Murtaugh's ultimate challenge
Coda CEO seeks to establish China-made EVs in America
LOS ANGELES -- Don't accuse Coda Automotive CEO Phil Murtaugh of shying away from a challenge.
He's selling $38,000 electric vehicles while interest in EVs is tepid.
His EVs are made mainly in China, viewed by many Americans as a low-quality manufacturer.
And he has a grand total of four dealerships.
But Murtaugh, the 57-year-old manufacturing guru and former General Motors China operations boss, is unfazed.
"We're still really confident," Murtaugh said in an interview. "People say, 'Oh, there's no demand. But when I talk to the four dealers we have, they're beating the [snot] out of me for more cars. They're telling me that there is very real demand out there."
The Los Angeles startup wants to open as many as 40 U.S. dealerships by next summer, including 10 by year end, Murtaugh said.
Coda expects about 20 of those stores to open in large metropolitan markets and to sell about 30 new cars per month. About 20 more dealerships will open in smaller markets. Typically, a small dealer needs to average 10 sales per month to make a franchise worth its while. But it's unclear whether EV demand is sufficient. The network that Murtaugh is planning suggests annual sales of nearly 10,000 Coda sedans -- more than the current sales rate of the Nissan Leaf, with a fraction of the dealer body and marketing budget.
Shaun Del Grande, one of Coda's four dealers, says his San Francisco Bay-area store has sold more than 20 since the company's "soft launch" in March, with little marketing support.
"We want to sell 20 to 30 a month," Del Grande said. "There's absolutely demand for these cars in this market and the Coda does hit the biggest concern of a lot of these customers and that's range anxiety."
Pessimism on Wall Street
Meanwhile, Murtaugh said the company is seeking more money from investors, and trying to woo new investors to fulfill its $150 million 2012 equity offering.
According to its most recent filing with the U.S. Securities and Exchange Commission in February, Coda had raised about $21.5 million in its 2012 round of fund raising. A Coda spokeswoman said the company has raised more since, but declined to disclose how much.
Coda also withdrew its application this year for another avenue for funding -- access to $334 million in loans from the Department of Energy. "We've raised $320 million [to date]. We're not insubstantially capitalized," Murtaugh said of the company's fund raising.
He noted, though, that Wall Street's earlier euphoria over EVs has changed to "gross pessimism ... that is hurting us."
Coda plans to promote its EV powertrain technology and power storage systems as supplemental business lines. Murtaugh said the future prospects of those ventures are strong, but they have yet to generate revenue for Coda.
"I need revenue today," Murtaugh said. "I need to sell cars."
Another challenge for Murtaugh is establishing regular production of Coda electrics.
He said Coda is ramping up from intermittent final assembly of "tens of cars" to a regular run of "hundreds" in Benicia, Calif.
Also, production of a car, from the time parts are ordered to final assembly in Benicia, takes about two months.
The sedan's body, built in China by its joint venture with Hafei Motor Co., is based on an old Mitsubishi platform. Its battery system, made in China at a joint venture with battery maker Tianjin Lishen Battery Joint-Stock Co., is installed in the Hafei-sourced bodies in Benicia.
"There are boats coming from China with gliders and with batteries as we speak," Murtaugh said.
But a lengthy supply chain is a quality challenge. Say a bad part is found during final assembly in Benecia. That means the company has two months' worth of parts in transit that probably have the same problem.
Ron Harbour, senior partner in charge of global auto manufacturing for consultancy Oliver Wyman, sees the Coda manufacturing model as inefficient and expensive. Coda is saving upfront capital costs by avoiding an expensive assembly operation in North America, he said, but the resulting logistics and operating costs involving China "boggles my mind."
"Maybe they're waiting to see if they [do well], then they can invest in more complete systems in the U.S.," Harbour said.
Finally, the Coda sedan's aged platform may struggle to compete with the similarly priced Leaf and Honda Fit EVs in refinement, driving dynamics, styling and fit and finish. The Coda starts at $38,145, while a base Leaf is $36,050, including shipping and before federal or state electric vehicle incentives. Since March, Coda has worked out bugs in its production system and supply chain, Murtaugh said.
Vehicles were damaged on boats from China, prompting Coda to revamp its logistics system. Vehicle software improvements were made. In August, Coda recalled 78 vehicles because side curtain airbags were installed incorrectly.
"I knew we would find stuff crawl out of woodwork," Murtaugh said. "You always do when you launch a car."
But now Coda is ready, said Murtaugh, whose mobile-phone ring tone is the guitar riff from "Smooth" by Carlos Santana.
Low-key digital, print and billboard marketing efforts have begun in Northern California, and marketing will ramp up in Southern California next month. A national media ride-and-drive occurred here in September.
"When you are a global OEM you have to go into every market. I don't need to spend money to make sure 5,000 dealers have an effectively supported co-op marketing effort," Murtaugh said of his lower-budget campaign.
Coda has signed letters of intent to open 25 dealerships, said Thomas Hausch, Coda's senior vice president of sales, marketing and aftersales. The retail expansion will occur mostly in the New York tri-state area and greater Chicago, plus California, Hausch said.
The estimated cost to open a Coda store is $100,000, which covers showroom design elements, signage, service equipment, charging infrastructure and training, Hausch said. Coda isn't charging dealers a franchise fee, but dealers must have at least 1,000 square feet of showroom space for Coda, and at least one dedicated salesperson.
Murtaugh hopes dealers will open stores in facilities that closed during the recession. Sacramento, Calif., for example, has 27 closed showrooms, five of which are in "really good locations," Murtaugh said.
"The idea is to take advantage of today's environment and work with the dealers to get into business without a massive investment."
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