Business Update with Mark Lacter

The struggling electric vehicle industry

KPCC's business analyst Mark Lacter says these are not the best of times to be in the electric car business.

Steve Julian: Mark, why is that?

Mark Lacter: A lot of things, Steve, but it really boils down to not many people feeling the need to have an electric car.  The bad news starts with Fisker Automotive (that's the Orange County company that received almost $200 million in government loans), and last week it laid off most of its workforce.  This morning, the Wall Street Journal reports that Fisker is close to filing for bankruptcy – not a huge surprise considering that the company hasn’t produced a single car since last summer, when its battery supplier filed for bankruptcy.  It's been trying to find an investor to put still more money into the operation, but no luck so far.  Also, the co-founder recently resigned.

Julian: Not a good sign.  Anyone else?

Lacter: Well, there's Coda Automotive, the L.A.-based company that started out with an impressive list of investors, including former Treasury Secretary Hank Paulson.  Coda also has laid off most of its staff, and has been struggling to pay off its suppliers (a bunch of them are in court).  It turns out that the company has only sold a few hundred cars, compared with the 10,000 that it was planning to sell in its first year of operation.  And then, there's the Chinese electric-car maker BYD that had Warren Buffett as an investor, and had set up its U.S. operations in L.A. with all kinds of fanfare.  But BYD has also faced various setbacks, and now the focus is on electric buses rather than electric cars.  The company did win a contract from Long Beach Transit, so we'll see how that goes.

Julian: I imagine investors and supporters had a better start in mind.

Lacter: Way better.  President Obama was pushing to have at least a million electric vehicles on U.S. roads by 2015, and so far, just 85,000 have been sold.  The biggest challenge could be the traditional internal combustion engine, which has become a lot cleaner and a lot more fuel efficient.  There's also a shortage of charging stations on the road, which could be a problem if the vehicle is not a hybrid like the Chevy Volt that can be gas powered as well as battery-powered.  And then there's the cost, which is significantly higher than for a non-electric vehicle.  Now, the government has been offering rebates, but sooner or later, the prices of those batteries have to become more competitive.  There is one piece of decent news: Tesla, the high-end electric car maker, says it will have its first profitable quarter, and that’s important development given all the skepticism about that company's long-term viability.

Julian: You mentioned China.  The governor is off on a trade trip there with a bunch of business and government folks.

Lacter: That's right, he'll be signing deals with Chinese companies - and he'll also make a big push for major projects in California, such as the state's bullet-train project.  The Chinese have been on an overseas investment tear for the last several years, both because there's so much available cash there, and because the recession has brought down the prices of many businesses in the U.S. and elsewhere.  There's certainly no shortage of Chinese investors coming to California, many of them under the radar.

Julian: What have they been buying?

Lacter: Shopping centers, warehouses, solar panel companies – last year, the special effects company Digital Domain was acquired by Chinese investors.  A study estimated that $1.3 billion in Chinese investment deals were made between 2000 and 2011, which is not all that much considering California’s size and its proximity to the Pacific Rim, and – of course – its large number of Chinese immigrants.

Julian: Does that leave state officials wondering what they can do to generate more interest?

Lacter: It does.  You know, Chinese entrepreneurs are often clueless about the basics of buying a company in the United States.  Sometimes, just as an example, they don't realize that it's best to hire an attorney when doing deals.  So, there’s a pretty deep business divide that has to be closed - and yet there are roughly one million Chinese who are millionaires and about 100 who are billionaires.  That money could come in handy, especially at a time when the state and local economy are still looking to get back on its feet.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


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