Green Cars for Those with Lots of Green

Two small California-based carmakers, Tesla Motors and Fisker Automotive, combine fuel economy and high-speed thrills

Can luxury have a conscience? Plenty of research says more and more luxury buyers want a car that is environmentally friendly. And slowly, carmakers are trying to capitalize on it.

On Mar. 17, Tesla Motors built its first $98,000 electric roadsters to be delivered to customers. Others such as fledgling Irvine (Calif.) automaker Fisker Automotive also are trying to get in the game with high-end, green cars for an emerging class of wealthy consumers who don't want to be accused of consuming in excess.

"Whether Tesla and Fisker prove it will be immaterial," says Eric Noble, president of the Car Lab, an auto research and consulting firm in Santa Ana, Calif. "All the research that major automakers are doing is showing that luxury buyers want to be environmentally conscious."

Already Sold Out

Tesla started its mission out of Silicon Valley two years ago, getting funding from a slew of the tech industry's big players. The result is the $98,000 roadster (BusinessWeek, 7/30/07) that goes 220 miles on a charge and can reach 60 mph in a tire-screeching 3.9 seconds.

Sales are small right now. But Tesla has firm orders for the company's first 600—to be built this year. Another 400 buyers have put down $5,000 deposits for the first 400 cars the company will build next year, says Daryl Siry, the company's vice-president of marketing.

By 2010, Tesla plans to build a less expensive four-door that comes as either a pure electric car or a plug-in hybrid, which would get better range than a conventional gasoline-electric hybrid because it relies more on its electric motors to drive the car. Tesla is in the process of raising another $250 million for a factory for the next car, which Siry says should come out around 2010. Says Siry, "We invested in desirable, eco-friendly cars."

More Capital Needed

Fisker has similar aspirations. Former BMW (BMWG) designer Henrik Fisker, the company's CEO, has formed a joint venture with Quantum Technologies, which makes alternative-power drive systems. Quantum has worked for Toyota Motor (TM), General Motors (GM), and NASA. Fisker Automotive raised initial seed money of $25 million from venture capital firms Palo Alto Investments and Kleiner Perkins.

That should get the company started, Fisker said in an interview, but more capital is needed. His target is to deliver a plug-in hybrid car by the fourth quarter of next year. Fisker says he is negotiating with two companies, one of which will build his car in the U.S. He also plans to start with 25 to 30 dealers in there. The plan is to build 15,000 of the sleek, four-door Fisker Karmas, half of which will be sold in the U.S.

The company won't give away much in the way of technical specs. And no one outside the company has driven one. But Fisker says the car should be able to go 400 miles to 450 miles on a tank of gasoline without a recharge.

Lithium Ion Batteries Untested in Cars

The car would operate similarly to GM's Chevrolet Volt concept car, which the automaker plans to sell in late 2010. It will run on its electric motor at all times. A four-cylinder gasoline engine will charge the Fisker Karma's lithium ion batteries.

The challenge will be getting the car done in two years. Lithium ion technology is still nascent in the car business. Even Tesla, which just started building cars, doesn't have a long track record proving how the batteries—which are now used to store electricity in laptop computers and cell phones—will hold up after many miles on the road.

Fisker says he is confident they will have a car, and plenty of buyers. "The definition of luxury is changing," Fisker says. "One of the luxuries of having a nice car is having people admire it and feeling good about yourself." Even if a driver used the entire tank of gasoline, he would get 50 to 60 miles to the gallon, Fisker says. He has two prototypes and is starting the certification process with the U.S. government.

How many buyers will line up is still a question. Toyota's top-shelf Lexus brand has sold several hybrid versions of its cars. But sales volumes have been small for all three—the LS 600h, GS 450, and RX 400h hybrids. Sales are down for the GS and RX hybrids this year. And the company has sold just 217 hybrid versions of its LS 460 flagship sedan.

The Future Is Fast and Green

The problem, says Global Insight analyst John Wolkonowicz, is that Lexus' hybrids are about performance. Their fuel economy isn't that great, he says. The LS 600h, for example, is rated by the Environmental Protection Agency at 21 mpg, just 2 mpg better than the conventional LS 460.

In the long run, though, performance hybrids and advanced technologies will be the way to go, analysts say. With greater green awareness in the public and tougher government fuel economy rules going into effect in two years, carmakers will have to deliver fast vehicles with green technology.

"We'll still have performance cars. But we'll go from honking V8 engines to romping, stomping electric cars," Wolkonowicz says. "I think cars like Tesla, Fisker, and performance hybrids are ahead of their time."

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