Another day brings another new electric automaker. Call them “Tesla rivals.” Maybe, if you’re feeling especially bold, “Tesla killers.” All of these new ambitious ventures demonstrate the growing interest in electric transportation. But they also reveal a collective amnesia about just how difficult it really is to build a new automotive startup from scratch.
The newest one comes courtesy of a Reuters report, which describes a brand-new, Shanghai-based startup called NextEV backed by a group of Chinese Internet entrepreneurs. The company says it will launch an electric supercar in 2016.
Investors in NextEV reportedly include Hillhouse Capital, which also backed Uber, and Chinese Internet giant Tencent. The company appears to have hired executives from Ford (F), Tesla (TSLA), and BMW (BMWYY).
And that’s just the latest company aiming to compete on some level with Tesla. A couple of months ago the new “Tesla rival” was Faraday Future, a startup based in Gardena, Calif. That company was reportedly founded last year, and already has 200 employees—including some from Tesla. The plan is to launch their first electric car in 2017. It’s unclear who’s funding the venture.
At one point battery startup Boston Power was also dubbed a Tesla rival, largely due to its plans to build a sizable battery factory and partner with Chinese automakers to build a low-cost electric car. Boston Power was originally founded in the U.S., but moved to China in 2011 when the funding for battery tech in the U.S. got difficult.
Boston Power has been funded by GSR Ventures, a venture firm that funds businesses to grow in China. Boston Power chairman Sonny Wu (who’s also a managing partner with GSR Venures) told the Wall Street Journal at the time of the last funding round that the firm funded the company because “somebody” had to compete with Elon Musk.
Last year Bay Area startup Renovo Motorsemerged from stealth after four years in development with a really high-end electric supercar called the “Renovo Coupe.” With Silicon Valley backers, and the use of lithium-ion batteries, it’s like a racing-version of a budding Tesla.
There’s also Fisker Automotive, which despite it’s spectacular crash and burn two years ago, still has plans to re-launch under its new owner Chinese auto-parts giant Wanxiang. The company has plans to build a factory in Moreno Valley, Calif. that will employ 150 workers. Another 240 people work at the company’s headquarters in Costa Mesa, Fisker says.
There are a variety of reasons why this group of new startups is attempting to follow in the footsteps of Tesla and tempt fate by launching an electric car out of an independent car company.
Many of these startups have no doubt been encouraged by the successes of Tesla. The company has made its founder and early employees wealthy, and its Model S sedan has been so well-received that it aced its Consumer Reports rating.
But launching a new car requires, on the very low end, hundreds of millions of dollars. On the higher end, it requires more than a billion dollars. The business is naturally at odds with the type of financing a tech startup can raise. That’s partly why Tesla made it through the hard times, because Musk already had money to support the company when it needed it.
The list of car companies that haven’t worked in only the past few years include Aptera, Coda Automotive, Think Automotive, Wheego, and Fisker. (Am I forgetting anything?)
Tesla’s success overshadows that the company spent over a decade beating all odds. The company almost died several times. It almost sold to Google (GOOG) during hard times two years ago. It almost went out of business as it was preparing to produce its first vehicle, the Roadster.
Tesla will also likely go through some hard times ahead. It continues to borrow and raise money to get its next cars, the Model X and Model 3, out the door and its massive Gigafactory battery factory up and running. Tesla is still operating like a startup and taking on the risks of a startup. When Tesla hits some hurdles, which is no doubt will, will it scare off some of these eager startups?
Meanwhile, it’s not surprising that new electric car startups would emerge out of China. China is very interested in building domestic electric car tech, offering support for battery and auto companies that are willing to build factories in China. The country also discourages vehicles that burn gasoline in certain regions, and is trying to cut down on car driving to reduce its infamously bad air pollutions.
As the country did with solar panels, China is willing to heavily over-support domestic technology and markets that it wants to get into. This leads to a constant boom and bust cycle. There will likely be a bunch of Chinese electric car startups that will gain fame and potentially crash and burn.
Reuters reports that the Chinese government has recently decided to encourage investment in the sector from non-automotive companies. The Chinese Internet investors in NextEV are just one group backing a new electric car startup, says Reuters.
Alibaba and Xiaomi Technology are also considering investments in electric car companies, according to the report. Encouraging specifically non-automotive companies to invest in the sector will likely only heighten this boom and bust cycle.
Chinese Internet companies could also partly be interested in backing electric car startups as a way to try to compete with electric car tech that Apple and Google are reportedly building. If you believe the reports, Apple is aggressively developing an electric car with the project name Titan.
But overall, the trend of new entrepreneurs and investors becoming interested in electric car tech shows how the tide around electric transportation could slowly be turning. Electric cars make up only a fraction of cars sold in the U.S., but that’s ever so slowly starting to change. In certain countries, like Norway, electric cars make up an already large portion of new cars sold.
When better and cheaper electric cars hit the market, more people will no doubt buy them. The reality is that there really are no Tesla competitors currently out there. The technology is at its very earliest stage, and is being pushed forward by Tesla.
Real electric car competition will eventually be a very good thing. It will mean consumers and companies have embraced electric cars as a thriving and substantial market.
But it could very well take a big auto maker with deep pockets to fund cars that could truly rival Tesla. The big auto companies just have to take the market seriously enough.
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