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Does a Santa Monica startup have what it takes to upend the auto industry?

Miles Electric Vehicles Inc. a small company with big ambitions, is on the threshold of bringing to market the car that has long eluded the largest manufacturers in the world: an affordable all-electric, five-passenger vehicle capable of keeping up with freeway traffic and is aimed at the mass market.

This month, Miles will have about 25 prototypes of its Highway Speed Sedan at test facilities in the United States, Europe and China. Next year, Miles plans to sell 9,000 such cars almost exclusively in California and mostly in the Los Angeles area.

Automakers have long been stymied by an all-electric car because of the difficulty and expense of building rechargeable batteries that can power a vehicle for long distances. Until now, the most well-known electric car was General Motors Corp.’s EV-1, which was lauded by alternative vehicle enthusiasts when it debuted to limited release in 1996 but failed to catch on with consumers.

But Miles, with about two dozen employees, claims to have a big advantage: Its car will be assembled in China. The company said that will keep costs down and allow a price of about $40,000. While that’s roughly the cost of an entry-level Lexus, it’s on the lower end of the price scale of other all-electric cars trying to hit the mainstream.

Miles might be the first carmaker to outsource its assembly work to China, a model that Chief Executive Kevin Czinger said is no different from what Apple Inc. does with the iPod.

“Apple doesn’t spend billions of dollars to create a factory,” Czinger said. “They focus on brand, design and intellectual property.”

Miles’ path so far has not been without speed bumps. The sedan’s introduction date was pushed from 2008 to late 2009, and its retail price crept up from a ceiling of $39,000 to about $45,000.

Miles also faces stiff competition ranging from established automotive companies like Nissan Motor Co. to startups such as Aptera Motors Inc. in Carlsbad, which plan to introduce all-electric cars by 2010. About that same time, General Motors and Toyota Motor Corp. plan to offer the Chevy Volt and a plug-in Prius, respectively, hybrid vehicles powered by both gas engines and batteries.

And with the price of oil falling to around $50 a barrel, some environmental advocates fret that the consumer push toward all-electric cars will stall.

Analysts called Miles’ plan ambitious given that startup car companies have to take on the established manufacturers in Detroit, Japan and Europe. Then toss in the fact that Miles is using a largely unproven manufacturing model to build an electric car that it wants to sell as both affordable and attractive to the masses.

“No one’s been able to do it yet,” said Jim Hossack, an analyst with AutoPacific Inc., a consulting firm in Tustin. “And we’ve been making cars for 110 years now.”

Filling void

Miles’ headquarters seems an unassuming place for an automotive revolution. Its two-story building of concrete and corrugated steel sits in the shadow of the Santa Monica Airport. Two of its snub-nosed compact electric vehicles the kind used by university fleets are parked out front.

Until now, Miles’ core business has been importing Chinese-built low-speed electric vehicles like those and selling them to clients such as UCLA; Yale University; and the US Naval Air Station in Fort Worth, Texas.

The Highway Speed Sedan is a significant departure, one that Czinger said was planned since millionaire Miles L. Rubin founded the company in 2004.

An 80-year-old corporate attorney and business executive with a green bent, Rubin established Miles to fill a void in alternative fuel vehicles, Czinger said.

An early investor in fuel cells and one of the founders of the Energy Action Committee, which lobbied Congress to enact fuel economy standards in the 1970s, Rubin has backed Miles with at least $35 million of his own money. In early 2008, the company raised $15 million in Series A financing and is now seeking additional investment.

Rubin, who a spokeswoman said is trying to take a lower-profile role at the company, declined to comment for this article.

Czinger was an investment manager and executive at international firms including Goldman Sachs Group Inc. and Bertelsmann AG. He said he came to Miles in April 2008 partly because he shares Rubin’s passion for environmentalism.

“Getting this done, outside of my family, is the single most important thing I can do,” said Czinger, who keeps a copy of the book “Freedom From Oil” on his desk.

Miles’ close ties to China grow from Rubin’s experience there. He made arrangements for Chinese production when he was a top executive at Reliance Manufacturing Corp. and Polo Ralph Lauren Jeans Wear, the licensee of Polo Ralph Lauren.

Relationships he had forged in China helped Rubin negotiate deals with Hafei Motors Co. to assemble the Highway Speed Sedan’s chassis and Tianjin Lishen Battery Joint-Stock Co. to supply rechargeable lithium ion batteries. The company expects Tianjin’s batteries will give the sedan a range of about 100 miles after a four- to six-hour charge in a garage socket, which the company said means an operating cost of 2 to 3 cents per mile.

Pininfarina S.p.A., a top Italian design firm, helped devise the sedan, and Czinger said he expected some of its manufacturing would be done in the United States.

Miles plans to sell the car primarily through the Internet and in-person meetings with potential buyers, Czinger said.

The number of consumers who want an all-electric car is difficult to gauge. A recent study by New York-based research firm NPD found that while 40 percent of consumers who planned to purchase a new car in 2009 said they would buy a more fuel-efficient one, less than 1 percent said it would be an all-electric car. About 29 percent said they would buy a hybrid.

9,000 Californians

But David Portalatin, an NPD automotive analyst, pointed out that because there are no widely available all-electric cars on the market now, the numbers might not be an accurate reflection of consumer interest.

“Hybrids are becoming readily available in multiple different models and that’s not the case with purely electric cars,” he said. “Is it reasonable to assume that the same pattern of adoption could take place as more electric cars come to market? I think so.”

In appearance and amenities, Miles’ sedan with four doors, power windows and Bluetooth compatibility resembles consumer favorites such as the Toyota Camry. That could work in the company’s favor as it woos potential buyers who might be turned off by more unconventional electric cars like Aptera Motors’, which has three wheels and an interior that looks like a cockpit.

So will people buy Miles’ car? Czinger said he doesn’t foresee any problems, especially in eco-conscious California.

“Are there 9,000 Californians who want a battery electric vehicle at this price point?” he asked. “Absolutely.”

But Brett C. Smith, an analyst with the Center for Automotive Research in Ann Arbor, Mich., pointed out many buyers are just as concerned with practicality as they are with price. For any electric car manufacturers to succeed, they will have to convince buyers they can use the vehicle to run to the grocery store or pick up the kids from school, not just save the environment.

“The challenge to making the needle move is selling to more than the zealots, selling to the people who are on the fence,” Smith said. “It has to be more than a really cool electric car.”