Starting a Car Company and Turning A Profit: Tesla, Fisker, and Porsche's Pedigree [Part I]

Getting started is always the toughest part. It’s pulling yourself up by your bootstraps. Putting your head down and powering through. Whether it’s starting a new job, a new workout routine, living in a new city, or starting a new business – it’s a (rewarding) grind. Starting something new, especially something challenging, is a long, arduous, and often thankless path. In the car industry – as brands like Saturn, Mercury, and Scion have shown – it’s a whole lot tougher than that. And those brands started under the umbrella of existing organizations with all of their existing resources and knowledge. But how difficult is it to start from scratch?

Currently, there’s a lot of hoopla surrounding Fisker Automotive and its far-too-recently-delivered Karma, and when you look at it on paper, it’s easy to see why. It’s electric (even if it gets terrible mileage), has Henrik Fisker’s peerless seal of approval, and might even come out with a wagon body style. Someday. Maybe. But probably not.

As we’ve seen with Tesla, it’s really incredibly unimaginably stupendously tough to make couture electric cars for only $100,000 and to return a profit while doing so. Especially when you’re a start-up company with no factories, tooling, or even expertise to handle such a monumental task. At $100,000, making a few hundred or even a few thousand cars does not a strong business case make when you don’t have an entire line-up of profit-producing cars to fund your project. Companies like Porsche have bread und butter models like the Cayenne und Panamera to stuff their coffers with cash, allowing them the freedom to develop the most amazing $100,000 car in the world: the 911. Compare this to Tesla’s funding model, which relies entirely on investors injecting cash (private, public [TSLA], and the US government) rather than sales profits.

Hell, Lotus is in the same boat right now with the Evora. Against the Porsche 911 and its 48 variants (not coincidentally, that works out to a different 911 variant for the Continental 48), it’s tough going out there for the new guys, especially if they’re touting alternative 1st-gen technology. Compare all these plug-in electrons with Porsche’s legendary flat-six and the safe choice becomes crystal clear: would you rather roll the dice with an unknown technology wrapped in a flashy wrapper supported by a patchy dealer network? Or rock the 7th generation of the quintessential sports car? There might genuinely be takers on both sides, but when the economy is rocky, taking risk loses favour in light of the sure thing. And the 911 is a damn sure thing.

The public isn’t stupid, but we’re still licking our economic wounds while preparing for yet more uncertainty. This manifests itself as manufactured austerity. This isn’t the same as true austerity where people actually spend less because they have less, it’s more the carefully concocted appearance that purchases are prudently considered, even if they’re still luxury items.

This has much to do with the stock market of the last few years. We continue to see speculators run amok over and over and over again, causing entire economies to yo-yo and scaring consumers stiff all the while. And yet, we’re irreversibly caught up in the endless stream of news from BNN, CNN, and the rest of ‘em. We couldn’t tear ourselves apart from market speculation with the Jaws Of Life. The end result of which is that anyone dispensing money needs to appear to be doing so carefully. It no longer does to flash your money exuberantly. Whispering your wealth is now needed to fly under the radar of the angry #OccupyWallStreet mobs camped out in front of your estate.

To be sure, there are still plenty of people out there with plenty of disposable money. It’s just no longer en vogue to look risky, but looking rich remains just as desirable as ever. This makes the rather striking and pedigreed Porsche 911 the perfect choice for those looking to enjoy the finer things while still blending into the background. It’s what makes German luxury vehicles like the 3-series and A6 the de facto choices these days. Dealers can’t keep them on the lots and factories can’t pump them out fast enough. Nothing satisfies those afflicted with money more than pedigree, for pedigree is peace of mind for Joneses keeping up with other Joneseses. Pedigree means that it’s a safe bet, but that it’s also la crème de la crème. This phenomenon has conspired to turn Britain, just as an example, into a land where 4-cylinder diesel engines grow in the ground like carrots and blue-and-white roundels fall from the sky like raindrops. I hear it’s positively picturesque in the Fall. I simply must go one of these years.

Up against all this pedigree and “security” are the raft of aforementioned newcomers. But what does it take to tango with the titans? How many $100,000 cars do you need to sell to make a profitable business case, particularly when implementing a revolutionary powertrain technology? My guess is about $1,000,000,000 ($1B), which I will put to the test in Part II as I delve deep into Tesla’s financial statements, make a few predictions along the way, and as a CarEnvy first, bust out the graphs!

See you tomorrow.

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