Coda Automotive has its headquarters nine blocks from the beach in Santa Monica, offices that used to house the local operations of Google. It’s an unlikely location for a company in the rough-and-tumble car business, but then again, Coda hardly resembles the kind of automaker that owned assembly plants in Maywood and South Gate 50 years ago. There are no factories, no dealerships, and much of the sales and marketing efforts are conducted online. Most everything about Coda comes down to a large lithium-ion battery that powers the four-door sedan. “Our goal is to put an electric car into every garage in the world,” reads a mission statement near the entrance. That’s quite a goal, though early expectations for when the car is launched later this year are modest: sales of 10,000 vehicles over the first 12 months, mainly to early adopters, rental car companies, and government agencies (refundable deposits of $499 have been accepted for months). After the initial rush, Coda’s prospects blur; there’s already plenty of competition from the Chevy Volt, Nissan Leaf, and Tesla S, among others—and no one knows how many customers are willing to buy in.
Start-ups are always supposed to be ambitious and aim for the new and different (intoxicating words for deep-pocket investors). But breakthrough success requires more—namely a product that offers some added value compared with what’s already on the market. Think digital cameras. Think iPhone. Electric vehicles don’t do that, at least not now. If anything, they create hassles, starting with the high price (Codas cost $44,900, although federal tax credits are worth up to $7,500), limited driving range (90 to 120 miles), lengthy recharging times (up to six hours), and the dearth of public recharging stations. Plus the Coda isn’t exactly stylish, with a generic chassis that resembles Mitsubishi’s midsize models.
Given all these drawbacks, Coda has plenty of explaining to do—never a great way to sell a product. “How are you going to get a consumer to pay more for a lesser good?” asks Brett Smith, an analyst with the nonprofit Center for Automotive Research in Ann Arbor, Michigan. “The electric vehicle is a significantly lesser good than the internal combustion engine. --At some point the technology has to be economically viable.” That blasted internal combustion engine—it continues to do a very good job of getting people from here to there. It’s also become more reliable and fuel efficient in recent years, something that drivers are bound to appreciate with gasoline at around $5 a gallon. Perhaps the biggest advantage about gas is its inherent convenience (at least until oil reserves run dry). “Gasoline pours,” says Smith. “It has an enormous amount of energy content.” Electricity takes a long time to transfer into a battery, and that limits driving options.
Makers of electric cars are responding to this headache in different ways. The Volt comes with an internal combustion engine so that when the charge runs out, the vehicle switches over to gasoline power. The Leaf runs only on battery power, though Nissan has kept down the cost ($32,780 before the federal credit) and markets the car more for driving around town than for going away on vacation. Renault is working with Palo Alto-based Better Place in developing a network of fueling stations where drivers receive a fully recharged battery that can be swapped into the vehicle in less than five minutes.
Coda’s strategy falls somewhere in the middle: no internal combustion engine but a battery that can provide more energy per charge than many other electric cars. Nestled near the ground and taking up the entire space between the rear wheels and front axle, the battery is made up of 728 lithium-ion cells and gives off 34 kilowatt-hours of energy (lithium-ion batteries pack lots of energy for their weight and discharge slowly when not in use). Longer battery life means greater range, which is good. Electric cars are also cleaner: The Coda emits about 0.375 pounds of carbon dioxide per mile; a gas-powered car getting 22 miles to the gallon emits about 1 pound per mile. The downside is that the batteries are expensive to make, almost as much as the rest of the vehicle, and they require a separate recharging station that’s priced at more than $1,000 (and don’t forget the huge increase in electric bills).
The presumption is that when prices eventually come down, sales will start to pick up. But wind and solar advocates have been promising the same thing for years, and costs remain prohibitive. Morgan Stanley projects that electric vehicles will make up only 5 percent of the global automotive market by 2020; the consulting firm J.D. Power and Associates says it will be more like 7.3 percent. When I asked Coda’s new chief executive, Philip Murtaugh, what his expectations were, he said after a long pause, “I have absolutely no idea. The thing I do know is that petroleum is getting scarce compared with 50 years ago, and it’s a foregone conclusion that at some point we’re going to run out of that stuff. So we have to come up with a different way of running automobiles.”
Coda (the name was chosen with the idea that electric vehicles could bring an end to the internal combustion engine) is an outgrowth of Miles Electric Vehicles, which was started in 2004 by Miles Rubin, an entrepreneur and longtime environmental activist. Rubin, who is 82, got the idea for an electric car company in 2003 after visiting a Chinese plant that made batteries for cell phones and laptops. Why not make them big enough to power automobiles? At first his Santa Monica-based company sold low-speed cars and trucks that were designed for limited distances (business parks, college campuses, and the like). By 2008, Rubin, whose eclectic career included a stint running Polo/Ralph Lauren Jeans, wanted to expand the low-speed idea into a full-size, battery-operated vehicle. He enlisted engineers to work on the technology and later brought on former Goldman Sachs executive Kevin Czinger, who wound up spinning off Coda from Miles Electric (now a separate company based in Oxnard). “It was all about the battery,” says Steven Heller, Coda’s executive chairman and the onetime head of mergers and acquisitions at Goldman Sachs. “If we could crack that, we would have a profitable company.”
Heller had no experience in the car business other than growing up near the big auto factories in Dayton, Ohio. What he did have was plenty of contacts in the New York financial world. Within a year or two Heller and Czinger were able to collect an impressive list of investors: Hank Paulson, former Treasury secretary and former CEO of Goldman Sachs; Les Wexner, CEO of Limited Brands (parent company of Victoria’s Secret); and Mack McLarty, former White House chief of staff for Bill Clinton. The company also received backing from numerous hedge funds and private equity firms—and the more big names that signed on, the more attractive the investment became to others. All told, Coda collected better than $200 million, a formidable war chest for such a speculative play.
The pitch to investors centered not just on the battery but on the economical way in which the car could be put together. Coda’s strategy was to avoid making its own parts, instead outsourcing the car’s components to several dozen manufacturers around the world. “We are a capital-light company,” says Heller, explaining that a drop in car production has resulted in excess capacity at plants around the world. “It struck us as advantageous to assemble the car on a contract basis.” Instead of establishing dealerships, they opted to sell their sedan on the Internet. The site’s “Range Phobia” feature lets visitors plug in their daily commutes, which typically run less than 40 miles a day, well under Coda’s range on a single charge. If customers want a test drive, they’ll be able to visit a company-owned retail store where several vehicles will be available (the first location is scheduled to open later this year at Westfield Century City).
The plan was to have Codas on the road by late 2010. But start-ups can be messy. Last fall Czinger announced his resignation, a move that surprised most everyone in the industry and immediately raised suspicions about the state of the company. (Before Czinger, the chief financial officer and the head of sales also stepped down.) Following Czinger’s departure, the launch date was moved to the second half of 2011. All this had to be awkwardly explained last November at the Los Angeles Auto Show, where Coda was promoting its vehicle.
“You’ve seen this movie before,” Heller told me, stressing that Czinger remains an adviser and shareholder. “There is the initial entrepreneur with the vision and ideas and technologies, and then when it comes time to scale up and commercialize the product, a different set of skills is required, and that usually means a different CEO.” It took several months to hire Murtaugh, a cigar-chomping General Motors veteran who was getting acclimated to the new job when I interviewed him by phone from China. “I’m old,” said the executive, who’s 54, “so I have the advantage of living through a lot of things that these Coda people haven’t lived through yet. I have the benefit of making mistakes a long time ago.”
One obvious danger is lack of focus. While the company wants to remain “capital light,” it’s been trying to secure a $500 million loan from the Department of Energy to build a battery manufacturing plant in Ohio. Discussions are also under way about assembly plants in California (plans for a facility near downtown Los Angeles fell through last year). What’s more, Coda wants to become a battery supplier to other carmakers as well as to wind and solar farms looking for ways to store electricity. “Coda is much more than a car,” Forrest Beanum, the company’s spokesman and vice president for government affairs, told the Columbus Dispatch. “We are a catalyst for a movement, we are a solution to a problem, we are innovation, we are industry leaders, we are jobs, we are progress, we are what we hope the future will be.” For a company that has yet to make its first sale, such unbridled spirit is bound to get the investors a little itchy. Being all things to all customers seldom works.
One afternoon Beanum took me on a drive around Santa Monica, and the car was sprightly enough: nice pickup, mostly quiet ride (aside from a golf cart-type whine), and all the standard appointments (though sometimes laid out unconventionally, as with the small dial on the center console that serves as the gearshift). Maybe the company will sell tens of thousands of these things and become a survivor in an industry that’s certain to consolidate. Yet during my short trip I couldn’t help but keep looking at the display panel that showed how much battery life was left. Will Coda and the others ever be able to get past that? Or will electric vehicles remain one of those promising niche businesses that can never satisfy the doubters? There’s a lot riding on those questions. I just wish I had better vibes about the answers.
Illustration by Serge Bloch