burden electric car makers have also to deal with moving the public to a whole new paradigm which always makes people uncomfortable.  To make things worse the electric car typically needs a lot less maintenance which removes a significant source of income for automobile dealerships.

It’s not surprising that some companies fall by the wayside. 

When Corbin Motors started making the Sparrow they priced it at about $16,500.  Even at that price a single seat three wheel car that technically registers as a motorcycle and will travel only about 30 miles on a charge was a tough sell.  When all the costs were added up including warranty claims, Corbin estimated that each car had cost them about $35,000 so it’s not surprising that they went out of business after producing around 300 cars.

More recently Aptera, another three wheel car maker, closed up shop after coming out with a design that captured people’s imaginations but not enough to attract the kind of investors that are needed to move the car from the prototype to production.

What should be surprising is that companies like Tesla, Wheego, Fisker, and Coda managed to get cars out of the door and into customer’s hands.  It’s early to say if these four companies, and others that are trying to break into the car market, will fail or be absorbed by the bigger companies. 

The thing about electric cars is that the market is just starting to build.  There are opportunities for the small startup to fill a market niche.  It becomes more difficult as the big automobile makers gradually fill out these niche markets.  These small startup companies have to grab market share before the big companies fill out all the niches.  If the small startups fail to do this then they will go the way of such household names as AMC, Stanley, and Milburn.
 

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