Fisker assets spur Chinese duel with patents as top prize
WASHINGTON, D.C. (Bloomberg) -- Two Chinese-backed companies are locked in a bidding war, culminating next week, to take over bankrupt U.S. carmaker Fisker Automotive Holdings Inc. The prize is 18 patents and a possible toehold in the U.S. and Chinese markets. The rest is a harder sell.
Fisker hasn't made a vehicle since 2012. Its $103,000 plug-in hybrid sports sedan, the Karma, was called a "basket case" by U.S. magazine Consumer Reports. The company, which lost $139 million in U.S. taxpayer money, was labeled a "loser" by Republican Mitt Romney during 2012 U.S. presidential debates. Its most visible asset is a derelict former General Motors factory that Fisker never used.
China's Wanxiang Group emerged in December as a suitor for Fisker, challenging Hybrid Tech Holdings LLC, a Chinese-backed firm that had been jockeying to take over the bankrupt automaker. The rivals' interest prompted a bankruptcy judge to set a Feb. 12 auction for Fisker's assets.
"It's not about the manufacturing," said Steven Szakaly, the National Automobile Dealers Association's chief economist. "It's about the intellectual property."
Fisker's 18 patents cover grille designs, a fender vent and electric-vehicle drivetrain technology, according to the database of the U.S. Patent and Trademark Office. It also has at least 18 more patent applications pending, including in aluminum subframing and solar-car technologies, said Charles Shifley, a patent attorney at Banner & Witcoff Ltd. in Chicago.
The patents have many potential applications for buyers eager to break into the growing alternative-fuels market, said Blair Jacobs, a patent lawyer with McDermott Will & Emery in Washington D.C. "To have a jump start with a portfolio that took three to five years to develop is really substantial," said Jacobs, who has represented automakers in past disputes.
For a Chinese suitor, the Fisker package holds particular promise. The assets would let the buyer revive the Fisker brand in the world's biggest auto market, which is struggling to reduce some of the globe's worst air pollution. It would also provide an entry point to selling cars in the United States.
The battle for Fisker pits Hybrid Tech -- led by Richard Li, the son of Hong Kong's richest man, Li Ka-shing -- against Wanxiang, China's largest supplier of auto parts.
Wanxiang is owner of B456 Systems Inc., the successor to A123 Systems Inc., the U.S. company that supplied batteries to Fisker until collapsing under the cost of recalling defective Karma power packs. It would make sense for Wanxiang to buy Fisker after acquiring the battery maker, said Shifley.
The Karma was designed by Henrik Fisker, who won praise for his work on cars for BMW and Aston Martin. Karma drivers included singer Justin Bieber and actor Leonardo DiCaprio.
Fisker was an early partner of Tesla Motors Inc., which accused it of stealing technology and designs intended for what became the Tesla Model S. Fisker prevailed.
With the car still in the design stages, Fisker in 2009 won the largest loan commitment to a start-up company from a U.S. Energy Department program to develop alternative-fuel vehicles. Most of the $529 million was predicated on Fisker manufacturing cars in the United States.
That didn't happen. Fisker failed to meet production milestones for the Karma, which was made in Finland by contract manufacturer Valmet. The Energy Department froze the loan after distributing $193 million.
For all its low-slung curb appeal, the Karma was plagued by technical flaws. Consumer Reports said its review model broke down after going less than 200 miles (about 322km). The cars were recalled three times for battery and cooling-fan defects before A123 stopped production.
Last April, after firing most of its workers, Fisker defaulted on the U.S. loan without making a payment.
Li's Hybrid Tech last year paid the Energy Department $25 million -- about 15 percent of the balance -- to assume ownership of the loan, putting Hybrid in a favorable position to take over Fisker's remains. The department sold the loan to salvage what it could from the money Fisker had drawn down.
Fisker filed for bankruptcy protection in November under an arrangement calling for the group led by Li to trade its ownership of the loan for the automaker's assets.
That plan was derailed in December when Wanxiang told the court it wanted to bid.
Hybrid's latest bid was $55 million, including the $25 million it invested in the U.S. loan. Wanxiang has offered $35.8 million in cash, up $10 million from its first offer.
The duel is being watched in Wilmington, Delaware, where Fisker spent $20 million in 2010 to buy the abandoned GM plant. The plan was to retrofit it to build a second model, to be called the Atlantic, with production targets as high as 100,000 cars a year. Delaware taxpayers are footing the electricity bill for the plant until its future is decided.
Hybrid Tech, as a condition of acquiring the Fisker loan, is required to manufacture in the U.S. Wanxiang isn't bound by that agreement, though Energy Secretary Ernest Moniz said that "terms of our loan have to be respected."
"We have technology transfer limitations," Moniz told reporters Jan. 22 at the Washington auto show. "No matter who the winner is, we will be looking at both engineering and manufacturing in the U.S. That's the key for us."
Both companies say they're interested in using the U.S. plant.
Wanxiang America Corp. President Pin Ni declined to comment while pointing to court filings that describe the closely held company's plans.
Wanxiang "can immediately restart the production of the Karma sedan and provide parts and service to the existing owners," the company said in a Jan. 8 filing. "Wanxiang intends to continue development of the Gen II line of cars and, once they are ready to be produced in large quantities, would build them at Fisker's plant in Delaware."
Hybrid deepened its commitment on Jan. 24 by lending Fisker $13.1 million to cover its expenses.
"Together with our partners, investors, designers and suppliers, Hybrid is working to achieve a rapid re-launch of the Karma and the forthcoming Atlantic plug-in sedans," Megan Grant, a Hybrid spokeswoman, said in an e-mail. "We look forward to the acquisition of the company and a path forward for the Delaware plant."
Investors see hope for electric cars through Tesla's success and China's subsidies for electric-vehicle purchases.
Tesla co-founder Elon Musk said in January that China may become the company's biggest market. Electric-vehicle sales in China may increase 19 percent by 2015 and 27 percent by 2020, according to an October report by Bloomberg New Energy Finance.
No Chinese-made car has been certified by U.S. regulators to be sold in the U.S. Chinese investors bought Swedish carmaker Volvo Car Corp., which sells vehicles in the U.S., and Chinese companies have automaking partnerships with companies including Daimler and Hyundai Motor Co.
"In terms of the Chinese, they're clearly trying to get into the U.S. markets," Lacey Plache, chief economist for auto-researcher Edmunds.com, said in an interview. "If they could get something that totally disassociates them from the Chinese car, that's a good thing."
Still, Plache said, Fisker is a little-known brand in a niche auto technology. "They're taking a bet on EVs being a stable market in the U.S. and that's an iffy thing," she said. "It's not clear to me that Fisker has enough cachet to bring it back."