Is this Electric Car Company’s Bankruptcy a Troubling Sign for Autos?
Norwegian electric carmaker “Think” reportedly filed for bankruptcy today citing “failure to find long-term financing for its business” as a primary reason. One spokesperson for the company claimed, “The investors we were speaking to weren’t able to commit quickly enough. It was a case where the money ran out.”
Think had previously been owned by US auto giant Ford (NYSE:F), which purchased the company in the late 90s and dumped $150 million into the business before selling it in 2003. The Norwegian company had recently received $40 million in funding from a group of investors lead by Ener1 (NASDAQ:HEV), a company that makes lithium-ion battery products. Ener1 has written off the entirety of its stake in “Think,” estimating it will lose $35 million in capital when the firm goes under.
Does Think’s failure portend disaster for other car companies such as General Motors (NYSE:GM), Toyota (NYSE:TM), Honda (NYSE:HMC), and Tesla Motors (NASDAQ:TSLA), all of whom have spent considerable sums developing their own electric and hybrid models?
According to 24/7 Wall Street, the electric market is still in its infancy, but growing steadily, “The market for hybrids and all-electric cars in the US in 2011 has always been projected to be quite small. Through May, about 118,000 hybrids have been sold in the US and just over 4,400 plug-in EVs. Toyota’s (NYSE:TM) Prius gets about half the hybrid total. Chevy (NYSE:GM) has upped its manufacturing total for 2011 to 16,000 Volts, a third more than its original plan. Nissan had planned to deliver 20,000 of its Leafs this year. Until the EVs attract a larger audience with lower prices and better marketing, massive buying of EVs is in the distant future. Estimates of sales top out at about 500,000 units annually in 2020.”
It seems that the electric car caters to a niche luxury market with a high barrier to entry. The outlook after Think’s failure dictates that significant resources are required to compete in the industry, as companies may need to absorb losses in R&D and production costs before expecting even marginal returns on investment.