How to Avoid a Crash in Your New Electric Car
(Bloomberg Opinion) — Fisker Inc.’s warning that it may run out of cash within 12 months absent fresh equity or debt raises a new and worrying question for car owners: What happens if the maker of your electric vehicle goes bust? Modern cars are highly sophisticated computers on wheels, reliant on expensive batteries and regular software updates to function properly.
Consumers should extend their pre-purchase homework to include an assessment of the financial health of the manufacturer and, if in doubt, consider leasing rather than buying that expensive new ride.
than 200 electric heavy duty trucks due to faulty batteries will cost around $66 million.
From a car buyer’s perspective, recent instances of financial distress aren’t entirely encouraging. When Henrik Fisker’s first auto company, Fisker Automotive Inc., went bust in 2013, customers who had paid more than $100,000 for a Fisker Karma were told their warranty coverage would be capped at only a few thousand dollars.
After filing for bankruptcy last year, Lordstown Motors said it was unable to honor warranty guarantees. Debtors were authorized to repurchase the roughly 35 pickup trucks (yes, just 35) sold to date for $31,000 a piece, or less than half of the original purchase price.
Phoenix Motor Inc., says it took on a “significant” amount of warranty guarantees when it acquired Proterra Inc.’s electric-bus assets out of Chapter 11 bankruptcy in January. “We wanted to be able to service our customers and maintain relationships and not tell them, sorry, the warranty is not our problem,” Mark Hastings, Phoenix’s chief investment officer, said on an investor call.
However, several transit customers said they were worried that Phoenix lacks the financial resources to honor these obligations: The new owner has also warned about its ability to remain a going concern and many of the more than 1,000 buses Proterra sold are reportedly inoperable due to technical problems that precede its bankruptcy.
A new and potentially important factor for car owners to ponder is whether vehicle software would remain supported post-bankruptcy. Modern cars rely on over-the-air updates to fix bugs and improve vehicle performance; in some cases, certain functions are only available by subscription. During its recent earnings call, Fisker spoke at length about the importance of these updates, which are helping mollify customers who complained vehicles weren’t up to scratch.
For a foretaste of what might happen if these updates ceased, consider the fuss this week when Nissan announced it is withdrawing a vehicle app for older versions of its electric Leaf. (1)Customers spoke of their disappointment that a major selling point of the vehicle — remote control of functionality such as heating and charging — would simply vanish.
Happily, customers don’t need to overthink these what-ifs and worst-case scenarios: They can opt to lease a vehicle instead. The risks of technological obsolescence and rapid EV depreciation are already strong arguments for renting rather than buying, as is the availability of subsidies in the US. The danger, however small, of an automaker running out of money makes leasing a no-brainer: Then, if it goes bust, just hand back the keys.
More from this writer at Bloomberg Opinion:
(1) See also this piece on electric bike manufacturer VanMoof’s bankruptcy
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies in Europe. Previously, he was a reporter for the Financial Times.
