Time for Electric-Car Startups to Rethink or Die

It’s a tough world out there for small, under-the-radar electric car companies. Saddled with non-existent name recognition and high prices, nearly all of them, including Think, Coda andWheego, are having cash-flow problems and searching for viable business plans.

The core problem is very high retail prices, which could be addressed by selling the cars at bargain rates with batteries not included (they’d be in a separate lease). Nissan considered and rejected this option for its electric Leaf, then went ahead with a $32,780 all-in price that set a benchmark for affordability.

Tiny market, smaller sales

Business as usual isn’t going to work for these companies. Dribbling out sticker-shock cars in a so-far tiny electric-vehicle (EV) market is a recipe for disaster — one that’s already looming for these companies.

Think, a Norway-based automaker that makes the two-seat electric City, is a poster child for the problems the little guys face. It entered the U.S. market last year with high hopes and opened a factory in Indiana. The City is priced over $40,000 for hoped-for fleet sales, so it’s hardly surprising that only a few cars have sold. Now the company is in a financial crisis as a major equity investor pulls his capital out. Production (mostly in Finland now) has been shut down, and 35 people laid off.

A new investor is undertaking a fast-track restructure of Think, and a complete, well, re-Think is in order. The prescription for recovery is exactly what it should be for Wheego and Coda, which are also indies with low profiles and high prices:

• Eye-opening low prices. Imagine a $15,000 electric car, with a three- to five-year $100 a month battery lease. That marketing plan makes sense, because would-be customers are turned off by sky-high EV prices, and when they comparison shop with Wheego or Think they’re going to find considerably more value in the Leaf or Chevrolet Volt — which offer double the passenger room, the assurance of a name brand, and far more sophistication. Batteries also scare people, so having the carmaker assume responsibility for the packs would be a security blanket for customers.
• Get known. For this, the start-ups need to study the Tesla Motors and Fisker Automotive playbook. The companies are pretty different and have engaged in some biting, scratching, hair-pulling legal battles with each other, but they’re united on one thing — the need, in lieu of big ad budgets, to create “I want one” desirability with a high-tech, high performance image pushed forward by a glamorous and news-making globe-trotter CEO.
  Plenty of colorful stunts (a Tesla specialty) help, too. Think, Coda and Wheego sell economy cars, so they need to sell the sizzle of saving the planet, coupled with the cars’ ultra-low operating costs (three cents a mile or so). In the 60s, VW sold a lot of cars by making a virtue of the Bug’s simplicity and frugality.
• Consider rentals and car sharing. Coda announced some intriguing rental car agreements with Hertz and Enterprise in 2010, but then blew it by announcing a production delay until late this year. Think has some rental agreements, but mainly in Europe. Putting these near-invisible cars into rental fleets will increase their presence on the street, and give hesitant consumers the news that EVs can be fun to drive (because they are). Rent-by-the-hour car-sharing fleets put people behind the wheel on a regular basis. And assuming that to know an EV is to love it, that’s a good thing.

None of the EV startups have much in the way of cash reserves, so their best bet is to get cars rolling out of the factory gates. Otherwise, the money men get impatient. Think’s bailing investor is the company’s battery supplier, Ener1, which held 40 percent of Think’s equity (and also supplies batteries to Volvo). Its CEO,Charles Gassenheimer, told me:

Think’s majority shareholders decided they didn’t want to continue to invest in the company, and that it needs more capital. But Ener1 is not in a position to do that on our own, so we were forced to write down $73 million in book value.

Eek. I could detail Think’s long history of near-death experiences, including a trip through Norwegian bankruptcy court, but you get the picture that it ain’t easy being green. Gassenheimer said he spent a year trying to get the company’s board members to listen to him about the low price/battery leasing plan, and it’s a pity they didn’t. There’s a way out of this mess for the start-ups, but it doesn’t involve pricing your low-key cars at $40,000 (also the price of the Coda), sending out a press release and hoping for the best.