U.S. Bets Big On Tesla, Fisker

Story from Time

Don't think the billions in government subsidies for automobiles are all flowing to Detroit. The U.S. Department of Energy (DOE) is ready to loan nearly $1 billion to Tesla Motors and Fisker Automotive, two fledgling automakers with deep roots in Silicon Valley and Southern California.

Visitors look at a Tesla Roadster, an electric-powered sports car, at the Frankfurt Auto Show

Both companies have promised to deliver fuel-efficient vehicles with advanced power trains that will alter perceptions about cars. "The Fisker Karma is the future of driving," says Henrik Fisker, founder and chief executive of the company bearing his name. "It proves we can drive environmentally responsible cars without sacrificing the emotional things that made us fall in love with cars in the first place." Fisker, the former design director for Aston Martin, has been in the auto industry for decades.

The company plans to deliver its first Karma roadster early next year. It is getting $528 million in low-interest, government-guaranteed loans to refine its plug-in hybrid-drive system, originally developed by its partner Quantum Technology of Irvine, Calif., with grants from the U.S. Department of Defense. Using that technology, the Karma can travel for 50 miles on lithium-ion batteries before the gasoline engine turns on to act as a generator, Fisker says. The preliminary price tag for the Karma is $89,900.

The DOE has also promised $465 million to Tesla, which has already sold 700 of its pure-electric roadsters at more than $109,000 each to Hollywood stars like Leonardo DiCaprio.

The money is coming from the Advanced Technology Vehicles Manufacturing Loan Program, which was created two years ago as part of the bipartisan Energy Independence and Security Act of 2007. It was funded by Congress last fall to accelerate the production of fuel-efficient vehicles for mainstream Americans and reduce the nation's dependence on imported oil.

How do young, untested companies get such generous taxpayer funding? Promising technology certainly counts, but it also pays to have potent political allies. Tesla, founded by the boyish 37-year-old Elon Musk, who made a fortune creating and then selling PayPal to eBay, has drawn support from California environmentalists and political figures such as Speaker Nancy Pelosi and Senator Barbara Boxer, both California Democrats, while Fisker's owners include Kleiner Perkins Caufield & Byers, one of Silicon Valley's most successful venture-capital firms, whose partners include former Vice President Al Gore. "This investment will create thousands of new American jobs and is another critical step in making sure we are positioned to compete for the clean-energy jobs of the future," said DOE Secretary Steven Chu when he announced the loan to Fisker.

It also doesn't hurt to keep at least a toe in Michigan. Tesla maintains a small office in the state, while Fisker has more than 200 engineers, 150 of them from suppliers, working at its engineering center in suburban Detroit. The Michigan connection was helpful when Fisker applied for the DOE loans earlier this year. As Gary Peters, the Michigan Democrat, said of Fisker's loan: "Propelling our auto industry into the 21st century is one key to Michigan's economic recovery."

In addition, both companies have attracted overseas capital. Last spring, Daimler AG bought a 10% stake in Tesla to get access to technology, and Fisker's investors include a fund operated by the government of Qatar.

The U.S. government money doesn't come without some strings — officials from both companies note that the DOE loans proceeds can only be spent in the U.S. — and the spending will be monitored to ensure compliance.

The DOE has also given more than $3 billion to the Japanese automaker Nissan, which has promised to spend the cash in the U.S., mostly in Tennessee, which is in the grip of its own auto recession.

Tesla says it will use the loans to support two specific projects, including the U.S.-based production, engineering and assembly of the Model S, an all-electric family sedan. The Model S assembly plant will employ about 1,000 workers in Southern California. "We're already engineering the Model S, a seven-seater family sedan that will have a base price of $49,900 after a federal tax credit that will [over the longer term] cost the equivalent of a car that retails for $35,000, given the relatively expensive cost of gasoline vs. electricity," says Diarmuid O'Connell, Tesla's vice president of business development.

The Model S can be plugged into conventional outlets or be fully quick-charged from a higher-powered system in as little as 45 minutes and the engineering platform will also be used for derivatives including a minivan and crossover utility vehicle, O'Connell notes.

Tesla plans to build a manufacturing facility, employing 650, in northern California that will build advanced power-train components for other automakers.

Fisker plans to use $169.3 million from the Advanced Technology Vehicles Manufacturing Loan Program for engineering-integration costs as it works with suppliers to complete the Karma. However, the second stage includes a $359.36 million loan tied to developing and manufacturing a less expensive Fisker hybrid in the U.S., which has been dubbed Project Nina. His new company expects to build between 75,000 to 100,000 of these highly efficient vehicles starting in late 2012; the second-generation Fisker will be a relative bargain, with a price tag around $40,000. (See the 50 worst cars of all time.)

Unlike Detroit's automakers, Fisker and Tesla are also export-oriented. "We already sell EV components to Daimler, which will soon begin marketing an electric version of its popular and affordable Smart car," says Tesla's O'Connell. Fisker says his company stands to benefit immensely as support from countries around the world for clean vehicles increases. Germany recently unveiled an action plan to have 1 million electric cars on its roads by 2020 and Japan wants electric vehicles to make up half of all vehicle sales within a decade, he notes.

O'Connell also defends the $100,000 Tesla roadster, which debuted last year. "It's twice as energy efficient as a Prius and six times as energy efficient as gasoline competitors, and faster than a Porsche 911," he says.

Despite the technology behind both vehicles, however, some competitors and observers object to the government assistance. These cars will compete for a relatively small pool of buyers, who can afford expensive, sporty cars, says an official with a foreign carmaker. "It's all about boys and their toys," adds Joseph Phillippi, an independent auto analyst from Short Hills, N.J. "They should have written their own checks instead of going to the government."