Starting a new automobile manufacturer is one of the most difficult challenges in business. But the rise of electric cars has enticed many people to give it a try. Two of the bigger startup names are in the news this week, and their fate highlights the problems.
California-based Lucid’s stock price fell this week on news of mixed first-quarter results. But more vehicles were delivered in the first quarter of 2024 than in the previous quarter. And the company reported that it had enough cash on hand to survive another year.
Fisker, also based in California, may have suffered the last two blows. Fisker, already facing bankruptcy, has seen its factory partner say it doesn’t expect to produce another of its cars, and Fisker has reportedly begun closing its headquarters.
Why it’s so hard to start a car manufacturer
When you start a car company, you have to lose money before you make money. This means you have to lose a lot of money. For a long time.
Starting a new automaker means buying or building complex factories full of robotics and hiring huge production capacity.
It’s about developing a way to distribute cars to customers across the country and figuring out how to maintain and repair them despite the inevitable door dents and suspension failures.
When you start a t-shirt manufacturer or even a kitchen appliance manufacturer, you don’t have to convince potential customers that you have a convenient way to make urgent repairs nearby. But a car manufacturer needs these things.
Related: A cull of EV startups is becoming increasingly likely
Essentially, a start-up automaker must absorb the costs of building a nationwide infrastructure and hope to make enough money to pay for everything later.
The latest big success story – Tesla – posted its first profitable quarter of car sales 18 years after its founding.
Startups that want to follow his model have an even harder time than Tesla.
Tesla managed to survive long years of losses by selling regulatory credits to other automakers. However, this option is not available to newer competitors. Since almost every company now builds an electric vehicle (EV), traditional automakers rarely buy credit anymore.
Deep pockets are more important than good products
In most industries, good products are enough to get a company off the ground.
In the automotive industry, nothing is that simple. Good products can fail because of the infrastructure challenge.
The Endurance pickup truck from startup Lordstown Motors was a finalist for the 2023 North American Car of the Year award in the truck category. It didn’t save the company from quick bankruptcy.
The problem with a “lose money to make money” model is that you have to have a lot of money to try it.
Lucid has a lot of money – since 2019 it has been majority owned by Saudi Arabia’s sovereign wealth fund.
Fisker Inc. has a bevy of smaller investors but no single reliable source of funding.
This week that difference is evident.
Clear swimmers
Lucid told investors this week that it delivered 1,967 vehicles in the most recent quarter. That’s 233 more than in the previous quarter and “an increase of 39.9% compared to the first quarter of 2023,” according to the company.
Lucid built its first car in 2021. The Air sedan — the only Lucid on sale today — reaches up to 520 miles between charges in its longest-range version. This makes it currently the electric vehicle with the longest range.
The company lived up to the hype. Its powerful Air Sapphire puts out 1,234 horsepower (sweet) and accelerates from 0 to 60 mph in under two seconds with stock tires—something not even the Tesla Model S Plaid can do. It’s the acceleration of a Formula 1 car with seating for five people.
The company is planning a second product for the 2025 model year – the Gravity SUV. It shares the Air’s platform, but adds seating for seven and a number of clever features such as frunk (front trunk) seating and sliding second-row seating with its own tables.
Lucid told investors this week that Gravity is scheduled to begin production in late 2024.
Yahoo Finance reports that the company “has $4.62 billion in cash and cash equivalents, enough liquidity to last through the second quarter of 2025.”
With a sovereign wealth fund behind it, Lucid can likely get more funding at this point if the company has shown promising growth.
Fisker sinks
Rival Fisker is in trouble.
Fisker Inc. is the second work from famed car designer Henrik Fisker – the man responsible for the original BMZ Z8 and the look of the Aston Martin DB9. His first attempt at starting a car company delivered about 2,000 Fisker Karma sedans before filing for bankruptcy in 2013.
This time he planned four products but built one. The Fisker Ocean SUV is already on the road and in customer driveways. With a range of up to 360 miles, a stylish design inside and out, and intriguing features like an available solar roof that keeps the battery powered throughout the day, it seems promising.
However, recent testing has shown significant software and performance issues with the car. The company behind it is quickly running out of money and options for survival.
Fisker does not have its own production facilities. The company commissions automobile manufacturer Magna Steyr to build its cars in an Austrian factory. Fisker and Magna Steyr agreed to end Ocean production in March. Magna Steyr told investors this week that it does not expect to restart construction on the Ocean.
Fisker has drastically reduced prices on unsold Ocean models. InsideEVs reports that this move left “owners who had paid the original full price feeling cheated, seriously damaging the company’s image and credibility.” The New York Stock Exchange even delisted Fisker shares taken after its shares reached an “unusually low” price.”
Sources within the company told Business Insider this week that Fisker “has begun the process of closing its Manhattan Beach office, the site of the company’s headquarters.”
Buying from a startup is a risk
What does this all mean for car buyers? We advise caution when purchasing an electric vehicle from a startup.
Making a five- or six-figure commitment to a company that may not survive long is risky. Should Fisker Inc. suffer the expected bankruptcy (and what a second for the Fisker name), Fisker Ocean buyers will likely be left with a completely unsupported car. Software problems may never be resolved. Spare parts for repairs may never be available.
Clear buyers are a little less worried about this, but this company’s survival isn’t guaranteed either.
The hard truth is that buyers now have to evaluate not only the car they’re buying, but also the company that builds it. Please note that dozens of electric vehicle models are available from established car manufacturers with long-standing support networks.
Few would wonder whether BMW, Mercedes-Benz, Ford or Hyundai will still be around in 10 years to service a car purchased today.