A few months from now, a new automotive assembly plant will begin to rise from the sands just outside of Las Vegas. At a cost of $1 billion, it will produce a new line of battery-electric vehicles developed by the California-based Faraday Future.
That’s not to be confused with Silicon Valley’s Tesla Motors or, for that matter, Google or Apple, the two tech giants also believed to be working on plans to start making battery-electric vehicles. And they aren’t alone.
Until recently, the auto industry was a tight-knit community made up of a relatively small number of well-funded and well-established manufacturers. In the U.S., it has been decades since any start-up made a serious push for a mainstream market. Yet, by the end of the decade, as many as a half-dozen new names could be competing for space in American driveways.
In their quest to crack the established industry fraternity, these new players are, with rare exception, focusing on the same technologies: electric propulsion and autonomous driving.
“They’re focused on electric vehicles because the battery powertrain is incredibly simple and eliminates a lot of potential costs,” at least when compared to traditional gasoline and diesel engines, explains Joe Phillippi, senior automotive analyst with AutoTrends Consulting.
Drawing its name from Michael Faraday, the British scientist who developed many of the fundamental concepts of electricity, Faraday Future gave a hint of what’s to come during a splashy media event during the Consumer Electronics Show in Las Vegas last month. The start-up, funded largely by Chinese billionaire Jia Yuetang, rolled out a sci-fi-like sports car concept. But it plans to produce more mainstream products when the Las Vegas plant opens, as early as 2018.
“You don’t need to have a hundred-year legacy in the automotive industry to define what the next generation of transportation needs to look and feel like,” said chief engineer Nick Sampson, from the stage in front of the FF Zero1 concept.
Sampson previously served as development lead for Tesla, working on both the Model S battery sedan and newer Model X SUV. Tesla is seen by many as the game-changer proving it’s possible for new entrants to crack into the automotive market. But it hasn’t been easy. Despite strong support from Wall Street, Tesla sales would be little more than a rounding error at General Motors, and the Silicon Valley start-up posted another in a string of losses for the most recent quarter.
The real test for Tesla will come with the 2018 launch of its first mainstream product, the Model 3. But as the latest cover of influential Wired magazine notes, General Motors will actually be there first. Later this year, it will launch the 200-mile Chevrolet Bolt battery car at just $30,000 after federal tax credits.
Even though electric motors might be cheaper to develop than gas engines, the tooling needed to stamp out a car’s sheet metal typically costs at least $250 million, and the $1 billion cost of the Faraday plant is average. Then there’s the challenge of setting up a nationwide network of dealer showrooms and service centers. Add the fact, says Phillppi, that mainstream products are sold for “razor-thin” profit margins.
If anyone can afford to cough up the cash, it would be Google and Apple, industry observers suggest, the first and second most valuable corporations in the world, each with huge cash assets.
For the moment, Apple isn’t even confirming it will enter the auto industry, but it has hired a number of automotive veterans for what is widely reported as its Project Titan effort. Google, meanwhile, is open about its effort to develop autonomous vehicles, even putting 100 prototypes on the road in California and Texas. Until recently, it had said it wanted to find a partner to use its autonomous technology, but this month placed help wanted ads for several key manufacturing engineers.
There are others, with far less capital, also intent on giving it a shot. Visionary inventor Paul Elio’s Elio Motors recently began running ads for the quirky three-wheeler he hopes to start producing as early as late 2016. His stock went public this Friday, but the company still needs to raise as much as $200 million more before it can begin production at a former GM plant in Shreveport, Louisiana.
If it pulls that off, the company will market the two-seater for just $6,800. Using a gas engine, rather than batteries, it is expected to deliver 84 miles per gallon.
“We are on a mission to change the world, and sharing our message with as many people as possible is an important objective to our long-term success,” Elio Motors’ eponymous founder said in the new ads.
Another start-up, Local Motors, wants to change the world from the manufacturing side. It could begin building its first product later this year, a battery vehicle produced on a 3D printer, rather than on a conventional assembly line.
Even without a conventional plant, “This is an incredibly expensive game to play,” stresses analyst Phillippi, pointing back to the struggles faced by automotive wannabe Kaiser Motors. Founded in 1945, industrialist Henry J. Kaiser famously told his audience during an auto industry confab that he was ready to invest $100 million.
“Give that man one white chip,” sneered Kaiser’s counterpart from General Motors.
Kaiser Motors was out of business within eight years. A number of other recent start-ups haven’t lasted nearly that long. Much-ballyhooed Fisker Motors, with its plug-in hybrid Karma, was in production for barely two years. And other wannabe manufacturers didn’t make it even that long.
But despite all the roadblocks, despite the hefty capital requirements, there are more start-ups than the U.S. auto industry has seen in decades. And the dramatic changes likely to transform the automobile itself could give them better odds at pulling things off than at any time since the industry’s earliest days.