Fisker Defends Its Business Model: Small is Beautiful

(MoneyWatch)  In a second installment of our look at carmakers possibly being too small to make it in the marketplace, we've fielded a detailed response from Fisker Automotive.

As you may recall, the first story reported on a BusinessWeek commentary by longtime industry analyst Maryann Keller, who said that both Fisker, which will roll out its $89,000 Karma from a Finnish factory early next year, and Tesla Motors, which has 700 battery vehicles already on the road, lack the production capacity to make it in a marketplace dominated by big companies. And thus they're dubious prospects for the federal Department of Energy grants and loans they received.

In a separate BusinessWeek analysis, Keller charged that Tesla (which announced its first profit last summer) "probably loses money on each Roadster it sells." She also said that Fisker Automotive is unlikely to sell many of its Karmas, because at $87,900 it's in the same price category as the Porsche Carrera.

The key is a robust dealer network, Keller said, and the smaller companies can't compete in that arena. "Entrepreneurs focus on building a car, but that's half the challenge of success in the auto industry," Keller said. "Car developers often ignore the reality of how mass-market cars are sold, financed, and repaired, and they forget how important resale values are to establish a brand permanently in the market. Cars stay on the road for 10 to 15 years, and owners expect a car to have a predictable value throughout its lifetime. That means the supporting infrastructure is as important to the broad base of consumers beyond the elite collector, who is impressed when Tesla sends a technician to his home to fix a part."

But Fisker, through spokesman Russell Datz, has a ready response to all this. The company he said, is no mere "integrator." Fisker, he said, "has more than 50 patents pending and the majority of Karma parts are vehicle-specific."

On the question of scale, Datz said, Fisker is working with Valmet Automotive, "one of the best contract manufacturers in the world and capable of fulfilling anticipated Karma production volumes of 15,000 per year. They build Porsche Caymans and Boxsters."

Although the Karma will be below the level Keller considers viable, Fisker received a $529 million Department of Energy loan to help it build its much smaller and more affordable Project Nina car, which will be built in the U.S. That's a volume car: The company projects 75,000 to 100,000 annually.

"Comparing retailer networks is not comparing apples to apples," Fisker responds. "We have scaled our dealer network to ensure profitability. While most manufacturers are cutting dealer networks and the dealer profitability is marginal, we have focused on an economic model for the dealer that concentrates on care of the customer, not care for building a monument to the manufacturer."

Keller questioned the government's priorities in awarding federal money. "I'm not sure on what Ms. Keller is basing her assessment of our business model but we can say the DOE pored over it for months before validating it," Datz said. "Perhaps more importantly, so did venture capital powerhouse Kleiner Perkins. Both feel we have a bright future. And so do we."