Fisker Automotive came to Delaware with a slick talking CEO and a political army behind him. The Vice President himself greased the wheels to make sure that the startup electric car company received prime small vehicle real estate by ensuring that Governor Jack Markell’s Administration basically gave away the vacated GM plant. Meanwhile, everyone from President Obama to former Congressman Mike Castle touted the company as innovative and an example of the new wave of “green jobs”. The company’s business model was aggressive, too aggressive for some tastes, like those at the Caesar Rodney Institute who called into question the model. At the time, Fisker had planned to come from nowhere and capture around 20% of the hybrid/alternative fuel market in its first full year of production. They planned to take the company from the ground up, retooling an old plant, employing 2,000 workers and immediately leap frog GM and Honda. As we said, the plan was ambitious. But that was in 2009.
Since then, Fisker has gone through some changes. Initially, the company had planned to bring to market two all-electric vehicles which were designed to compete directly with the Chevy Volt. The first, the sporty Karma, was priced at $80,000 which made it outside of the price range of most folks but within striking distance of other luxury sedans and of course, since it was all electric, it was expected to be a hit with those who can afford such expenses. But again, that was 2009. Since then the price has gone from $80,000 to starting at $102,000 for the base model and topping out at $116,000 for the fully equipped model. The Karma has also been plagued by lower than expected fuel mileage equivalency (far lower than the Volt and Prius plug in vehicles), has faced recalls over battery fire risks similar to those seen in the Chevy Volt and is not even being produced in the U.S. Fisker moved production of the luxury sedan to Finland despite being given $193 million to produce the vehicle. Fisker said that they could not find a suitable firm in the U.S. to manufacture the car. The company also says that none of the $193 million spent on the production of the Karma has gone overseas, an accounting trick that we may never see since the company’s books are sealed.
Fisker has also faced cash flow problems. In an announcement last week, Fisker attempted to put pressure on the Obama Administration to release more of the $528 million Department of Energy loan that the company had been surviving off of. The company announced the layoffs of 26 workers in Delaware, 40 more in California and the termination of contracts with a number of subcontractors as it said that without more government support, it could not keep those workers on board and continue to produce the Karma in Finland. Private market support for “green energy” has been largely non-existent despite the touting by government officials. In Fisker’s case, it seems apparent (although again, without a look into the car maker’s books, it’s impossible to know for sure) that there has been little investment in their product. The likely reason for this is because alternative energy technology is unproven, untested and carries a poor track record of success in the larger scale. According to some high dollar investors, while the allure and promise of alternative energy is initially inviting, the risk and low rate of return are drawbacks. The competition in the market is also fierce which contributes to low rates of return as smaller profits are spread around. Case in point, as Fisker stumbles, another startup electric car company, Tesla, has unveiled an electric SUV which promises to turn more heads as automakers look to make larger electric and alternative fuel vehicles for bigger U.S. families.
Some observers have questioned whether Fisker will be able to succeed or if the government has thrown another $193 million down the drain. Only time will answer that question but if Solyndra, Blue Water Wind and now Fisker are any indication of the coming storms, the government should get out of the investment business. But with more and more campaign bundlers like those at Solyndra, Brightsource, Tesla and heavy policy chiefs investing in Fisker the risk of more taxpayer dollars being given to cronies is going to remain high.