News Column

Detroit Electric to Make Cars This Summer

March 20, 2013

Brent Snavely and Nathan Bomey

Detroit Electric website
Detroit Electric website

It's already been a long, hard road for Detroit Electric, an electric vehicle start-up that says it will begin producing cars this summer.

Founded in 2008 by Albert Lam, former CEO of the Lotus Engineering Group, the company decided against applying for public funding when the Obama administration was virtually handing it out. Instead, Lam raised capital from private investors.

"It's been a very daunting experience for us," said Don Graunstadt, CEO of North American operations for the company that recently leased office space in the Fisher Building. "We raised capital, we made some progress, we raised more capital, and then we made more progress."

The timing for any electric vehicle venture is dicey at best. Last week, founder Henrik Fisker resigned from Fisker Automotive. Then Chinese manufacturer Geely Automobiles Holdings said it would not bid for Fisker.

Electric vehicle battery manufacturers such as bankrupt A123 Systems and LG Chem Michigan, which has yet to sell any automaker a battery pack, illustrate the consequences of gearing up ahead of significant demand.

"The likelihood for survival for any start-up is incredibly small -- for anything at all, even a corner restaurant," said Brett Smith, research analyst for the Center for Automotive Research in Ann Arbor. "The hurdles are enormous for a car company."

Back in 2008, Detroit Electric was seeking about $150 million in capital and had raised about $30 million from private investors.

On Tuesday, Graunstadt said Detroit Electric has raised all the capital it needs to begin production. Most of that capital has come from private-equity investors from Hong Kong, he said.

But he declined to say where the company will make the car.

Detroit Electric, which takes its name from a company that made electric cars in Detroit in the early 1900s, is in the final stages of selecting a manufacturing site in Wayne County, and expects to employ about 50 workers after production begins.

Graunstadt said the car's range is greater than the 75 miles of the Nissan Leaf. The two-seat sports car, built with a carbon-fiber body, will sell for about $135,000. The batteries will come from South Korea-based Kokam.

The car will be revealed in Detroit on April 3 and April 20 at the Shanghai auto show.

Graunstadt said he expects to introduce four models by the end of 2014, some of which will be manufactured by a Chinese partner he declined to name.

Private investors and venture capitalists don't face the political scrutiny of companies funded primarily by government loans.

"It really changes the dynamic of the situation," Smith said. "It is the difference between a quirky start-up to somebody who better deliver."

Tesla, which received a $465-million Department of Energy loan in 2009, has spent more than $1 billion to develop the Model S for production at a California factory formerly run by General Motors and Toyota.

"Building a car from scratch is incredibly expensive," said Lux Research analyst Cosmin Laslau. "It's a very, very capital-intensive process."

Start-up auto companies often encounter logistical problems and quality issues as they begin production.

Tesla founder Elon Musk talked recently about the exorbitant cost of air freight for the emergency delivery of parts.

While Tesla expects to make a profit this quarter, it is unclear how efficiently it can ship vehicles to dealers.

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Source: (c)2013 the Detroit Free Press Distributed by MCT Information Services


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