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Fisker spent $1.4 billion on the production of one car, and is now broke

Fisker Automotive is in a financial crisis with talks of a bankruptcy filing and huge employee layoffs. But what exactly caused the fall of Fisker? 

Reuters dug deep to find out what went wrong at every corner. It interviewed more than 30 people close to the company (not including co-founders Henrik Fisker and Bernhard Koehler) and referred to a review of five years worth of confidential investor presentations. It even read internal Department of Energy (DOE) emails and briefings from a congressional hearing in April.

What Reuters found is that Fisker spent $1.4 billion on the production of one car, and is now broke. 

Reuters found that there were many reasons that led to Fisker's demise. For starters, Fisker built about 2,450 Karmas (its plug-in hybrid luxury sports sedan, which was the company's only production vehicle) from 2011 to 2012, but internal financial statements show that the automaker lost at least $35,000 on each car. 

That wasn't the Karma's only issue. Delays in the start of Karma production and a huge reduction in volume meant forced Fisker to pay much higher prices for many components and sub-systems. It was also stuck paying penalties to suppliers and to Valmet, which built the Karma in Finland. In fact, Fisker racked up $200 million in bills to suppliers by late 2011 because the automaker asked them to meet challenging deadlines, yet was slow in giving suppliers technical information and punctual payments. 

Fisker only delivered 200 Karmas to customers in 2011 and another 1,600 in 2012, which was a huge disappointment compared to its original plans to sell 15,000 Karmas a year starting in 2009.

The Karma's design was another huge problem that cost Fisker millions of dollars. Engineers were pressured to stick with Henrik Fisker's original design, even when they discovered performance flaws that would later need last-minute fixes and tweaks. These last minute fixes made between $50 million and $100 million of Fisker's parts inventory obsolete. 

These design changes also led to cost overruns and late shipments of components while Fisker over-ordered other parts. 

One of the fixes was the front-end exhaust design, which was noisy and reduced horsepower. Instead of just putting the exhaust pipe in the back ahead of time, a thin, steel box was designed later to enclose the exhaust system. But engineers said this last-minute fix cost the company millions of dollars. 

Henrik Fisker and the Karma

Aside from Karma issues, the company had a spending problem. Henrik Fisker and Koehler had salaries of  $600,000-$700,000 a year -- even after the automaker laid off hundreds of employees in 2011 and 2012. 

In May 2011, Fisker co-sponsored a pre-race grand prix party on a 146-foot yacht in the Monte Carlo harbor. The party, which featured champagne with flecks of gold and an appearance by Prince Albert of Monaco, cost Fisker between $80,000 and $100,000.

The DOE also caught some heat for the way the Fisker loan was handled. Many wondered whether the DOE offered acceptable oversight, and if Fisker's board of directors (mainly large investors) guided the company correctly. 

But according to DOE, it was receiving mixed stories from Fisker about production milestones and spending, and did what it could with the misinformation. For example, Fisker told DOE on November 1, 2011 that it needed additional private equity or loan money, or else it would run out of cash completely in just three days. But at the end of the month, it said that a mid-month investment of $37 million bumped it up to $20 million in cash. 

In the December 14, 2011 letter to shareholders, Fisker said it had a capitalization of nearly $2 billion. But that included $720 million in private equity that had nearly been spent; the $529 million in DOE loans, which Fisker only had access to $192 million of at that point, and $700 million for the Delaware plant (which was inflated at 30 times the actual purchase price). 

An internal DOE briefing from December 19, 2011 explained a plan to keep an eye on Fisker's progress regarding the Delaware plant. The briefing mentioned that it could be ready to build cars "by the end of 2013," but a separate email in late December 2011 between DOE officials predicted that the Atlantic (Fisker's second model) would not be ready for production in the Delaware plant until mid-2014.

However, investors got the wrong information in the December 14 shareholder letter, which stated that Fisker would continue with a 2013 launch time frame for the Atlantic. But in February 2012, all 26 workers were laid off at the Delaware plant. 

Private-sector investors had put $525 million into the company from May 2011 to August 2012 due to Fisker's bending of the truth in some instances, such as the $2 billion company value. 

To make matters worse, DOE cut off Fisker's loans in June 2011, and Fisker didn't make any mention of it for nine months. An anonymous Fisker executive told Reuters that the DOE never told Fisker that it was cutting off access to the loan; the company just stopped seeking the funds during that period of time. He also said that Fisker told investors in the December 2011 letter that there wasn't a good chance that the automaker would meet the financial agreements as part of the DOE loan. 

Fisker received $529 million in DOE loans in April 2010 for the development of high-tech vehicles. But DOE froze the loans due to "unmet milestones" in June 2011 with only $192 million drawn at that point. 

Fisker's situation crumbled further this year when Henrik Fisker stepped down as executive chairman citing "several major disagreements" with "Fisker Automotive executive management on the business strategy."

That same month, the company was forced to put its U.S. workers on furlough and eventually laid off 75 percent of its workforce (or about 160 employees). Fisker even faced a federal lawsuit that accuses the company of not giving employees advanced notice of the mass layoffs. Under the U.S. Worker Adjustment and Retraining Notification Act, workers are supposed to have 60 days notice before being laid off.

The cherry on the cake was Fisker's missed DOE payment at the end of April. 

Fisker is looking for a buyer, and last month, VL Automotive (a venture between former General Motors Co executive Bob Lutz and industrialist Gilbert Villarreal) and China parts maker Wanxiang Group submitted a proposal to buy Fisker Automotive for $20 million in a prepackaged bankruptcy deal.

Source: Reuters

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History repeats itself
By Lord 666 on 6/17/2013 8:53:28 PM , Rating: 4
Reads like a modern DeLorean story... just minus the cocaine.

There are three in my area and have to admit the styling is stunning.

RE: History repeats itself
By thomp237 on 6/17/2013 9:53:40 PM , Rating: 2
Every time I read a story about Fisker I am thankful that we were not selected to be a supplier on this program. We were in final negotiations when Fisker decided to put all validation work on the component supplier instead of the integrator. I work for a small company and I have no doubt we would have never been paid had we gotten the work.

I was in meetings where it was explained to me that Henrik cared about the design above all other things. He was not going to change it, regardless of the engineering sense.

Good riddance.

RE: History repeats itself
By Shig on 6/17/2013 11:09:01 PM , Rating: 2
Not many people know that this guy was originally involved at Tesla Motors. Fisker did some work on the Model S, which Elon Musk said was terrible, which led to a legal spat in 2008.

This guy was bad news before he ever got the DOE loan. Steven Chu even admitted fault for them.

No one will remember Fisker in the long run, just like no one remembers all the cars that GM and Ford annihilated back in the day. Fisker is just another solyndra for the right wing propaganda machine. I'll just keep watching Tesla Motor's stock go up.

RE: History repeats itself
By Souka on 6/18/2013 1:58:03 AM , Rating: 2
5300lb $100000 sports sedan for the rich... but it sure was eye catching... was/is a dealership near where I work

RE: History repeats itself
By Fallen Kell on 6/18/2013 3:13:09 PM , Rating: 2
Too bad you just had to add a little water and they went boom!

RE: History repeats itself
By Chaser on 6/18/2013 7:52:35 AM , Rating: 5
Fisker is just another solyndra for the right wing propaganda machine.
Throwing 100s of millions of dollars of taxpayer money away blindly, only because its a "green friendly" eco-responsibility project DOES matter. Thus the article.

RE: History repeats itself
By FITCamaro on 6/19/2013 7:23:04 AM , Rating: 2
I'll remember all the tax dollars that were wasted just because of the company being "eco-friendly".

RE: History repeats itself
By superstition on 6/20/2013 10:44:50 PM , Rating: 2
That was merely propagandistic veneer. Everyone with an ounce of critical thinking could see that this was not about being green, but about making fancy toys for the rich and getting tax money to rich people in other ways.

RE: History repeats itself
By Samus on 6/18/2013 12:07:23 AM , Rating: 2
The real problem John DeLorean had was with the Irish government. Those problems necessitated drugs financing his business.

The other difference is the DeLorean DMC12 was revolutionary (and reliable) and the Fisker Karma is not.

RE: History repeats itself
By Reclaimer77 on 6/18/2013 12:44:55 AM , Rating: 3
DeLorean? Reminds me of Solara. Pretty much the same business model.

1. Claim to be producing something "green" to qualify for tons of Government slush-funding at the expense of the taxpayer. Irregardless of how horrible your business plan is and the legitimacy of product.

2. Divert the funds to who-knows-what and blow the money on extravagance that can later be liquidated.

3. Profit from the "bankruptcy"

I mean hell, as you said, there's still DeLorean's in the wild today. I doubt anyone will ever be able to say they saw someone who owned a Fisker.

RE: History repeats itself
By Nephiorim on 6/18/2013 3:14:56 AM , Rating: 2
There was one parked just around the corner of my brother's place. The owner just got out and I said wow, nice car, too bad there aren't more of them. He replied "not yet". I didn't dare burst his bubble and tell him the company was filing for bankruptcy, the guy seemed so proud of his car :)

RE: History repeats itself
By Chaser on 6/18/2013 7:38:20 AM , Rating: 4
Irregardless of how horrible your business plan is and the legitimacy of product.
Sounds like an unhopeless situation :)

RE: History repeats itself
By km9v on 6/19/2013 10:12:28 AM , Rating: 2
Must be bad Karma

RE: History repeats itself
By Bad-Karma on 6/20/2013 9:33:41 PM , Rating: 2
ah.....I had nothing to do with it.

RE: History repeats itself
By johndsykes on 6/20/2013 8:06:21 PM , Rating: 2
Actually it is nothing like Delorean. The issues of Fisker are being innovative and challenging Detroit. They started out like a dream, but then 4 key issues have created a distress for them: The department of energy loan and all the politics surrounding Solyndra, caused the department of energy to freeze the loan. The milestone excuse is nonsense, as it is normal in any project to have delays, specially in the launch of a new technology and a car. Second the A123 recall which compiled with consumer reports, Reuters, Jalopnik etc constantly publishing negative articles on the company and finally that Fisker hired good for nothing Detroit management like Tom Lasorda, Tony Posawatz and Joel Ewanick who drove the company to ground and never could create any value in the company. Everything else is smoke and mirrors and potrayed wrongly by the media, mainly Reuters because they protect the Detroit super CEO's!

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