Layoffs Another Buzz Kill for Electric-Car Maker

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Coda Automotive Inc.’s batteries could be running low.

Last week, the L.A. electric-car maker – which got a sizable jolt of benefits last year thanks to city taxpayers – confirmed that it has laid off 50 employees, or 15 percent of its staff. The cuts, which came mostly from its local headquarters, are the latest in a series of setbacks for Coda, which issued a safety recall in August for its first and only car. More starkly, industry experts estimate that the company has sold only about 100 of its vehicles – maybe fewer.

Analysts say the company’s humdrum sedan has failed to appeal to consumers, limiting Coda’s prospects in the still-small market for electric cars.

“Even if the market grows, Coda is going to have a small share,” said Mike Omotoso, a forecaster and senior manager at LMC Automotive U.S. Inc. in Troy, Mich.

Coda is also dealing with significant competitive pressures. In the electric-car market, Coda competes directly against multibillion-dollar companies such as Nissan Motor Co., with its Leaf electric vehicle.

According to projections, about 10,000 electric vehicles will be sold in the United States this year, excluding plug-in hybrids, which have a gas tank for when the charge runs out.

The pure-electric cars face a substantial challenge in winning over consumers concerned by the short distance the cars can travel between charges, as well as by the scarcity of charging stations in most parts of the country. The cars also cost tens of thousands of dollars more than comparable gasoline-powered automobiles in many cases, due mostly to the high-cost batteries they use.

Coda released its much anticipated first car this year – a sedan based on a modest Chinese model with a base price of $37,000 – but the results haven’t been encouraging. Despite the company’s goal of selling 50,000 cars by 2015, industry sources estimate that Coda has sold only about 100 of the sedans, although sales figures have not been released. It has been reported that company has orders for an additional 1,000 vehicles.

The company, which declined interview requests for this article, issued a statement to the Business Journal saying last week’s layoffs, including more than 40 in Los Angeles, were done “to better position our business going forward.”

“We remain committed to the continued development and distribution of our products,” the company said.

When the company moved its headquarters from Santa Monica to Fairfax Avenue just north of the 10 freeway in Los Angeles last year, the City Council approved an $832,000 incentive package for the company with the prospect of more incentives later. Coda planned at the time to add as many as 600 jobs within 10 years.

Dimming prospects

When Coda launched in 2009, the idea was to provide a lower-price alternative to other electric models on the market. The company hoped to pass down savings by sourcing parts and batteries from China and assembling the cars in a facility near Oakland.

The company had serious financial backing: Coda raised more than $200 million in its early stages and established a line of credit through a joint venture of about $300 million. And its leaders, which include ex-Goldman Sachs Inc. bankers and Chief Executive Philip Murtaugh, a former executive at GM, have demonstrated access to additional capital.

But so far, the company has not achieved enough scale to exert significant pricing pressure on its suppliers to pass down to consumers, said Cosmin Laslau, an electric vehicles analyst at Lux Research Inc. in Boston. Meanwhile, Coda’s unexciting design has hurt its prospects while larger auto makers, such as Nissan and Chevrolet, have put out more appealing electric and plug-in hybrid cars for comparable prices.

“The key difficulty is that Coda is competing with the Leaf and Volt, which are better designed and more refined and selling for the same price,” he said.

What’s more, he noted, electric-car buyers tend to be wealthier, and those customers that are willing to pay a premium for a cleaner-burning ride have also gravitated toward higher-end and more stylish vehicles, such as those made by Tesla Motors Inc. in Palo Alto and Fisker Automotive Inc. in Anaheim.

Still, those companies have had some troubles as well. For instance, Fisker hasn’t produced a car in many months after its federal loan was frozen earlier this year. The company has been awaiting the sale of its battery supplier in bankruptcy court before it resumes production.

John Boesel, chief executive at Calstart, a Pasadena advocacy group for clean transportation technology, said Coda’s struggles are by no means unique.

“It’s tough to be a startup car company, whether it’s gas or electric,” Boesel said. “It requires a lot of capital. It’s not for the faint of heart.”

Recently, Tesla, which is led by Chief Executive Elon Musk, announced that it has become cash-flow positive and is starting to repay a $465 million loan from the Department of Energy.

Some experts say Coda’s best hope could be in the batteries themselves rather than vehicles.

In 2010, Coda Automotive’s parent company entered a joint venture to make lithium-ion batteries in China. John Gartner, a research director at Pike Research in Boulder, Co., said Coda could survive intact if it can generate enough revenue from licensing the batteries to larger automakers or operators of electricity grids.

Still, he noted the competition from other battery makers is fierce.

“This is the way out (for them) as an existing company, to focus on the battery technology,” he said. “I think they’d have to do something surprising to compete in automotive.”