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Karma Realigns, Cuts Staff as Plans Change

Seven months after announcing a refueled and revamped business plan, Karma Automotive LLC is downsizing its workforce and once again tweaking its business model—moves that underscore the uphill battle the fledgling luxury electric automaker faces.

The latest, abrupt changes also reinforce Karma’s declared stance on being more than just a manufacturer.

The Irvine-based automaker, Orange County’s largest by worker count, recently saw the departures of Chief Technology Officer Bob Kruse, and President and Chief Operating Officer Dennis Dougherty, the latter being replaced by Gilbert Villarreal.

The moves were among many, in terms of personnel moves.

A fresh wave of layoffs hit the company on Nov. 1, across departments but mostly engineering in its Irvine and Detroit offices. No additional cuts are expected, spokesman Dave Barthmuss told the Business Journal last week.

The cuts follow an earlier round of layoffs in September that primarily affected the company’s Moreno Valley plant, in addition to some positions in Detroit.

Barthmuss declined to confirm the specific number of cuts made most recently or reports pegging it to upwards of 200, except to say the company’s current headcount is roughly 750, down from approximately 1,000 last week.

He went on to emphasize the company is actively hiring for positions in line with its business plan, called 4+1, which opens up services to other companies in a bid to realize new revenue streams.

News reports have tied these latest moves to a reduction in funding from Wanxiang Group Corp. of China, which reportedly cut its investment in the Karma business from $400 million to $100 million annually.

“This is a realignment and it is part of a startup company’s evolution,” Karma Vice President of Marketing and PR Matthew Clarke told the Business Journal.

“Karma continues to move forward quite aggressively.”

Clarke went on to say news reports characterizing the changes as a reorganization had sensationalized a business strategy that had been in place from the start.

Clarke’s comments on the cuts were made prior to last week’s staffing changes disclosure.­

He declined to comment on the reported reduction in funding from Wanxiang citing the company’s privately held status, adding “Shareholders remain enormously supportive of what we’re trying to do and they continue to demonstrate their support with investment.”

He pointed to the design services arm announced in the summer, Karma Design, which reflects a $1 million investment in the business and is set to bow in December.

There’s also the Dyno Lab in Irvine, which he said reflects a $7.5 million investment in the business, and the most recent announcement of a San Jose office that pushes Karma into Silicon Valley’s tech hub.

Personnel Diversification

That’s all in addition to a vehicle release schedule that remains in place for a performance-oriented Revero GT currently on sale, an SC2 concept car to be revealed on Nov. 19 at the LA Auto Show and an all-electric platform called e-Klipse set to see its first model bow in 2021.

Still, Barthmuss stressed, “We are going to make vehicles [annually] in the hundreds. We’re not a mass marketer. We’re a luxury niche automaker.”

The various parts of the 4+1 strategy would then augment that.

A schematic of the company’s business plan, provided by Karma, indicates five business areas under the Karma Group.

They include:

• The Karma Automotive luxury vehicle manufacturer.

• Karma Technology, designed to offer engineering services to other automakers and the licensing and marketing of Karma intellectual property.

• The 556,000-square-foot Moreno Valley plant, called the Karma Innovation and Customization Center.

• Karma Design; and Karma Capital, which would include investment in what Karma calls “auto-tech” companies.

Clarke confirmed some of these service arms are already working with other companies, although he was unable to provide specifics, citing nondisclosure agreements.

Unsurprising Changes

Industry watchers say the changes aren’t surprising.

“This is definitely consistent with the challenges that any automotive startup goes through,” said Ed Kim, vice president of industry analysis at Tustin-based automotive research firm AutoPacific Inc.

“Building cars is hard. Building cars is very capital intensive. So given the company’s challenges right now, it’s not entirely surprising that they would look to additional revenue streams to sustain themselves.”

The analyst went on to add Karma had always signaled its desire to “be more than just a car company.”

Karma has kept tight-lipped on sales figures. Sales of Karma’s Revero, which can top $130,000, is unknown. Kim said he was told last year sales were in the double digits and was unsure if that had ticked up this year.

Fisker Redux?

The recent turnover has brought unfavorable comparisons to Karma’s predecessor company, Fisker Automotive, which was forced to halt production following the bankruptcy of its battery supplier A123 Systems in 2012. A bankruptcy for the company followed in 2013, driven by the parts constraint.

The company’s assets were sold off to Wanxiang, while the Fisker brand continued with Henrik Fisker moving on to start Los Angeles-based electric vehicle maker Fisker Inc., which is set to launch an all-electric SUV priced below $40,000 in 2021 through a subscription program.

Fisker Automotive’s bankruptcy made way for Wanxiang to come in and win the company’s assets in a bankruptcy auction the following year, setting the stage for a reinvigorated business with the 2016 launch of the Revero.

“We came from Fisker, no doubt, but we are not Fisker anymore,” Karma Chief Executive Lance Zhou, who joined the company in 2017, told the Business Journal in February.

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