"green" cars-- and the ability of the market to adjust

From Edward Taylor in the WSJ...

Spurred by the belief that the market for fuel-efficient vehicles is about to take off, a slew of tiny car companies is springing up in Europe and the U.S. They are racing to produce the next "green" car, betting that soaring demand will allow them to survive alongside the giants of Detroit, Stuttgart and Tokyo.

Most of the upstarts were founded in the last 12 months and have financial backing from venture-capital firms. They are headed by former top engineers and designers from the likes of Germany's Volkswagen AG and storied U.K. racecar builder McLaren. Responding to soaring gasoline prices and a tightening noose of emissions regulations in Europe and the U.S., the companies are working on a new generation of hybrid and electric vehicles.

Many of the green start-ups are hoping to ride the coattails of California-based Tesla Motors Inc. Founded in 2003, Tesla unveiled an electrically powered sports car in 2006. The Tesla roadster went into production last month and has presold the first year's output.

One problem: Competition from the industry giants is real. Daimler AG, Toyota Motor Corp., General Motors Corp., Renault SA and Mitsubishi Corp. are all developing new-generation electric vehicles.

Some of the start-ups plan to build and sell cars, going head-to-head with the likes of Toyota, maker of the successful Prius hybrid. Others hope to outsource manufacturing to bigger companies, or even to sell the technology altogether, taking advantage of a growing trend among large auto makers to buy key technologies from outside firms.

"In the past 20 years a lot of the car companies felt it was an advantage to develop and own things exclusively. That's changing," says Henrik Fisker, a former design director at Ford Motor Co. and Aston Martin. Mr. Fisker now heads California-based Fisker Automotive Inc., which he started in 2007 to develop a plug-in hybrid sports car, the Karma. He hopes to put his 125-miles-per-hour car on the market for $80,000 to $100,000 late next year....

The upstarts are entering a notoriously tough market. But analysts say shrinking research-and-development budgets at the big auto makers -- and their interest in outside help to develop key technology -- may have opened up the road for smaller players....