Rise of the boutique carmaker

Twenty-five years after John DeLorean's gull-winged gas-burner arrived, small, private-label carmakers are decidedly in drive.

By , Staff writer of The Christian Science Monitor

The slope-nosed supercar sits ready to awaken, latent power in deep red. It should be nearly time to savor the harmonics of an engine well built, to smile at an exhaust pipe's burbling notes.

But today in San Carlos, Calif., in a region better known for silicon chips than superchargers, the Tesla Roadster comes to life with the auditory drama of a golf cart.

An engineer at the wheel, the Tesla – a preproduction sports car that's a heavier electric cousin to the wasplike Lotus Elise – engages and rolls away in a hush, tires humming on the concrete floor of a hangar-size garage.

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The car, headed off for more tests in advance of its release next year, has the capacity to leave this building and run 250 miles before its 900-lb. lithium-ion battery pack needs a charge. At a stoplight it could – tapping the low-end torque inherent in electric drive – joust confidently with a similarly priced Ferrari. All without burning any gas.

It's one vision, at least, of the automotive future. Twenty-five years after John DeLorean rolled out his gull-winged gas-burner, small, private-label carmakers are decidedly in drive.

Several – including some whose creative juice flows back to General Motors' famously "killed" electric car, the EV1 – now bank on batteries, tuning out critics' static about battery longevity and questions about how electric utilities might generate enough power to handle a widespread shift.

Experts debate what role such boutique firms will play in an industry dominated by a dozen alliance-clad global juggernauts. The smalls still lack economies of scale, and must eye narrow niches in hopes of winning public attention (if you want a $100,000 Tesla, get in line behind George Clooney).

But they might be well suited to a coming shift: By 2015, parts suppliers – not carmakers – will represent nearly 80 percent of the industry's "total value creation," according to a 2004 report by Mercer Management Consulting.

"Smaller companies may really benefit from these developments," says Christian Kleinhans, a Mercer principal based in Munich, and a coauthor of the report. They will gain access to technology in such vital areas as electronics, he says, that they did not fund.

Nimble little firms can also adapt quickly to evolving consumer desires. Tesla, for one, plans another car, probably more mass-market friendly, as soon as 2009, says Martin Eberhard, cofounder and CEO. He built the Roadster to "convince consumers that an electric car can be something more than an in-town runabout."

Tesla sells direct to customers; its first wave of 100 Roadsters was snapped up in August. Orders for 2007 models are in the hundreds, says Mike Harrigan, Tesla's vice president of marketing.

"You don't have to make a million cars a year to be in the car business," says Peter Morici, a professor at the University of Maryland School of Business and former chief economist at the US International Trade Commission. "If [small carmakers] get out there in front, then they will develop expertise the big guys don't have.... I think there's an opening here."

Pointing to another business realm, Professor Morici cites the example of Dell creeping up on a complacent IBM, a firm he says "did not initially grasp the consequences of the PC and didn't fully exploit it," lingering instead in mainframes.

Others say carmaking entrepreneurs stand little chance against highly motivated giants, even as several of the titans struggle financially.

"Every generation has its creative geniuses who think that they can beat the odds, but the reality is that the car business is more than just the challenges of engineering the car itself," says Maryann Keller, an industry analyst, in an e-mail. "Getting the attention of the buying public with advertising and then setting up a dealer network – no, you can't sell them online – parts and repair investments, etc., are usually way beyond the capability of most individuals."

Ms. Keller also doubts consumers will align with brands whose futures seem uncertain. "Remember," she says, "the DeLorean was a failure, except in the movies."

But industry upheaval has generated all kinds of action. Some mavericks are focusing on collaborative engineering and low-cost manufacturing in making their runs. Visionary Vehicles founder Malcolm Bricklin, best known for bringing the Yugo to the US, aims to import a vehicle from China-based Chery next year, for example.

All-electrics, too, have picked up some buzz. Beside Tesla, there is Commuter Car Corp. in Seattle, building the two-passenger Tango. AC Propulsion, the San Dimas, Calif., firm whose founder engineered GM's EV1, has an electric based on the Toyota Scion.

And if hydrogen fuel cells remain a holy grail for most majors, with gas-electric hybrids as a stepping stone, some of the big firms also are dabbling in all-electrics.

A DaimlerChrysler unit, Global Electric Motorcars, is building a small, fleet-type car. Toyota is weighing a plug-in version of its hybrid Prius. (Some impatient owners had been making the change themselves.) Mitsubishi introduced the third generation of its electric "i" car this week, though it's not planned for the US market.

Tesla's Mr. Eberhard acknowledges the complexity of creating an automobile in what amounts to a small high-tech shop, with clusters of engineers poking at wire harnesses and whiteboards covered with scrawl about actuators. High-voltage signs are everywhere.

On one table a battery case lies open. Inside, a blue tube for liquid coolant snakes around the 621 cells on each of 11 stacked sheets. It's one of a few tables that can't be photographed. ("There," jokes an engineer, covering it with paper after its display. "Now it's secret again.")

"There's a lot more to a car than there is to a typical Silicon Valley project," Eberhard says. "And remember that in our case, we're not just building a new product, we're also building a new company and a new kind of company, and that takes a fair amount of effort and energy and money and time."

Money came from a group of investors that included billionaire PayPal founder Elon Musk as well as Google cofounders Larry Page and Sergey Brin. That has helped Tesla compress time.

"In order to get the Roadster on the market fairly quickly, all the choices we made were not the most cost-effective choices," says Eberhard.

The manufacturing is done in England. Some parts – windshield-wiper motors and the like – are bought from other automakers in a milder form of the sourcing done by companies like Georgia-based performance carmaker Panoz, a leader in "scavenger" engineering.

"We're developing a car for $60 million," says Mr. Harrigan. "GM would probably spend that on marketing [alone] for its new Chevy Cadaver or whatever."

Eberhard says he understands the importance of support and sales infrastructures. (Regional "depots" are planned.) As for a nationwide system that will help drivers get around from day to day, he points to the 250-mile range and a portable recharger pack. "You charge at your house and that's enough," he says. "I mean, how much cellphone-charging infrastructure do you depend on?"

He brushes off concerns about battery technology, citing steady increases in capacity and declining costs. Eberhard seems quietly self-assured, almost missionary. As one Boston headline writer put it last summer: "Who's reviving the electric car?"

But even if Tesla and others can push the innovation curve and generate broader interest, says Ryan Brinkman, senior analyst at the PricewaterhouseCoopers Automotive Institute, that's the full extent of their impact.

"I don't think that a small manufacturer is going to come in and revolutionize this industry," Mr. Brinkman says. "I would place the probability of that as close to zero." Domestic and foreign manufacturers, he says, have too many billions invested in technologies even beyond electric vehicles.

Eberhard is used to hearing firms like his sold short. "Excellent," he says with a laugh, "I love it. That way maybe the big guys won't see me as a threat for a long time."

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