By Jon Markman
Not too long from now, a sensuously curved sports car designed by a German and made with American parts will roll off an assembly line in Finland and quietly mark the first clear break from our century-old dependence on crude oil for transportation.

Many a dreamer has attempted to create a serious, reasonably priced automobile that sidesteps oil and gas as an energy source, but all have flopped and sent investors straight to the poorhouse. Yet this one really has a shot at success, not just as a science experiment but as a commercial endeavor that could provide the first independent rival to the big international automakers in decades.

The new vehicle, the Fisker Karma, is the result of a marriage of convenience between art and commerce — the love child of idealistic former BMW designer Henrik Fisker and Silicon Valley venture capitalists eager to make a smart, early bet on alternative energy.

4 cents a mile
Although the car looks like sex on wheels, with a long, swoopy hood and flared-out wheels, it is a marvel of engineering that re-imagines the automobile from the power plant to the solar-panel roof for an era when cheap, clean, plentiful electricity will push expensive, filthy gasoline to the sidelines. It’s ready to roll for around 4 cents a mile.

The power for the Karma comes straight from a standard electrical outlet, no fancy charging apparatus required. And unlike the Toyota Prius, the hybrid gas-electric darling of the eco-friendly set today, the Karma could run its entire life without ever sniffing gas.

For while the dirty secret of the Prius is that it’s powered by a conventional internal-combustion engine that switches to electrical power in low-demand situations, the Karma is an electric vehicle that requires only a short recharge boost from its small gas engine if traveling 50 miles from its base.

The Karma is to go into full production next year.
The big idea behind the Karma, which will initially cost $80,000 while in limited initial production, is that the best alternative to crude oil for transportation is not a new fuel or technology but simply efficiency. The genius is that it transforms electricity generated by anything ranging from a home solar-panel system to a utility company’s wind turbines into a fuel that can power a strong, safe, well-appointed, roomy car on the average commuter’s trek to work and back.

In fact, if you’re among the 60% of the U.S. population that drives less than 25 miles each way to work, you may never have to buy gasoline again. If you do decide to take it out on the open road for a trip across the state, this plug-in electric hybrid vehicle, or PHEV, will get about 100 miles to the gallon — at least double the Prius’ fuel efficiency. That’s not bad for a car rated to jump off the line to get to 60 mph in 5.8 seconds.

Less battery, more space
PHEVs are much more efficient than their gas-powered cousins because electric motors are better at turning a single Btu of energy into motion, in part because they produce no wasted heat themselves. They’re also better because we have many more low-emission, U.S.-based ways to produce electricity — natural gas, solar, nuclear and wind, for example — than we have sources for liquid fuels.

The problem with electric-car motors up to now has centered on the batteries. Laws of physics make it hard to create batteries that hold a big enough charge to provide a lot of juice and are still light, small and safe enough to fit into a passenger vehicle without compromising fit and finish. The densest batteries, which provide the most juice, also tend to require the longest recharge times.

A Karma competitor called the Tesla Roadster, which will go on sale soon, is so optimized to go distances of up to 200 miles on a single charge that its battery is huge and surrounded by a water-based cooling system. As a result, the Tesla holds only two people and little luggage. In contrast, the Karma, using lithium-ion manganese batteries, is optimized for the 50-mile range that is considered to be the need of a majority of early adopters, and that’s why there’s room in the vehicle for four people to sit comfortably — and haul at least a couple of golf bags, to boot.

With the major automakers struggling, you might think that this is a dumb time to come out with a new car. But it may turn out to be quite the opposite. The automakers all have a lot of excess capacity on their factory floors now, and the same goes for suppliers of interiors, hoses, tires, suspension systems and other parts.

Instead of facing a quandary like that of John DeLorean — who was the last man to challenge the Big Three and who was ultimately crushed by the need to create every part in-house — a new automaker today can rely on just-in-time inventory systems to provide an efficient supply chain and can bargain with plant owners who are dealing with millions of hours of idle capacity. The Karma will be made at Valmut Auto in Finland in the same plants that today produce the Cayman and the Boxster for Porsche.

If you can’t buy, invest
David Anderson of hedge fund Palo Alto Investors, whom we’ve always known here as an oil and gas specialist, became an early investor in the Karma after looking for years at many other alternative-energy technologies, as did the major venture-capital firm Kleiner Perkins. Anderson said a smart investment in alternative-energy needs to fulfill all four of the following criteria: It must make good economic sense, it must reduce emissions, it must provide more energy for the growing worldwide economy, and it must reduce dependence on any single commodity.

Getting down to brass tacks, Anderson said his firm believes that if it can’t reasonably turn a $20 million investment into $80 million in five years, it’s not interested. It’s also not interested in solutions that don’t scale or in those that pollute or depend heavily upon government grants.

Most Americans don’t have $80,000 for the car or $20 million to make a venture-capital investment, but there is one potential common-stock investment in the Fisker: Quantum Technologies (QTWW, news, msgs), which makes the car’s Q Drive motor.

Quantum is a major supplier of clean-energy technologies to automakers and the military, so its plug-in hybrid electric motor for the Karma is the result of a long history of experimentation and production, not a one-off test case. With its stock now trading around $1.75 a share, Quantum’s revenues have been going downhill for years, and it’s never made a profit. But that could turn around if the Karma and other projects take hold in the marketplace.

This kind of idea is bound to provoke plenty of skepticism until it goes into full production in 2009 and begins to generate sales. But new solutions for a world of scarcer, more expensive energy have to start somewhere, so you can’t immediately dismiss every attempt as impossible.

Anderson said he’s involved because he “likes to know stuff before other people,” and if it turns out that PHEVs take hold at the lower price point of the Chevy Volt — scheduled for production in 2010 around $30,000 — then he’ll have an early view of the potential impact on his oil and gas exploration and services investments.

Ideally, it would be great to see PHEVs reduce demand for the foreign oil used in cars while increasing demand for the U.S.-produced natural gas used in electric utilities. That would be a win for the environment, energy independence and our portfolios.

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