FORTUNE Small Business

Putting the zoom into electric cars

Watch out, Detroit. A new crop of electric-vehicle startups aims to put a dent in the Big Three by applying the latest in high-technology engineering and design.

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aptera.03.jpg
Aptera: This hybrid gets 300 mpg.
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Tesla: This racy electric roadster goes 245 miles on one charge.

Steve Fambro didn't get into the car business to save the world. He did it to go faster on freeways.

Fambro was driving 36 miles a day, during rush hour, to and from his biotech job in La Jolla, Calif. As traffic slowed to a crawl, motorcycles whizzed past in the carpool lane. He wanted to do the same, and after trying a motorbike and becoming worried about his safety, he decided he wanted to do the same in an enclosed vehicle. He bought a hybrid, but as an engineer he still yearned for a vehicle that got even better fuel economy.

That left electric cars. The selection was discouraging: tiny, boxy vehicles with a short range that took a long time to charge. "Anything you could buy looked as if it was designed in the 1970s," says Fambro.

So he decided to start his own car company. In November 2008, Fambro will begin selling the Aptera. That means "wingless" in Greek, but don't think this car won't fly. It's a sleek two-seat, three-wheel electric vehicle with a top speed of 95 miles an hour, and it comes in two versions: all electric and hybrid.

Made of a Space Age composite material, the hybrid gets 300 miles per gallon, while the electric goes 100 miles on a single three- to six-hour charge. And it looks great in the carpool lane.

For the first time since the early 20th century, America is seeing a flowering of entrepreneurship in the auto industry. Today at least 11 new electric car companies, each working on a wide range of technologies, have launched or plan to launch models. Several of the startups are clustered around Silicon Valley, drawing on the brainpower and pocketbooks of high-tech engineers and venture capitalists. These upstarts are not modest. They believe they can do what major automakers have failed to do: bring an electric car to the mass market.

Electric cars, to be sure, are not new. About a century ago Thomas Edison joined forces with Henry Ford to develop an electric car that would be as affordable as the Model T. In those early days of the automobile, hundreds of manufacturers all over the country tried to compete making both electric and gasoline-powered cars. But economies of scale were not on their side, and small shops - some 415 of them in 1914, each of which produced a few handmade cars a year - eventually gave way to the Big Three.

The internal-combustion engine could be refueled more conveniently than a battery could be recharged, especially on long trips, and that advantage all but killed electric auto technology. Over the years entrepreneurs would occasionally emerge with a new design to challenge the Big Three, yet all failed. The two most memorable flameouts: Preston Tucker in 1948 with his Tucker Torpedo and John De Lorean, with his silver gull-winged sports car in the 1970s - both of which used internal-combustion engines.

So why does today's new breed of small, renegade car company think it can succeed where so many other auto startups have failed? The entrepreneurs and investors behind the firms point to four factors: consumer desire for measures to address global warming, an abundance of investment capital, new breakthroughs in fiber composite body material, and the availability of cheap computing power and software that help simulate design challenges long before new cars hit the road.

By taking aim at many markets, the electric auto makers are multiplying their chances of success. Tesla Motors of San Carlos, Calif., will sell in early 2008 a speedy $98,000 electric roadster for the Hollywood and hedge fund set (George Clooney and the Google guys have mailed in their down payments).

Entrepreneur Ian Wright, based in Burlingame, Calif., is also aiming at the sports market with the Wrightspeed X1, which he hopes to sell in about two years for about $100,000. The X1 prototype's three-second acceleration from zero to 60 mph makes it one of the fastest autos in the world - second only to the French-made Bugatti Veyron, a 16-cylinder gas-gulping beast that is just half-a-second faster and goes for $1.25 million.

If the Tesla and Wrightspeed give you sticker shock, don't worry. Phoenix Motorcars of Ontario, Calif., is aiming at businesses, and in early 2008 plans to sell a $47,000 electric pickup truck that can be recharged in ten minutes. For those looking for an affordable commuter car, Aptera's gas hybrid will be available in 2008 for $27,000, with an all-electric version for $30,000 (you'll have to plug it into a regular household socket for a few hours after driving 100 miles).

A Toronto company called Zenn sells an electric car and is counting on a radical new kind of power pack from a Cedar Park, Texas, startup called EEStor to next build an Aptera rival. And in 2006 a Norwegian investment firm bought Think, an electric car company once owned by Ford. It plans to launch the Think City commuter car in Europe in 2008 and in the U.S. market in 2009.

Dean Kamen, the Manchester, N.H.-based inventor of the Segway scooter, is working with Think to adapt his Stirling engine to the car, which would extend its 110 mile range. GM has hired A123, a Watertown, Mass., startup to supply lithium batteries for its Volt hybrid, due to launch in 2010. Former SAP executive Shai Agassi has raised $200 million for Project Better Place, a firm that plans to build a network of stations to recharge all these electric cars.

Driving this global network of entrepreneurs is a very global problem. In the U.S., cars and trucks are responsible for some 20% of humanity's emissions of greenhouse gases, mostly carbon dioxide. Switching from internal-combustion engines to electric-powered vehicles will seriously mitigate the effects of global warming.

Skeptics point out that the juice for electric cars must be generated by power plants, most of which are fired by natural gas or coal and spew their own carbon dioxide. But 30% of the electricity on the national grid comes from clean sources such as nuclear, solar, wind, and hydroelectric power. According to a study sponsored by the U.S. Department of Energy, using electric vehicles actually results in as much as a 40% reduction in greenhouse gases, depending on the location.

Few of these new car companies are aiming to grow to the size of Toyota or GM. Most will be satisfied if they can become profitable niche players; others hope to sell or license their technology to the big guys. Says Bill Green, a partner at Vantage-Point Venture Partners, which has invested in Tesla Motors: "No one argues today that the Tesla will serve anything but a small subset of the market. But it has changed the conversation. It is a historic and dramatic increase in performance. The big car companies will look at Tesla and say, 'Hey, maybe I can use that technology in my cars.' "

Venture capital firms are betting big on that outcome too. Elon Musk, co-founder of PayPal, used part of the fortune he made selling his company to eBay (Charts, Fortune 500) to help bankroll Tesla Motors. Besides Vantagepoint, investors include Google (Charts, Fortune 500) founders Larry Page and Sergey Brin and Silicon Valley VC firm Draper Jurvetson. Tesla has raised more than $100 million. Kleiner Perkins Caufield & Byer, along with other investors, has put $7 million into EEStor.

What has these investors excited is that technology is helping small companies rethink the dynamics of car design. Take the Aptera: This aerodynamic, low-slung commuter car has a composite body, made of carbon fiber, fiberglass, and Kevlar, that looks like the cockpit of a jet yet can fit two adult passengers and a child in a baby seat. It weighs 1,500 pounds, compared with the U.S. industry average of 3,455 pounds. Because it has only three wheels, the Aptera will be classified as a motorcycle in most states. But it's beefier than it looks. One inch shorter than a Toyota Prius, the Aptera can still fit a surfboard in the trunk after folding down the passenger seat. The vehicle has passed slalom tests for stability and handling.

Odd, delightful features abound. A solar-assisted air-conditioning system will run on sunny days even when the car is turned off, keeping the interior cool for the driver's return. The covered wheels hang on the ends of protruding axles, leading one auto industry wag to remark that the vehicle looks like "Batman's girlfriend's car." Fambro makes no apologies: "Most auto designs put styling first and function second," he says. "The way cars are designed, half the energy they need is just to push the air out of the way."

Fambro's aim was to change the styling to reduce the drag of the car as much as possible. He succeeded: The Aptera will have a drag one-third that of a today's average car and less than half that of the Prius, the industry champion of low wind resistance.

Fambro created his groundbreaking design on a budget. It would have cost him $10,000 a day to test the car's aerodynamics in a wind tunnel, so Fambro found some software - the same that NASA uses to test the drag of its space vehicles - for just $50,000.

The simulation lets him make a change in the style of the car and see the effect on drag very quickly. One result: The car has no side-view mirrors. Instead the driver has 180-degree rear visibility on a videoscreen with the help of cameras mounted on the back of the car. "Ten years ago we couldn't do that kind of testing. And five years ago we couldn't afford it," says Fambro.

His engineers can also use the computer to simulate 50,000 miles of driving, including over potholes, and test the stress on the vehicle parts. (A prototype of the car has been pushed to its limits on an actual test track.) Because the body is made of a composite, capital costs are low compared with those required to build a typical steel car. It can take as much as $1 billion to set up the facilities for the die stamping, welding, and assembly of a new vehicle, but Aptera can make composite parts with a tolerance of 0.001 of an inch quickly and cheaply. "It's an entirely new way of making structural products," says Fambro. He estimates that today's computing power is so fast that he can do with three employees "what a big company such as Boeing ten years ago took a few hundred people to do."

It's one thing to build a prototype; it's another to manufacture complex products in large numbers on time and on budget. Toyota (Charts), with some of the best auto engineers in the world, took years to work the kinks out of the Prius. Aptera must also build or piggyback onto a dealer network to sell and service the cars. That takes capital, skilled manpower, and time. Aptera's all-electric model should at least be very easy to maintain. It has no transmission, and its electric motor has only one moving part, compared with about 400 for regular engines. Its mechanics may need software degrees, but at least they'll have clean hands.

Even if Fambro succeeds in building an affordable, energy-efficient commuter car, the impact on the market, at least in the short run, will be minimal. He hopes to sell around 3,000 to 4,000 Apteras in the first year of production, marketing mostly to buyers in California, Arizona, and Nevada, and then ramp up to about 10,000 cars a year soon after that. Meanwhile, GM (Charts, Fortune 500) alone churns out about 300,000 cars a month. Fambro says he plans to build Aptera into a major car company, but like many entrepreneurs, he is willing to be flexible. "If Toyota or Hyundai offered to buy us," he says slyly, "we would certainly consider it."

WHERE THE ELECTRIC CAR MARKET IS BOOMING

COMMUTER CARS

- Aptera Motors, Carlsbad, Calif.
- Think Global, Palo Alto*
- Zenn, Toronto
- Zap, Santa Rosa, Calif.
- Commuter Cars, Spokane
- A.C. Propulsion, San Dimas, Calif.

FUN CARS

- Tesla Motors, San Carlos, Calif.
- Wrightspeed, Burlingame, Calif.
- Universal Electric Vehicle, Thousand Oaks, Calif.

WORK VEHICLES

- Azure Dynamics, Oak Park, Mich.
- Phoenix Motorcars, Ontario, Calif.

BATTERY MAKERS

- A123Systems, Watertown, Mass.
- Altairnano, Reno
- EEStor, Cedar Park, Texas
- Valence Technology, Austin
- Odyne, Hauppauge, N.Y.

* U.S. office of Norwegian parent.  To top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.