Tesla, Fisker, and what could have been: A tale of two electric car startups

Watching the bifurcating trajectories of electric car makers Tesla Motors (s TSLA) and Fisker Automotive is like witnessing two siblings grow up over the years, only one becomes Prom Queen and the other drops out of high school. Was it nature or nurture? How did these companies turn out so differently? I’ve been following both startups over the last six years, and have a few ideas as to why these two, who had so many things (including executives) in common, turned out so very differently.

The state of affairs

This week Tesla hit an all-time high of $46.68 per share, which is over two and a half times the company’s share price when it went public back in the summer of 2010. The stock boost follows Tesla’s announcement that it would be profitable (on both a GAAP and non-GAAP basis) for the first time ever for the first quarter of 2013, and would deliver 250 more of its Model S electric cars than expected.

Tesla Model S

While Tesla had already announced a solid fourth quarter and fiscal year last month, the raised guidance calmed some Tesla naysayers, and started to convince many that Tesla could actually morph into a more mainstream and full-fledged auto maker.

Tesla’s CEO Elon Musk also plans to make an announcement on Tuesday afternoon that could send Tesla’s stock even higher. Some speculate that Musk could be buying up more shares and putting his money where his mouth is in a very major way (as he put it on Twitter last week).

Fisker on the other hand, seems to be nearing the final sunset of its life. Last week media reports said that Fisker had hired a law firm to advise it on bankruptcy options. It owes a loan repayment to the Department of Energy this month, and is now cutting costs and furloughed its employees last week. The company hasn’t made a car since the summer of 2012.

Ray Lane's Fisker Karma

Fisker’s potential bankruptcy news followed reports that its attempts to make deals with Chinese auto makers had fallen through, which seemed like the company’s last chance to find a deep-pocketed partner of investors. Fisker also announced last month that its celeb designer founder Henrik Fisker had resigned over internal disagreements. Let’s face it, the writing has been on the wall for months.

Cut from the same cloth

While Tesla and Fisker were founded about four years apart (Tesla first), the companies had similar aims from the beginning. Both companies wanted to build a sexy electric sports car that would be coveted as an awesome performance car, and would also happen to be electric. Before Fisker’s Karma and Tesla’s Roadster, the majority of electric cars being built were slow so-called neighborhood vehicles that had tiny ranges, snail-like speeds, and boxy designs. These neighborhood cars were for a niche audience only and didn’t inspire much excitement about electric cars.

Fisker and Tesla also had similar Silicon Valley DNA. Both companies were founded on the premise that a startup electric car maker, with backing from Valley venture capitalists, could use a cool car as a launching platform to become a more mainstream auto maker. Tesla was backed by Draper Fisher Jurvetson, DBL Investors, Elon Musk’s personal funds from his PayPal payout, Technology Partners, VantagePoint and others. Fisker was backed by Kleiner Perkins, NEA, Qatar Investment Authority, battery maker A123 Systems and then later thousands of wealthy individuals organized by now defunct broker Advanced Equities.

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Tesla and Fisker also both received loans from the Department of Energy out of the exact same program. Tesla and Fisker were the only startups that received these loans, while the other funds went to large auto makers. Fisker wasn’t able to draw down on the majority of its loan, but it still received significant funds, while Tesla received its entire $465 million.

Fisker and Tesla also directly shared some things, though some people might have forgotten their connected past. In 2006 and 2007, Tesla actually hired Henrik Fisker and Bernhard Koehler (who later went on to found Fisker Automotive) to do design work for the body of Tesla’s sedan, later named the Model S. Tesla alleged that after working on the designs for Tesla, Fisker and Koehler left with trade secrets and started a competing company, Fisker Automotive. Tesla sued Fisker in the spring of 2008 for breach of contract.

The divergence

So what led each company to the brink of success or the brink of failure? First off, Tesla had about four years of technology development and experimentation with car building, and auto supplier sourcing, before Fisker began working on its Karma car.

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Tesla ran into a variety of problems with delays and recalls of its first car — the Roadster. In particular, it relied heavily on some suppliers which didn’t deliver parts on time or delivered faulty parts. Tesla used these experiences and issues to — many years later — perfect the sourcing, manufacturing and testing of its second car, the Model S. Tesla then used its Department of Energy loan to fund production of the Model S. Tesla was able to spend many years experimenting with its few thousand early adopter customers and the Roadster before it took on the DOE loans and gained international attention through that spotlight.

Fisker encountered those same types of problems, with recalls and supplier issues, when it built its first Karma car. Developing a car as a startup is hard. But Fisker used part of the DOE loan to fund production of the Karma, and it emerged in the international spotlight before its car and car production were perfected. The company also had placed the cart well ahead of the horse, as it was often talking about its second car long before its first cars were functioning at an acceptable level. Fisker’s timing with the DOE loan was off from the beginning.

Toyota and Tesla's RAV4 EV

Tesla and Fisker also had very different approaches to technology development, which over the years made Tesla far more valuable than Fisker. Tesla spent a lot of money on developing the battery pack, battery management system, and power train. That core technology is what makes up the base of the Model S, and eventually the Model X.

Over the years Tesla has made revenue from selling this core technology to big automakers like Toyota and Daimler for development projects. Toyota is using it in its RAV-4 EV, and Daimler is using it in its EV Mercedes. Tesla has made hundreds of millions of dollars off of its development deals and has used these funds to push forward production of its cars.

Fisker, on the other hand, is a design firm first and foremost. Much of its core technology comes from other companies and suppliers. For the Karma, it had a long-term supply agreement deal with Quantum for the powertrain tech and software, and A123 Systems for the batteries. Fisker never had aims to sell its car tech to other companies.

Fisker Surf

The X-factor

Finally, Tesla wouldn’t be the same car company without its charismatic tour de force Elon Musk. Musk used his personal funds to carry Tesla through its difficult years in 2008 (at one point it had $9 million in the bank and Musk had to borrow money to make ends meet). And he is now likely doubling down on investing in Tesla’s stock. Musk is a visionary of the same ilk as Steve Jobs.

Fisker’s founder Henrik Fisker is a successful and well-known car designer, but didn’t have the same type of personal wealth that could single-handedly carry a company. He also clearly hit some hurdles moving from founder into management (which is very common in startups). Fisker stepped down as CEO a year ago, and resigned from the company last week over disagreements.

Tesla CEO Elon Musk

As you can see, it’s a few differences that seem to be minor details, but later in the life of the companies emerged as transformational characteristics. So what can other startups learn from this tale?

Focus on your core technology. Understand that timing is everything. And recognize that it takes strong vision and leadership to make it to the finish line.