SF Motors, a U.S. subsidiary of the Chinese conglomerate Sokon Industry Group, has just paid $33 million to acquire a three-person battery technology startup started by Martin Eberhard, who is also co-founder and former CEO of Tesla Motors. Silicon Valley electric-vehicle and mobility outposts are suffering from brain drain as they poach from Tesla and one another, so the fledgling automaker saw the acquisition as the way to get an MVP for its effort to challenge the much admired California EV producer.
The company had already hired Eberhard as a consultant last year. With the recent acquisition of Eberhard’s battery startup, he was appointed SF Motors’ chief innovation officer.
“Eberhard will focus on technology innovation, product development, product positioning, and branding—all with the goal of helping SF Motors meet global EV demands,” the company said in a press release.
Martin Eberhard, in a 2006 Tesla photo, with then California governor Arnold Schwarzenegger.
SF Motors’ fascination with Tesla and its origins started earlier, with a proposed acquisition of AC Propulsion (ACP), the small California-based engineering firm mostly responsible for the car that became the original Tesla Roadster. Media reports suggested that the ACP purchase was a done deal, but it was actually abandoned shortly after Eberhard started advising SF Motors.
Not Exactly a Hardscrabble Startup
SF Motors is a young company—less than two years old—and a wholly owned subsidiary of Sokon, a van and truck maker based in Chongqing, in southwestern China. It’s one of only around a dozen automakers holding a government license to produce electric passenger vehicles in the country. According to a document filed last year with Chinese regulators, another of Sokon’s subsidiaries founded SF Motors in January 2016 with a $30 million down payment. By 2019, the document says, the company expects to invest more than $590 million to develop a high-end autonomous electric passenger car to rival the Tesla Model S. That looks like an impossibly small budget for the task, but SF Motors has started working on the EV at a glossy new headquarters in Silicon Valley.
One of the new company’s first moves was to approach ACP. “SF Motors visited us early in 2016 and was very interested in building a prototype vehicle using our drivetrain,” remembers Paul Carosa, ACP’s chief technology officer.
2010 Tesla Roadster Sport
AC Propulsion has a key role in the history of the electric car. It built the first modern sports car with lithium-ion batteries, the tzero, back in 1997. When ACP resisted putting that vehicle into production, Eberhard and co-founder Marc Tarpenning licensed the technology and started Tesla Motors with the Lotus-based Roadster (pictured above), soon attracting Elon Musk as an investor. Since then, AC has developed high-performance motors, power electronics, and rapid battery chargers. It supplied 500 drivetrains for BMW’s electric Mini E in 2008, has a Chinese sister company, and works with OEMs around the world.
SF Motors bought nine ACP drive systems for its own prototypes. But it wanted more. “After meticulous early market research, and following a long contact and communication, SF Motors intends to acquire AC Propulsion [for $95 million],” SF said in a filing with Chinese regulators in October 2016. A letter of intent was signed, a multimillion-dollar deposit was handed over, and the deal was set to close by year’s end.
Different Deals, All Involving a Tesla Co-Founder
Not so fast. In September 2016, a few weeks before the deal was announced, SF Motors hired Eberhard as a consultant and issued a press release. Eberhard was annoyed at the publicity. “Despite what was written, I am not on the . . . payroll other than as a consultant for general EV advice,” he told this reporter at the time. “I am not an employee there.”
InEVit moved fast. By May 2017, it told a Korean trade delegation to Silicon Valley that it had 35 patents related to battery management, cooling, and fuse technologies, although none were held under the company’s name. It was also seeking $7 million in Series A funding. But a simpler solution was at hand. What if SF Motors bought InEVit instead of AC Propulsion? A filing with Chinese regulators in January 2017 said that the ACP negotiations were “very advanced” but that the completion date had pushed back to June. From being in a rush, SF Motors was now dragging its feet.
AC Deal Unraveled
“Martin made no effort to see what we’re doing,” said Carosa. “I think he has in his head a picture of ACP from 13 years ago. We’re a vastly different company now.” In March, SF Motors pulled out of the deal completely. It would not comment on the decision, citing Chinese regulatory restrictions.
“It was extremely frustrating because we went through six months of due diligence, spent a lot of effort and money on lawyers, and even got U.S. government approval,” said Carosa. “One of the reasons [SF] gave was [that] the China government is clamping down on money going out of the country.”
Meanwhile, SF Motors had been putting together other deals. A year ago, it announced an investment of nearly $11 million in a research center in Ann Arbor, Michigan. And in August, it bought an assembly plant in Mishawaka, Indiana, that had been built to make the Hummer H2 (above). After Hummer folded, the plant was converted to produce parts for General Motors and for Mercedes-Benz. SF paid $110 million for the facility, saying it would be “preserving 430 American auto-worker jobs.”
Then, in late October, SF Motors announced that it had also acquired InEVit, for $33 million. The tiny startup had only three U.S. employees, including Eberhard, plus some engineers in Stuttgart, Germany. It also had Tarpenning as a minority investor.
Ties with Audi, Other Automakers
A valuation document for InEVit indicates that the company has been busy—it worked with Audi on as-yet-unannounced electric Q2 e-tron and TT e-tron vehicles, which might just be prototypes or design studies. In July, it pitched Daimler on a battery module using 2170 cells—the same size cells as those used in the Tesla Model 3—for use in Daimler’s upcoming EQ range. It made similar offers to Renault and Volkswagen over the summer. In the near future, InEVit expects to work with the R&D arms of five OEMs in Europe, one in China, and one in the United States. The valuation document says InEVit’s ultimate goal is to supply battery-system modules and controllers to OEMs at scale.
SF Motors said the information in the valuation document is incomplete but would not comment on specifics or InEVit’s projects, citing nondisclosure agreements with OEMs.
Meanwhile, SF Motors is developing its own EV, which will benefit from InEVit and Eberhard’s expertise, and it’s working with Mcity, the autonomous- and connected-vehicle test track located near its Ann Arbor R&D center.
SF Motors has already filed a U.S. trademark application for an EV under the brand name Seres, which might or might not have been influenced by designer and green-luxury legend Henrik Fisker. “Henrik Fisker had an agreement with Sokon on a new electric-vehicle venture, where Henrik Fisker did some initial design work,” said a spokesperson for Fisker. “This agreement did not materialize, as Sokon didn’t follow through with their financial obligations.” Fisker went on to found Fisker, which is developing a 400-mile-range electric sports car called the EMotion (pictured above).
“I’m not sure that [SF Motors] really understands what it takes to become a serious U.S. manufacturer of new-technology vehicles,” said ACP’s Carosa. “They may pull it off. I was skeptical about Tesla, too, in the beginning. But I don’t see any Elons over there [at SF].”
That may be an easy jab from a company spurned. But to avoid the same struggle and upheaval that another Chinese upstart, Faraday Future, has so publicly exhibited, SF Motors will need a lot more than some of the original spirit of Tesla.
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