April 4, 2013 at 1:38 PM ET
It’s been nearly six decades since the last serious attempt to create a major new Motor City-based auto company, and nearly three-quarters of a century since the last maker to use Detroit in its logo turned off the lights. That may explain why skeptics showed up to the first news conference of the resurrected Detroit Electric this week.
They noted that the maker is targeting the still-uncertain U.S. battery car market – and aiming to launch production by late summer even though it doesn’t yet have a factory site.
Admitting that his new start-up has yet to prove it is more than a dream, CEO Albert Lam laid out a strategy that could not only create a new line of high-performance and long-range electric vehicles but also redefine the very model of automotive manufacturing.
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“The difference between sanity and insanity,” declared the Hong Kong-born entrepreneur, “is the realization of a dream.”
Even a few months ago, the launch of Detroit Electric might have seemed iffy considering the lackluster performance of the U.S. battery-car market in 2012. Key entries, such as the Chevrolet Volt and Nissan Leaf, lagged well behind sales expectations. Start-up Tesla Motors ran 10 percent deeper into the red for the year than projected while California-based rival Fisker Automotive was rapidly running out of cash and unable to re-launch production of its first model, the Karma, never mind set a solid date for introducing its second line.
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Fisker is a still financial basket case, last month furloughing its U.S. staff for a week to save cash, but there have been positive signs for “electrified” vehicles in recent days. Tesla beat its first-quarter sales numbers by nearly 10 percent and expects to report its first-ever profit for the January-March quarter.
Among mainstream brands, Nissan has apparently scored a solid hit with a new, lower-priced version of its Leaf. The 2,236 cars sold in March exceeded the forecast made by Nissan Motor Co. CEO Carlos Ghosn during last week’s New York Auto Show, where he estimated deliveries would near 1,900.
If there was disappointment in the nascent battery-car market it came at Chevrolet where sales of the plug-in Volt slumped by more than a third, to 1,478, compared to year-earlier levels. For the first quarter, Volt is still up 8.4 percent, however, to 4,244. That means it remains ahead of the Nissan Leaf which generated a three-month tally of 3,539, and the 2,353 sales for the Toyota Prius plug-in – though Volt is now second in the market to the Tesla Model S.
Ford, Toyota and Honda also gained traction for their various hybrids, plug-ins and pre-battery-electric vehicles, or BEVs, last month, and analysts anticipate even more momentum as additional brands enter the battery segment. Subaru just revealed its first conventional hybrid at the NY auto show, where Audi announced plans to bring its first plug-in model to the States in 2014. And Porsche will have two plug-ins by year-end, including the relatively mainstream Panamera S E-Hybrid and the ultra-exotic 918 supercar.
Like Tesla, the reborn Detroit Electric is focusing specifically on battery-electric power, starting out with a low-volume, high-performance sports car. Dubbed the SP:01, it is based on a Lotus design and made of super-light carbon fiber and bonded aluminum. Its distinctive lithium-polymer batteries will yield 180 miles range, Lam promised, even with a 0 to 60 performance of just 3.7 seconds and a top speed of 155 mph.
The SP:01 won’t come cheap, at $135,000, but it’s a halo product designed to put Detroit Electric on the map, much as Tesla did several years earlier with its own, Lotus-designed Roadster. What will really matter are the three Detroit Electric models promised to quickly follow, including mainstream sedan and hatchback offerings targeted for late 2014 – and carrying base prices of around $32,000 to $35,000.
Like American Motors, the last serious attempt to create a Detroit-based maker, Lam and his team have modest sales aspirations – as well as a radically different business model. Unlike a conventional carmaker or even start-ups like Tesla and Fisker, Detroit Electric plans to make minimal investments. It will set up a small factory in Detroit for the SP:01 but the future models will largely be outsourced to suppliers who already have plenty of excess capacity.
“We would probably have to borrow $800 million” to set up a conventional manufacturing operation,” suggested U.S. chief Don Graunstadt, adding that there would “not be enough in sales (at least initially) to support that kind of investment.”
In all, the various executive/partners and a few “strategic investors” are expecting to kick in perhaps $50 million to $100 million to bring the realization of their dream.
“There’s a bit of risk there, given the complexity of today’s cars and all the regulations you have to comply with,” cautioned Joe Phillippi, of AutoTrends Consulting. “But your capital cost is minimal. It’s just going to take careful program management to make this work.”
Lam, who once worked as a senior Apple manager, clearly was influenced by the outsourcing approach of the consumer electronics giant. But it remains to be seen if the strategy will work with a vehicle consisting of 15,000 or more parts.
Then again, if he’s right, Detroit Electric might not just plug into an emerging market for battery power but set a model that the rest of the industry won’t be able to ignore.
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