Up until the last few years, the concept of a stylish hybrid electric car was, well, somewhat of a misnomer for consumers. Take for example the poster boy for the “green” automobile, the 2004-2009 Toyota Prius. It had all the right boxes ticked: environmentally friendly, reasonable price tag and celebrity endorsements from the likes of Leonardo Dicaprio to Claudia Schiffer. Yet it didn’t exactly scream “badboy”, even by average car standards. We are however living in the technological age, where anything would seem to be possible. New innovations and advances are always around the corner. There is always a gap in the market to be filled, no matter how small the sliver; there is always the promise of heralded success, as well as a major, epic, fail.
While established firms like BMW have been experimenting with their own “attractive” hybrid electric powered vehicles, some new companies over the last decade have also emerged, such as Fisker Automotive.
Fisker was founded in 2007 by Henrik Fisker and Bernhard Koehler with the aim of “[forging] a new and radical perspective on what is possible in the automotive world.” Their vision was to produce the first premium hybrid electric vehicle. The company had initial promise, at least enough to entice investment. It was able to raise $1.2 billion in private funds. The United States’ Department of Energy (DoE) also backed the firm, offering a $529 million loan. Such endorsement surely suggested that the company was certain of some measurable success.
The first indications of a potential flop arose, when Fisker was unable to fulfill its production targets for what was to be its flagship model, the Karma, in 2011. This was due to delays caused by regulation difficulties and supply troubles. No longer showing signs of fulfilling the conditions of the DoE’s loan, remaining profitable or repaying it, funding was abruptly and quietly cut short at $192 million in June 2011. By April 2013, Fisker had fired 75% of its workforce, and found itself in the midst of a congressional hearing seeking to determine whether the DoE could have foreseen these shortcomings, or if they were beyond the extent of their powers of flop prevention. Fisker is currently in negotiations with investors, and the future of the company is uncertain.
Where did Fisker’s lofty ambitions steer off course?
With any hybrid car, the power source is both the key component and selling point. It is after all, supposed to be a more environmentally friendly alternative. Yet here is the major mistake Fisker made in its planning process. While rival Tesla developed its own successful in-house battery technology, Fisker opted out of this idea, concentrating more on the aesthetics of the vehicle. It subcontracted out much of their production, including the vital heart of their automobile. Furthermore, a mostly new and untested battery producing start up, A123 Systems was chosen to carry out the task. As if putting all your eggs in one basket wasn’t enough, despite having production contracts with other companies to buy their lithium-ion batteries, A123 systems were almost completely reliant on Fisker to generate revenue and remain profitable.
When Fisker delayed the launch of the Karma and scaled back its orders, A123 found itself in a similar crisis to what Fisker would later face; needing to fire employees and shut down production, in this instance at a factory in Livonia, Michigan. The DoE was later left scratching its head and wondering what happened to the $133 million federal grant it had given to the battery manufacturer. A123 Systems filed for bankruptcy in October 2012.
“More Money, More problems…”
The two companies’ failings are inextricably interlinked. Firstly, as insiders have acknowledged and anonymously revealed, Fisker bit off far more than it could chew with its business plan, production and sales targets. Despite having two veterans of the automotive industry at the helm (both Henrik Fisker and Bernhard Koehler had held positions at BMW and Ford), their anticipated annual global sales of 100,000 vehicles for 2013—what would have only been its third year of sales —was simply far too ambitious for a fledgling company. To put some perspective on the matter, Porsche—an established automotive brand of 80 plus years—sold around 143,098 vehicles globally in 2012.
Yet Fisker also pledged to release another vehicle, while the first was still being developed and built. This coupled with the rushed, understaffed production, reliant on outside engineering firms and contracted workers, resulted in delays and call backs. Indeed, a manufacturing and planning process which resulted in an end product that broke down during a test drive for consumer reports. The bad luck did not, however, end there. When the Karma did eventually roll out of the factory and into the showroom, consumers reported in several separate incidents, that their Fisker Karmas actually erupted in flames. All this amounted to rising costs, the need to scale back the initial production targets, and cancel battery orders from A123 Industries.
A123 was however dealing with its own manufacturing crisis.
As a result of rushing production, and the need to scale up and meet Fisker’s initial demands, mistakes were made, and massive, expensive recalls and replacements for its lithium-ion batteries were required. This combined with the lack of revenue being generated from Fisker’s cancellation, resulted in the company’s bankruptcy. To make matters worse, A123 was operating at a loss with the battery-technology it was selling. For every car Fisker sold, A123 Systems had spent $1.57, and gained only $1 in return. Without its power source, Fisker was forced to halt production, ultimately leading to its present predicament.
Fisker was perhaps a victim of its own ambition. While a strong vision is a key component to success, so too is a realistic idea of what can be attained with the available resources. Although it is not uncommon for a car manufacturer to hire third parties or buy complex parts from outside companies, Fisker was new to the automotive market, as well as to the hybrid electric market; a market which as it stands, is still establishing itself, in order to compete with traditional gas motors.
To conclude, there were several significant factors that contributed to the company’s failure. Fisker seemed to lack a core base of in-house engineers and designers (at full capacity the company only had 600 employees, Tesla employee numbers on the other hand are in the region of over 2000). There are also the unrealistic targets and a tight time-frame to consider. Yet above all, perhaps the biggest faux pas Fisker committed was the risky procurement strategy it undertook: A strategy which relied on a relatively new company to produce the lifeblood of its vehicle. A company reliant on government grants for funding, and had not previously attempted to manufacture the order sizes Fisker initially requested. A company put under time and financial pressure—and crumbled.
As the American motivational speaker Les Brown once said: “Shoot for the moon, and if you miss, you will still be among the stars.” Evidently Fisker was not content with such pedestrian ambitions, instead opting to aim for the sun, and missed. The company is currently floating in an asteroid field, awaiting rescue or an imminent demise.
Fisker’s failure is a glaring example of the growing need for sufficient and accurate supply chain and procurement management. Top managers are now paying more attention to supply chain decisions, with success partially being determined by their involvement and ability to co-ordinate with all business operations.
Who do you think is to blame for Fisker’s failure, and what should have been done differently?