Free Car - The Future or a Scam?

[Kaitzilla]

So a small American startup car company (Elio Motors, https://www.eliomotors.com/) has a plan to make car-tricycles that cost $6800 and get 84mpg highway/47mpg city.
Here is where the free car part comes in:
http://www.autoblog.com/2015/04/03/elio-motors-gas-savings-payments-plan/

To encourage sales, Elio said the company has a plan to make the Elio trike extra affordable called "Let Your Gas Savings Make Your Payments." Under this plan, when you buy an Elio, you drive away with a special credit card in your pocket. You use this card every time you gas up and then Elio charges you triple what you paid at the pump. So, if your gas costs $10 (remember, this is an 84 mpg car, so you're not paying a lot at the pump), then your total cost to Elio will be $30. The extra $20 is applied to your loan payment. "As long as you drove into the dealership with something that was 27 mpg or less, your monthly fuel bill will go down," Elio said. "Three times 27 is 81 and we get 84. So, you got a brand-new vehicle under warranty that's fun to drive and you don't have a car payment and you're guaranteed to spend less on gas."

This isn't as crazy as it sounds on the surface.
Many Americans have already embraced the "free" smartphone that comes with higher monthly payments in their contracted 2-year phone plan.

To pay off the $6800 vehicle, you'd have to buy $10,200 worth of gasoline(petrol) using Elios' special credit card.
$6800 would go to Elio, and $3400 would go to the gas station to buy around 1700 gallons of gasoline at today's prices. ($2 per gallon)
With a 50/50 mix of highway and city driving, the car would be paid off after around 100,000 miles of driving and burning 1700 gallons.

The price of gas matters in this calculation.
At $4 per gallon like last year, $3400 would only get you 850 gallons of gas.
So the car would be paid off after 39,950 miles (47mpg city) or 71,400 miles (87mpg highway)

Or say you are in Europe and pay $6 per gallon
$3400 gets you 566.6 gallons of gasoline.
Pure city driving at 47mpg and you'd pay the car off after 26,600 miles of driving.


Link to video.

The company has pushed production of this vehicle back to late 2016 due to funding problems.
They need $300 million to start production.

Even without that experience, it seems people like the way the Elio looks, since there have been over 41,000 reservations placed. That means, at the very least, that 41,000 people have ponied up a $100 refundable deposit. That's the bare minimum, but there are eight tiers customers can get in on: $100, $250, $500 and $1,000, and each as a refundable or non-refundable deposit. As you might expect, the $1,000 non-refundable people are first in line for the trikes when they get produced, followed by the $500 non-refunds and so on down the line. Elio has raised around $17 million from the 41,000 people that have paid money thus far, and their reservations represent $280 million of product, Elio said. Elio has also submitted a request for $185 million under the new US Department of Energy Advanced Technology Vehicle Manufacturing loan program, because sometimes big dreams need a shot in the arm.

$17 million in deposits isn't too shabby!
The people who pledged $1,000 non-refundable to be 1st in line are starting to sweat though.
Production has been delayed from 2014 all the way until late 2016.
$185 million from Department of Energy? If the feds can waste $535 million on Solyndra, I don't see why they wouldn't try this.

Elios Motors has also tried crowdfounding and has had good success.
http://techcrunch.com/2015/10/01/how-elio-motors-is-crowdfunding-a-three-wheel-84-mpg-vehicle/

Like most heavy manufacturing startups, the company is waiting on funding to enter production. Paul Elio, founder and CEO of Elio Motors, said the company needs about $300 million before they can start producing cars, and so far hasn’t had luck with the traditional routes of raising venture capital. “Private equity won’t do pre-revenue investments, and VCs think the project is too big for an eventual follow up check,” explained Elio.

However, the company is exploring a few non-traditional funding options, one of which will take advantage of Regulation A+, a new SEC regulation that will finally allow non-accredited investors to invest in private startups.

A provision of the JOBS act (but only finalized in June), Regulation A+ essentially lets companies crowd fund up to $50M in funding from anyone, in return for a stake in the company.

Here’s how regulation A+ works: Companies first enter a “Test The Waters” period where they can advertise that they are accepting investments, and investors can pledge a non-binding amount. After gaining significant interest, companies need to submit a Form 1-A offering statement to the SEC, as well as complete a full financial audit.

After approval, the company can then collect money from investors, who eventually get common stock and a spot in the corporation’s cap table. Having public investors on the cap table also means that the company is required to regularly file public annual and semi-annual reports with the SEC.

Regulation A+ launched on June 19th, the same day Elio Motors began their “Test The Waters” period. The company contracted StartEngine to run the campaign, which is a new crowdfunding platform specifically built to guide companies through the Regulation A+ fundraising process. So far, over 100,000 investors investors have pledged $37M for Elio Motors.

That is a really good "Test the Water" non-binding pledge amount!
100,000 potential investors is also good.

So if they get approval, they might be able to crowdfund up to $50 million if the 100,00+ were serious about investing.

Deposits, crowdfunding, and a federal loan might get them to $250 million, and other investors might pick up the $50 million, so this car is at least theoretically possible.
41,000 vehicles would get back the $300 million, but I have no idea of the profit margin.



The CEO at least seem sorta serious.
I think I read he was going state to state making sure anyone who buys one of these won't need a helmet and motorcycle license.
https://www.eliomotors.com/tech-talk-v54-elio-legislative-update/

And the car might fill a niche:
http://www.fool.com/investing/general/2015/09/19/84-mpg-and-only-6800-heres-my-test-drive.aspx

When Elio talks about the various segments of the car-buying market, it's easy to see why he's excited. Consider these four segments:

•New-car market, with sales of about 17 million expected next year.
•Used-car market, which is three times larger than the new-car market.
•"Third-vehicle" market. Most middle- and upper-income households have at least one single-occupant vehicle, also known as an "and" vehicle.
•"Clunker" market, with 234 million older cars on the road -- and 95 million of them 11 years old or older.

Elio says he won't make much of a dent in the new-car market, but the other three segments can be lucrative. For used cars, the decision may be between a 120,000-mile Civic or a new Elio under warranty for less than $7,000. The third-vehicle market is self-explanatory -- why spend extra on a lot of car when you don't need a lot of car?

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Soooooo, is this idea a scam for the CEO to earn $250,000 a year doing public relations?
A way to gobble up all those delicious non-refundable deposits and say the thing was a bust sometime around 2020?
And don't forget $6800 and 84mpg highway isn't entirely guaranteed just yet.

Or are we all going to be getting "free cars" like "free smartphones" in the near future?

 

[sophie]

 

[Synobun]

Kinda cool, but the lack of space would be a deal breaker IMO. Great for someone who doesn't ever need to move items or have more than themselves in the car, though. Probably useful for the urban grind.

 

[Timsup2nothin]

If my gf bought one to drive back and forth to work she would burn about thirty bucks a month in gas, at somewhat higher than current price (to make a round number). So to pay off the car would take more than eleven years. No car maker can wait eleven years to get paid off.

 

[FriendlyFire]

If my gf bought one to drive back and forth to work she would burn about thirty bucks a month in gas, at somewhat higher than current price (to make a round number). So to pay off the car would take more than eleven years. No car maker can wait eleven years to get paid off.

The $6800 USD car probably cost $800 USD in production and material cost.
Even then its unrealistic unless they make you pay for the outstanding amount once the car breaks down. This might work in places like Germany where paying Debt is a cultural trait. I dont see this working any other place in the entire world
Just too unrealistic.

EDIT: I just saw the prototype, worse then the Nano.
I personally would never own a car like that, just too low to the road, and dosent look like it can survive any kind of crash.

 

[Zkribbler]

I saw Elios for sale before I left the U.S. in 2009. I don't see how the manufacturer can now be calling itself a start up.

 

[Phrossack]

I hate cars and driving, but this is one of the only ones I'm genuinely interested in owning.

 

[Kaitzilla]

I saw Elios for sale before I left the U.S. in 2009. I don't see how the manufacturer can now be calling itself a start up.

A fair point.
http://www.popsci.com/elio-motors-named-2015-top-automotive-startup


I'll look around and see how long it took Tesla Motors to make their 1st car.
https://en.wikipedia.org/wiki/Tesla_Motors
**Edit** hmm, looks like 5 to 6 years to make their first car. They also got a $465 million loan from the Department of Energy, which they paid back.

EDIT: I just saw the prototype, worse then the Nano.
I personally would never own a car like that, just too low to the road, and dosent look like it can survive any kind of crash.

It's like a motorcycle with an airbag ya. So not quite a donorcycle. Maybe 1 star crash rating?
https://en.wikipedia.org/wiki/Crash_test
http://www.iihs.org/iihs/ratings

 

[Zelig]

I skipped all the numbers in the OP because it was using gallons.

Problem with this scheme is that most people are financing their car anyway, so "free" isn't really helpful, it needs a lower monthly cost than a financed car plus its gas, and I don't see how those economics can possibly work well for the manufacturer.

And what stops people from buying their own gas without the special card? With existing card systems we've got a bunch of measures in place to prevent people from buying gas on them, and then stealing the gas out of the car (I wrote some of them.) it's going to be awfully hard to put in detection and enforcement measures for the opposite, and to convince people that putting their own gas in the car is stealing.

Basically, company would need constant monitoring of gas levels via cell network, so they can tie any increase in fuel tank level to card use - so that adds $10/m/car worth of costs to the company in cell connection alone, without taking into account car hardware, backend hardware/software or detection/enforcement staff.

The fuel efficiency incentives are also all backwards - any car modifications to increase fuel efficiency cost the company money, and it's in their best interest for you to drive as un-fuel-efficiently as possible.

 

[Daw]

Yep, my first thought was like "take that car and that card, toss the card to the waste bin at the shop door, enjoy your car".

 

[Grisu]

Yep, my first thought was like "take that car and that card, toss the card to the waste bin at the shop door, enjoy your car".

the way I understand it, the extra fee is actually just a down payment for your loan, so you don't really win anything if you don't use the special credit card. your loan will just stay the same and you'll still have to pay it back eventually (and I assume there's interest involved as well).

 

[Daw]

So it's not free after all, eh? Then it's useless for the reasons Synsensa outlined. My Golf-sized wagon costed me just a pinch more but it's for 5 (ok, 4.5 actually) people + luggage. Burns 10.7 L per 100 km. Converting into mpg... please stand by... I'm bad at maths... ok, used on-line converter, it must be 21.96 mpg if there's no error.

 

[Grisu]

So it's not free after all, eh? Then it's useless for the reasons Synsensa outlined. My Golf-sized wagon costed me just a pinch more but it's for 5 (ok, 4.5 actually) people + luggage. Burns 10.7 L per 100 km. Converting into mpg... please stand by... I'm bad at maths... ok, used on-line converter, it must be 21.96 mpg if there's no error.

there ain't no such thing as a free lunch car

 

[Formaldehyde]

The other side of Elios:

Six Things That Could Kill Elio Motors Before It Even Launches

Since the company doesn't want to narrow their market down, by their own criteria, I've taken it upon myself to write a description of the person who would likely buy one. This person:

Has another car
Has a motorcycle license and helmet
Has no desire to drive other people/has no friends
Has no family
Has a maximum of one child, NO BABIES.
Doesn't care about performance
Doesn't care about refinement/noise level
Doesn't care about ride quality/comfort
Doesn't know the difference between emissions and fuel consumption
Desperately needs attention/female companionship
Has the disposable income to donate thousands to vaporware on a second car, but cheap enough that they can't afford to buy anything else
Has AAA, because there's no spare

If you want a 3 wheel motorcycle with car features try this:


Link to video.

It's quite a bit pricier ($20-25K) but it's a lot more fun.

 

[Quintillus]

I've seen a couple of those Polaris Slingshots, or vehicles similar to them, locally. Definitely an attention-grabber the first few times you see them.

It's an interesting idea, but I'd definitely want to see some crash test data first. As to whether it's the future or a scam... it sounds like they don't intend it as a scam - they do actually have working prototypes - but it may wind up appearing like one if they aren't able to start manufacturing. They're probably depending at least in part on economies of scale to hit their target price, so starting to manufacture small numbers now wouldn't come near the target price.

At any rate I'm at something like 38 highway/28 city currently, with the car paid off. And while theoretically I could make a little money by selling my car and buying this one, even straight-up without the gas card loan thing, both due to safety and reliability concerns I don't plan to line up to be a first taker.

 

[warpus]

I don't know, I don't see these becoming popular in North America. Americans seem to love big frilly cars with lots of room, not cheap small cars that look funny.

Then again, the price point is perhaps good enough for it to catch on to some degree? Their economic model seems odd but maybe attractive to some.

 

[civvver]

If you're going to go that drastic idk why you wouldn't just get a moped/vespa.

 

[Wolfbeckett]

I don't think it's a scam, I'm sure they're being genuine with it.

It's not the future either though, nobody is going to want to drive something that looks like that, and the high gas mileage is not such a selling point when we have such high quality electric cars starting to hit the market. Electric is the future of the car, this isn't even a contender.

 

[Manfred Belheim]

As long as you drove into the dealership with something that was 27 mpg or less, your monthly fuel bill will go down," Elio said. "Three times 27 is 81 and we get 84. So, you got a brand-new vehicle under warranty that's fun to drive and you don't have a car payment and you're guaranteed to spend less on gas."

There maths doesn't quite add up here You only get 84 mpg on the highway, it's about half that in the city. So you'd need to be trading in a car that only gives 27 mpg on the HIGHWAY. How many cars does that apply to? You'd have to have a car that only manages around 12mpg in the city for it to cost you less overall. You'd probably have to have a leaking tank or an open barbecue on the back that runs directly from the tank to use that much.

 

[Samson]

You know from here this car does not sound very exceptional. For example the top car here is:

Peugeot 308 (2014)
1.6 BlueHDi 120 Active

Urban fuel consumption: 80.7mpg
Extra-urban fuel consumption: 97.4mpg
Combined fuel consumption: 91.1mpg