Why Tesla Survived and Fisker Won’t
Fisker Automotive and Tesla Motors, two startups founded to make battery-powered cars, are both in the news, but for very different reasons. Tesla Motors recently announced that it is selling cars faster than it expected, which the automaker says will make the first quarter of 2013 its first profitable quarter ever. Fisker Automotive, in contrast, has furloughed workers to cut costs and is reportedly close to bankruptcy.
The different fortunes of the two companies can be traced to a number of factors, and indeed, Tesla itself has come close to failing and has been forced to scramble for funds. But one strategic decision stands out. Tesla has developed its own core technology—the batteries, the electric motor, and the systems for controlling them. Fisker focused more on the look of the automobile, relying instead on technology developed by its suppliers.
“Fisker tried to be innovative with the design. Fisker seemed to think if you designed a beautiful car, people would buy it,” says Brett Smith, codirector for manufacturing, engineering, and technology at the Center for Automotive Research. “The Tesla vehicles are good looking, but Tesla focused more on the technology, not the sheet metal.”
Tesla’s in-house technology development has given it both a cost and a performance advantage, not only over what Fisker can offer, but indeed over what any other automakers can offer. A key example is Tesla’s battery technology. “Tesla’s lithium-ion battery pack technology is five to 10 years ahead of competitors when it comes to a passenger electric vehicle application, as measured by performance and cost to manufacture,” says Andrea James, an analyst for Dougherty. “Tesla’s battery lead allows it to produce a better vehicle at more affordable price.”
When Tesla was founded, it was based on an idea from J.B. Straubel, now Tesla’s chief technology officer, that commodity lithium-ion batteries designed for portable electronics could be used to make relatively low-cost battery packs for electric vehicles. Thousands of the small, cylindrical cells could be wired together to provide enough energy and power to propel a vehicle for hundreds of miles. To make this work, and to ensure the battery pack would be safe, Straubel had to develop a proprietary system for monitoring and cooling the batteries (see “JB Straubel: Engineering Electric Sports Cars”).
Fisker, along with other automakers who have introduced battery-powered vehicles, including Nissan and GM, took a very different approach. It bought batteries from A123 Systems, the failed battery startup, that were custom-designed for use in automobiles and made in much smaller volumes (see “What Happened to A123?”). The advantage of these batteries was supposed to be twofold: the batteries were designed to be safer and, because they were bigger and flat rather than cylindrical, they were simpler to package together into a battery pack. A few hundred, rather than thousands, of separate cells would be needed.
But these purpose-built packs are far more expensive—at least for now. Last year, James estimated that batteries from now-bankrupt A123 Systems cost between $1,000 and $1,500 per kilowatt-hour. Tesla’s packs, she said, cost between $320 and $420 per kilowatt-hour. And A123’s batteries proved problematic. One failed during a Consumer Reports test of the Fisker Karma—the car had to be hauled off and the battery replaced. A123 later had to recall its batteries because of a manufacturing problem.
Tesla not only benefits from lower costs for its own cars, it’s also been able to sell its technology to other automakers, providing a boost of revenue that helped it survive in the time between producing its first car, the Roadster, and the current Model S.
Fisker’s focus on design wasn’t necessarily a nonstarter. But by many accounts, that design, while outwardly attractive, didn’t deliver. Many reviewers said it is unexpectedly sluggish. Unlike the Tesla Model S, which runs only on batteries, the Fisker Karma has both batteries and a gas engine for powering long trips. Combining the two components added weight and took up space. The Model S seats five adults and has space for two kids in a third row of seats in the back. The Karma, while outwardly similar in size, is cramped—it’s difficult to fit in four adults.
It is still too early to know whether Tesla will be a long-term success (See “Can Tesla Survive?” and “Can Tesla Shift to Higher Volume?”). If it hopes to reach a mass market—so far it’s sold fewer than 5,000 Model S sedans—it will need to find ways to keep making batteries cheaper. At least it has a jump-start on its competition.
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