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Originally published Friday, April 18, 2008 at 12:00 AM

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Potholes on the road to electric cars

On a Friday in February, about 100 people gathered at Tesla Motors headquarters, awaiting the future of transportation. A trailer truck disgorged...

Los Angeles Times

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SAN CARLOS, Calif. — On a Friday in February, about 100 people gathered at Tesla Motors headquarters, awaiting the future of transportation. A trailer truck disgorged a sleek, black electric sports car that promises to change the world as much as the Model T did a century ago.

The crowd toasted with champagne, and Elon Musk, Tesla's chairman, made a triumphant speech. "This is the culmination of an enormous amount of work," he said.

What he didn't mention was that Tesla's Roadster had arrived months behind schedule with an improvised transmission that reduced acceleration by 40 percent. Or that the San Carlos, Calif.-based company's visionary co-founder had been abruptly ousted months before. Or that Tesla plans to make fewer than 1,000 of the cars this year — and sell them for $100,000 apiece.

Tesla and more than two dozen other start-up companies — most based in California and backed by piles of venture capital — are in a feverish race to develop a viable, electricity-powered alternative to the internal combustion engine. Electric cars, they argue, offer less pollution and noiseless operation for a fraction of the per-mile cost of traditional cars, while weaning drivers off oil.

Even investors have doubts

Yet even environmentalists and investors who want to see these companies succeed question whether they have the know-how or leadership to replace the nation's gasoline fleet. Many of these companies seem bogged down fighting lawsuits, issuing breathless press releases, pummeling their rivals on blogs and bickering internally.

California's top air regulator recently voted to reduce the number of all-electric vehicles it would require automakers to market in the state in coming years. That, combined with the start-up industry's challenges and competing ethanol and fuel-cell technologies, could shift momentum away from electric cars altogether.

"There are real questions about whether they can do this," said Chelsea Sexton, who worked with GM on electric cars in the 1990s and now directs Plug In America, an advocacy group. "There's a lot of talk, but it's still vaporware."

"It's very cute for people out of Silicon Valley to want to bolt an electric motor to a chassis," said Ray Lane, managing partner at venture capital firm Kleiner Perkins Caufield & Byers, which has invested in two start-ups: Irvine's Fisker Automotive and Think! of Norway. "But that's a long way from actually making a real car."

Most traditional automakers have programs to develop electric, fuel cell and biofuel cars and are under government pressure to improve fleet fuel economy, adding to speculation they may gobble up any start-up that produces a viable electric car.

"Even if these start-ups are successful, I worry their prize will be that they're forced to compete with Toyota and GM," said Silicon Valley venture capitalist Vinod Khosla, who put money in ethanol rather than electric. "That's why I never invested."

A look at four California companies — Tesla, Phoenix Motorcars, Fisker and Zap — illustrates the challenges facing start-ups trying to build the car of the future.

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Phoenix gets burned

Ontario, Calif.-based Phoenix plans to mate a Korean SsangYong pickup with a battery that can be charged in as little as 10 minutes.

Faced with production costs that suppliers say are more than double the truck's $47,000 retail price, the company cut ties with its motor supplier and engineering firm last year, leading both to sue.

Phoenix blew its goal of delivering 500 trucks in 2007 (it produced none). That, in turn, threatened its contract with Nevada-based battery supplier Altairnano. Last month, Phoenix severed relations with its co-founder and chief technology officer. Now, the privately held outfit says it plans to design its own motor and switch from rear-wheel to front-wheel drive, major challenges for a company that didn't develop the technology in its prototype.

"The feeling is that they aren't bringing anything of their own to the table, which is problematic," said Spencer Quong, head of the Union of Concerned Scientists' Clean Vehicle program.

Yet CEO Daniel Elliott said Phoenix hoped to deliver its first trucks by May. "We're heading down the final stretch."

Fisker's mysterious Karma

Another player, Fisker, made a splash at January's Detroit auto show with the Karma sedan, which it says will reach 125 mph and cost $80,000. Unlike competitors' vehicles, the Karma is a plug-in gasoline-electric hybrid.

Fisker's chief asset is founder Henrik Fisker, a former designer at Aston Martin and BMW. His experience could be crucial because the company intends to create the Karma from scratch, rather than installing an electric drivetrain in an existing vehicle. Fisker has raised $20 million.

Yet the company has declined to reveal information about the Karma's technology except that it comes from Quantum Technologies. Quantum, also of Irvine, has worked on hydrogen fuel-cell and plug-in hybrids but has significant debt problems and stock-market-compliance issues.

Henrik Fisker says a test model will be available before summer, with production starting by late 2009. As to his company's secrecy, Fisker said: "Everything is so proprietary that we don't see the need to show it to anybody. We will fulfill the milestone we've established."

Zap's hype adds up to zilch

Santa Rosa-based Zap has repeatedly made promises it hasn't fulfilled. The publicly held company sells electric scooters and low-speed, three-wheel cars, and CEO Steven Schneider says Zap plans to sell a highway-legal three-wheeler starting next year.

Online stock-trading message boards accuse Zap of operating as a "pump-and-dump" shop that attempts to raise its stock temporarily by aligning itself with hot transportation trends. Schneider denied that, saying "moving the stock around doesn't help us."

The company has put out 26 news releases this year, and last year issued one headlined, "Zap not acquired or bombed by warplanes according to news reports." In the past several years, it has announced plans to sell a hydrogen fuel-cell vehicle, an ethanol vehicle and a 644-horsepower electric sports sedan. None has materialized.

Zap is in litigation over its 2005 attempt to sell Daimler's Smart Car in the U.S. without a license from the automaker. It also faces nearly a dozen unrelated lawsuits, including fraud and breach of contract.

In the past four years, Zap's stock price has gyrated between 26 cents and almost $5. It hit its 2008 high of 89 cents in January, shortly after announcing it had created an "electric car made for iPod" — one of its low-speed models with an MP3 input jack. The shares are now around 50 cents.

"We put out a lot of news because it's a vicious market and we need to remain in the news," Schneider said. "Shareholders call screaming, 'We want news, we want news,' and so we give it to them."

Tesla to partner up?

For the moment, Tesla is free from stockholder pressure. Although execs have been hinting at an initial public offering, the company is privately held and has raised $145 million from VantagePoint Ventures and other firms.

Last month, the company said it had begun full production of the $100,000 Roadster. So far, 900 people, including California Gov. Arnold Schwarzenegger, have put down deposits.

Delivery was delayed six months, however, by a transmission problem. Also a factor was the ouster of co-founder Martin Eberhard and about 10 percent of its employees late last year.

Yet Tesla says it hopes to complete nearly 1,000 Roadsters by year-end.

"It is something we absolutely can do," Musk, the chairman, said.

But even harder may be the next step: making good on its intentions to build a $50,000 electric sedan and a $30,000 economy car in mass quantities.

The problem is, high-volume production is an expert's game.

The start-ups "mistakenly believe that they have the problems all worked out," said David Patterson of Mitsubishi, which is developing its own electric car for sale in Japan next year. "They're butting up against some of the biggest challenges of the auto industry itself."

Some suggest that could play into Tesla's long-term strategy. In addition to Mitsubishi, Nissan has announced plans to sell electric cars. GM and Toyota are each working on a plug-in hybrid.

"I don't think anybody would be shocked to see Tesla partnering with one of the larger automakers," said CEO Alan Salzman of VantagePoint.

Copyright © 2008 The Seattle Times Company

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