Hey, Detroit, Wanna Drag?

Two Silicon Valley startups are working on battery-powered sports cars

The year was 1998, and Ian M. Wright had just settled into his business-class seat for an 11-hour flight from San Francisco to Tokyo. As he delved into a book on experimental aircraft, he noticed the thirty-something man next to him reading over his shoulder. Right away he suspected he was in familiar company -- another Silicon Valley computer geek with a secret passion for gears and propulsion.

Wright, then a 42-year-old senior director of engineering at Network Equipment Technologies Inc. and an amateur race car builder and driver, struck up a conversation with Martin Eberhard, founder of electronic-book company NuvoMedia Inc. By the time they landed at Narita International, they had discovered not only a shared interest in alternative vehicles but also that they lived a quarter-mile from each other in Woodside, Calif. Four years later they would be working together, having launched the Valley's first bid to build a high-performance electric car, Tesla Motors Inc.

Silicon Valley engineers have always been closet gearheads. When they're not writing code or designing semiconductors, many tinker with exotic cars, airplanes, even rocket ships. Couple that with a Californian environmental bent -- it's hard to drive the stretch of Highway 101 between San Francisco and San Jose without passing several Toyota Priuses or Honda Insights -- and techies seem like ideal candidates for building nonpolluting vehicles.

Yet the region's startup machine has never produced a notable auto company. Wright and Eberhard are out to change that. After four years of research and development, San Carlos-based Tesla plans to release a battery-powered sports car later this year. It will do so without Wright, who left Tesla last year and formed his own electric car startup, Wrightspeed Inc., in Woodside. "I had a different vision, to build cars with different technology," he says. The parting was amicable. Wright doesn't have a delivery date for his vehicle.

Both companies are charting new territory by applying info tech engineering, consumer-electronics design, and venture-capital financing to auto startups. For talent, they are dipping into the Valley's deep well of electrical engineers, software programmers, and industrial designers. For financing, they are appealing to venture capital's newfound interest in clean technology. So far, both have been funded by their founders and other individuals. Tesla has raised at least $25 million, some from PayPal (EBAY ) Inc. founder Elon Musk. The company is close to completing a private placement led by a prominent VC firm, according to a source familiar with the deal. (Tesla declined to comment, preferring to stay quiet until its car is ready.) Wright has yet to close on a first round of funding.


So what makes these techies think they can do better than Detroit, Tokyo, or Stuttgart? After all, past attempts to market electric cars in the U.S. have disappointed. Buyers balked at high prices, odd looks, and limited range. When General Motors Corp. (GM ) introduced its first-generation EV1 in 1996, most owners could only drive 60 miles before charging.

But Tesla and Wrightspeed have a different approach. For one thing, their vehicles use lithium-ion polymer batteries, a more powerful version of those found in portable electronic devices. Packing twice as much energy per pound as the nickel metal hydride batteries used in the electric cars of the 1990s and today's gas-electric hybrids, lithium ion increases the driving distance on one charge. Surging demand from portable device makers has spurred development of more powerful lithium batteries. "It's an intensely competitive business in the laptop and portable market, which is good for us because it means the technology is improving, and the price is coming down," says Tom Gage, president at AC Propulsion Inc., an electric-car components manufacturer in San Dimas, Calif., that is providing key elements of Wrightspeed's and Tesla's drive trains.

Another distinction: Tesla and Wrightspeed are designing zippy sports cars for wealthy drivers who might otherwise buy a Ferrari or Porsche. Although economy cars sell in greater numbers, performance cars sell at higher prices and a greater profit. Tesla hasn't announced pricing, but Wright estimates his cars will cost about $100,000. Other electric-car makers have discovered the performance market. French carmaker Venturi last year began selling the Fetish, a sports car powered by lithium-ion batteries. But Venturi is making only 25 Fetishes, for $600,000 each.

Engineers have long known that electric power can best gas power on a racetrack. Light weight, high horsepower, and no shifting make for rapid acceleration. "The interesting thing about electric cars is you don't have to give up efficiency to get performance," says Wright. He claims the X1 will go from 0 to 60 miles per hour in under 4 seconds and drive for up to 160 miles at 70 mph on one charge. Charging will take about two hours.

Tesla is paying special attention to appearance, which is key to the performance market. Sources familiar with Tesla say it is customizing the chassis of the sporty Lotus Elise. Tesla has hired employees from design firm IDEO to enhance aesthetics. Wrightspeed, by contrast, is trading some sports-car features for lightness and speed. Its prototype X1 resembles a race car, with open cockpit and no side panels.

Wright says that by outsourcing manufacturing to electronics contractors and selling directly to consumers, he won't need to invest in factories or a dealer network. But Tesla and Wrightspeed are likely to develop their own methods for converting battery power into AC power and for managing the car's use of power efficiently.

Those technologies could turn out to be the startups' most valuable assets. If they can't persuade a Porsche driver to trade his 911 for a ride that sounds like a golf cart, they may at least do a tidy business supplying power management technology to other carmakers. Or either could wind up as that most prized commodity of Valley VC's these days: a high-priced acquisition.

By Justin Hibbard

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