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Monday, Aug 15, 2022

Karma Chameleon

Karma Automotive LLC is wagering its technology will push it to the forefront of the electric vehicle industry, despite side-eyes from some critics of the luxury automaker’s business model.

Chief Executive Lance Zhou, flush with a recently raised $100 million in private equity, said Karma’s move away from the old mindset of mass vehicle production and into being a design, technology and manufacturing services provider was the right one pre-COVID-19.

It remains the right one as the pandemic lingers, he told the Business Journal.

From a corporate perspective, “COVID-19 [has been] positive and negative,” the CEO said from his office at Karma’s Irvine headquarters. “It made Karma get [stronger], and better understand where is the strategy and what way to go. We are more clear than before.”

Zhou projects Karma’s revenue will rise 50% this year, and expects that trajectory to continue.

The growth is coming from the business-to-business side. That is, revenue not so much from consumer vehicle sales but the tech, design and manufacturing services it can provide to other carmakers. Zhou said Karma is in conversations with several automakers, with an announcement on a partnership expected by year-end.

Zhou declined to provide a specific revenue figure, arguing that, while the figure is small, early stage companies should be laser focused on their technology and valuations more than anything else.

Questions Raised

That philosophy, and lack of transparency on Karma’s sales data, coupled with several waves of layoffs last year has given critics enough room to scoff at the company.

Last year’s cuts shed a good chunk of the engineering team and other workers that no longer had a place in Karma’s focus on diversifying its operations to include more business-to-business services.

Prior to the cuts, Karma was Orange County’s largest automaker by employee count, with some 800 workers in Irvine, and hundreds more workers at its sprawling plant in Moreno Valley. Both sites have seen sizeable layoffs.

The cuts have led to rumors and reports on an auto trade website that Karma could be following in the footsteps of its predecessor Fisker Automotive, which filed for bankruptcy in 2013. Karma has adamantly denied the rumors, and called such reports from automotive website Jalopnik “clickbait.”

In fact, the latest moves by the company to pivot will help shelter it from the fate of its predecessor firm, the executive team believes.

Zhou and Karma are also hellbent on proving their technology to naysayers.

High-Tech Luxury

Karma Chief of Staff Mikael Elley pointed out there are at least 30 requisitions for open positions at the automaker, many of them in engineering and research-and-development. There are also sales and marketing positions.

“Since we’re gearing up for the [all-electric Revero] GTE, we need to expand our presence in the market,” Elley said.

He also called out partnerships with universities, such as University of California-Irvine as helping Karma nab talent in disciplines such as artificial intelligence that are bolstering its expertise.

The automaker’s technology strategy is a three-legged stool focused on electrification, connectivity and autonomous driving, said Chief Technology Officer Kevin Zhang.

The company recently struck a deal with Shanghai-based Pateo to further boost connectivity inside Karmas.

“This is not just us, but the whole automotive industry is moving towards what we call CASE [Connectivity, Autonomous drive, Sharing drive and Electrification]. We call it automotive 2.0. Everybody is working in that direction,” the CTO said.

Zhang, who oversees a team of roughly 150, said a deal is imminent between Karma and another company to co-develop technology for autonomous driving.

Product Plans

Other initiatives in the works include Karma’s E-Flex platform.

Think of it as a skateboard-like foundation enabling electrification for all sorts of vehicle bodies. It’s what Zhang said aims to be the backbone for the next generation of electric vehicles that are more efficient and higher performing.

Karma thinks it has a solid tech base to work with, when it comes to efficiency and performance. The company is quick to point out the fact that its lone model currently available, the Revero sedan, has been able to reach 60,000 miles on the odometer.

It’s a notable feat, CEO Zhou called out multiple times to the Business Journal.

The Revero launched commercially about four years ago. The plug-in hybrid vehicle started around $130,000. Its sales figures haven’t been disclosed.

Elley said to expect the release in 2021 of the all-electric Revero sedan, which the company said will come in a 200-mile, 300-mile and eventually 400-mile battery range.

“This is an exciting time for Karma,” Zhang said. “We’re going to have a number of new products in the pipeline for the next few years.”

Shifting Mindsets

From a more macro level, Zhou and team are banking on a regulatory environment, particularly in California, that continues to be increasingly focused on sustainability and, more specifically electrification. That, coupled with the longer-standing impacts of the pandemic on consumer lifestyles, could accelerate adoption of EVs and autonomous vehicle fleets for third-party delivery and ride-sharing of which Zhou said the potential production capability could likely reach around 200,000 units.

“The big change is people [now] accept electric vehicles,” Zhou said. “People accept online purchases. People accept in the future staying at home. People gradually accept [that socializing does] not need to be face-to-face. Before, it was totally different and people think ‘OK to communicate, I don’t want to talk with a machine. I want to talk with people face-to-face.’ So it’s a big change. This change also extended to the vehicle industry and we need to catch up with that.”

$100M Lifeline

Investors appear to be biting.

Karma’s $100 million raise—from undisclosed U.S.-based investors, as part of the company’s aim of reducing the ownership stake of its Chinese parent company Wanxiang Group to below 50%, according to reports—also came around the same time as Rivian Automotive LLC’s closing of a $2.5 billion round last month.

The capital raise for Rivian, which has a growing operational base in Irvine, included investors such as Soros Fund Management LLC, Amazon and BlackRock funds.

Tesla Inc. (Nasdaq: TSLA), meantime, notched its fourth straight quarter of profitability.

And Fisker Inc., started by the founder of Karma’s predecessor firm Fisker Automotive, said last month Apollo Global Management affiliate Spartan Energy Acquisition Corp. will acquire Fisker in a reverse merger that would take the automaker public.

The deal valued the new Fisker, based in Los Angeles, at $2.9 billion.

“This is a really good environment,” Zhou said. “This is evidence, people accept and agree [with electrification’s potential].”

Recent reports peg an IPO for Karma as soon as six months from now, potentially via a reverse merger. However, the company maintained that, while going public remains an aspiration when it’s ready, the focus is on growing its business.

The Rivian Factor

Within OC’s automotive worker pool is the question of Rivian, the buzzy electric brand with its SUV and truck designs that are backed by over $5 billion raised to date from big names such as Amazon, Ford and Cox Automotive. The automaker is believed to have relocated its headquarters to Irvine, although it has yet to confirm that move, raising the question of what this means for Karma.

The two would conceivably be on the hunt for the same talent and certainly in the mood for the same kind of investor attention. Zhou doesn’t see the upstart EV truck maker as a threat.

“I’m not really concerned about that. Actually, just the opposite,” he said. “I’m welcoming people coming here to support Orange County to build this [business] environment together. I think this market is big enough for even 10 more companies to run their business here.

“Furthermore, we are not in the same segmentation. We’ll do pickup trucks and vans in the future, but we have different approaches. They make mass production; we don’t. We have more advantages with technology and we have a decentralized business model.”

Zhou said he sees the pandemic as being more than a single-year issue, although he is cautious like most of making predictions except to say it will have lasting and large impacts on all industries.

Still, the CEO maintains Karma is in a good position with the turnaround strategy rolled out last year.

Said Zhou: “Right now, revenue is not so big, but we have a future.”


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