Luck, pluck and patience keep Paul Elio's quest alive

THREE WHEELS AND A DREAM

Elio and his autocycle: “There have been hard days, scary days.”

LOS ANGELES — Paul Elio was down to the Rolex on his wrist.

It was October 2010, and the Phoenix entrepreneur had emptied his personal bank account to pay the bills for his startup car company, Elio Motors.

Elio’s wife had left him. A year late on his mortgage payments, Elio faced the prospect of losing his home too. He was getting ready to pawn the wristwatch — his last possession of any real value — when salvation came from the sky: A damaging hailstorm struck Phoenix, and an old friend gave him a job with his roofing business, providing Elio enough income to keep the startup afloat.

“There have been hard days, scary days, days when I didn’t know how we would survive another minute,” Elio, 51, a former engineer at Johnson Controls and CEO of the automotive consultancy ESG Engineering, told Automotive News as he recalled his brush with bankruptcy. “But I’ve never thought of conceding defeat. Ever.”

Indeed, seven years after he founded Elio Motors to design a cheap, efficient three-wheel commuter vehicle, Elio is counting victories. Small ones, at least.

Last month at the Los Angeles Auto Show, the 15-person startup unveiled the latest prototype of Elio’s three-wheeler, now outfitted with a 0.9-liter engine built to specifications by the German engineering company IAV.

The same week, the company got the green light from the U.S. Securities and Exchange Commission to raise $ 25 million through online crowdfunding.

To date, 47,000 people have sent the company $ 100 to $ 1,000 over the Internet in exchange for the privilege of buying Elio’s three-wheeler, which has a promised starting price of around $ 6,800 and a fuel economy rating of 84 mpg on the highway.

As much as a car, they’re buying into a dream — Elio’s dream. And there’s a lot of Paul Elio in the vehicle that bears his name, down to the speedometer and rev counter, which are mounted on rotating discs visible through holes in the gauges.

Elio modeled the design after his father’s midcentury Lord Elgin wristwatch. If the Rolex reminds him of dark days, the Lord Elgin reminds him of bright ones.

“I can still see myself as a child,” Elio said, “holding his hand and looking up at it.”

‘No new technology’

Elio calls his vehicle an “autocycle,” because it blends elements of an automobile and a motorcycle. It has one door, two seats arranged one behind the other, and a three-cylinder engine cranking out 55 hp, about as much as a 1975 Honda Civic.

Classified as a motorcycle under U.S. law, the Elio would be exempt from many crash-safety regulations, though it would have seat belts and airbags. And in many states, drivers would be permitted to ride solo in the carpool lane, like motorcyclists.

The idea isn’t revolutionary. From 1973 to 1981 and 1989 to 2001, England’s Reliant Motor Co. sold a fiberglass three-wheeler called the Reliant Robin as rising fuel prices created demand for efficient city cars. And today, Toyota is developing a tandem two-seater called the i-Road that steers with its lone rear wheel and leans into turns for stability.

Elio concedes well-funded automakers have the money and know-how to emulate his three-wheeler. He has no unique powertrain, software wizardry or patents.

“No new technology is allowed on this vehicle,” Elio said. “Every part on this vehicle is used somewhere else. But we’re putting them together in a unique way, so we can have a disruptive effect without new technology.”

In a business plan shared with investors and the SEC as part of the approval process for crowdfunding, the company suggested it will keep prices low, cultivating loyal fans and discouraging rivals from imitating the Elio. In other words, the Elio will be sold with such thin margins that larger rivals would be crazy to imitate it.

Working-class wheels

Paul Elio follows a long line of entrepreneurs who have chased the dream of the perfect people’s car. Their track record is mixed.
Ford Model T
Detroit’s mass-produced wonder started at $ 825 in 1909, but Ford pushed down the price to $ 260, or just $ 3,500 in modern money, by 1925. Yet General Motors overtook Ford by satisfying Americans’ desire for style and status.
Volkswagen Beetle
The people’s car once championed by Adolf Hitler arrived in the U.S. in 1949 at a base price of $ 1,280, equal to about $ 12,500 today. Smaller and more efficient than Detroit’s space-age barges, it became a counterculture icon.
Yugo GV
Malcolm Bricklin pulled off the cheap-car formula by bringing the Subaru 360 to the U.S. in the 1960s, but his imported Yugo, which started at $ 3,990 in 1985 (about $ 8,700 today) became known as one of the worst cars of all time.
Tata Nano
The Indian automaker built the most affordable car in the world, only to see it spurned by status-conscious consumers. Launched in 2008 for 100,000 rupees, or about $ 2,000, the minicar now costs 199,000 rupees for the (slightly) more upscale Nano GenX.

Beetle or Yugo?

Elio’s dream of cheap, efficient transportation is, of course, as old as the car itself. Yet for every Ford Model T or Volkswagen Beetle, there is a Yugo GV and a Tata Nano, not to mention the many three-wheelers pitched by dreamers.

Elio, who would begin production in late 2016 under the best of circumstances, faces many challenges. The current prototype of the car is running about $ 500 over cost and is getting about 81 mpg in highway driving, suggesting the Elio may miss its price and fuel-economy targets.

And even with the cash infusion from crowdfunding, Elio Motors needs another $ 200 million to start production at the Shreveport, La., factory where General Motors built the Hummer H3 and Chevrolet Colorado/GMC Canyon pickups before shuttering it in 2012.

“You would think developing a $ 6,800, 84 mile-per-gallon vehicle with 90 percent North American content would be the hard part,” Elio told Automotive News last month. “No. Finding the money to build it is the hard part.”

Paul Elio, the entrepreneur behind Elio Motors, envisions his tiny 3-wheel “autocycle” as a cheap and efficient commuter car. Here are the details.
Price target: Around $ 6,800
Fuel economy target: 84 mpg highway
U.S. vehicle classification: Motorcycle
Seats: 2 (1+1 configuration)
Powertrain: IAV-designed 3-cylinder, 0.9-liter gasoline engine
Performance target: 55 hp; 0 to 60 mph in 9.6 seconds
Source: Elio Motors

Paul Elio says his three-wheeler should sell for $ 6,800 and get 84 mpg in highway driving.

Photo credit: GABE NELSON

Superman is a hoax

The rise of online crowdfunding has given entrepreneurs a new way to raise money without banks or rich benefactors, pumping millions of dollars into projects such as the card game Exploding Kittens and a revival of the children’s TV show “Reading Rainbow.”

Funders on websites such as Kickstarter. com are usually rewarded with early delivery of products, or pieces of swag such as T-shirts and bumper stickers.

But under the new SEC rules, implemented to fulfill a 2012 law called the JOBS Act, Elio can offer investors something better: shares in the company. And as a public company, Elio will have the option of selling more shares.

“Up until now, funding has been the big issue,” Elio said. “Once we’re public, we’ll have a lot more tools in the toolkit.”

As of last week, Elio’s crowdfunding campaign, hosted on the website Startengine. com, had $ 46 million in indications of interest from 11,711 investors.

The company plans to raise $ 25 million, but because the indications of interest are nonbinding, it’s allowing extra reservations. Crowdfunding is fairly new, and no one knows what percentage of investors will follow through on their pledges.

This summer, Elio had to cancel about $ 3 million of bogus reservations, the website CNET reported, including $ 500,000 from a blogger using the nickname “Superman.”

Waiting for a loan

The crowdfunding offers a crucial lifeline to Elio, but the bigger break he’s hoping to catch is a loan from the U.S. Department of Energy program that gave Tesla Motors and Fisker Automotive money to install tooling at their factories. Elio told Automotive News that he has been pursuing a DOE loan since 2009, and is still seeking $ 185 million from the program.

He will need better luck than Aptera Motors. The startup, which had developed an electric three-wheeler, folded in 2011 when the recession made it difficult to line up money from private equity firms and venture capitalists to match a low-interest loan from the DOE’s Advanced Technology Vehicles Manufacturing loan program, or ATVM.

“I think it’s going to be tough for them to get ATVM support,” Paul Wilbur, the former CEO of Aptera, said in an interview. “I know how hard it was for us. It was two-and-a-half years of my life politicking with senators, congressmen and everybody else I could talk to, and we still didn’t get through to the other side.”

Many critics in Washington disliked that three-wheelers could evade safety and emissions rules by adhering to the standards for motorcycles instead of cars. Wilbur said this could be a daunting problem for Elio, but he wishes the company luck.

“You pour your heart and soul into these projects,” said Wilbur, now CEO of Tweddle Group, a Michigan-based supplier of owner’s manuals for cars. “I knew it was a high-risk, high-reward scenario when I joined, but how many engineers in the auto industry wouldn’t love a chance to start their own car company? It’s a dream, isn’t it?”

For Elio, it’s still just that. Last month at the Los Angeles Auto Show, his prototype was on display across from a stand for Hot Wheels, the toy cars from Mattel. To explain why he was a few minutes late for a meeting, Elio said he was cajoling Hot Wheels to build a replica of his car.

“They say when you get an engine made, you’ve made it,” Elio said. “But when you have a Hot Wheels car, you’ve really made it.”

After a pause, he added: “Maybe we’ll go to Matchbox if they turn us down.”

You can reach Gabe Nelson at gnelson@crain.com.


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