SAN CARLOS, Calif. – Like many Silicon Valley engineers, Martin Eberhard loves cars, especially fast ones. But the self-described "closet gearhead" didn't feel comfortable buying a hot rod that guzzled gas from the Middle East or some other troubled region.
So three years ago, Eberhard and friend Marc Tarpenning launched Tesla Motors Inc. Their goal: to design a sports car that would go as fast as a Ferrari or Porsche, but run on electricity.
With about 80 employees, Tesla just raised $40 million from high-profile investors including Google (GOOG) founders Larry Page and Sergey Brin and PayPal co-founder Elon Musk. It plans to start selling its first model next year.
• Click here to visit FOXBusiness.com's Autos Center.
• Click here to visit FOXBusiness.com's Energy Center.
"I'm not the only person that would like to buy a car that's beautiful and fun to drive but also remain on the moral high ground," said Eberhard, 45, who sold his previous company, electronic book maker NuvoMedia, for $187 million to Gemstar/TV Guide International (GMST) in 2000. "None of the energy that goes into an electric car comes from the Middle East."
Silicon Valley thinks it can do what Detroit could not — create a thriving business selling electric cars. In the 1990s, General Motors (GM) and other automakers spent billions to develop battery-powered vehicles, but they flopped because most couldn't travel more than 100 miles before having to recharge.
By tapping the Bay Area's engineering expertise and culture of innovation, a cluster of entrepreneurs, engineers and venture capitalists here are racing to bring their own electric cars to market. But unlike the Detroit and Japanese automakers, they're working on high-performance sports cars for wealthy car enthusiasts.
At least three Silicon Valley startups — Tesla Motors of San Carlos, Wrightspeed Inc. of Woodside and battery maker Li-on Cells of Menlo Park — are among a small cadre of companies nationwide developing electric cars or components.
As fuel costs rise, technology improves and consumers seek more environmentally friendly vehicles, this new generation of electric car companies sees potential in a market niche largely neglected by the big automakers.
But some industry analysts question whether electric cars could ever become cheap enough, or have the battery life, to compete in the mainstream auto market.
"To attract consumers en masse, the price has to be low enough where they can see the break-even point," said Anthony Pratt, an automotive analyst at J.D. Power & Associates. "The problem with electric vehicles is that they tend to be limited by the battery technology."
Some major automakers are also working on electric-vehicle technology, but most are focused on hybrid cars that run on a combination of gas and electricity, Pratt said.
Backers of electric cars, powered by batteries charged from an electric outlet, say the country could quickly reduce its dependence on foreign oil — as well as emissions of "greenhouse" gases blamed for global warming — if more drivers went electric.
But so far, efforts to bring electric cars to market have stalled.
In the 1990s, the major automakers introduced several thousand electric cars under a California state mandate to develop cars with no tailpipe emissions. While those cars attracted a small but devoted following, they didn't get much traction in the marketplace because of their restricted driving range.
The big automakers lobbied against the mandate until it was overturned in 2003. Most car companies then recalled their electric vehicles and destroyed them, sparking an outcry among loyalists.
While those models were hobbled by limited driving range, advances in battery technology and electronic components can allow electric vehicles to go more than twice as far on a single charge.
Tesla and Wrightspeed are using lithium-ion batteries that are more powerful, lighter and efficient than the lead acid batteries used in early electric cars or the nickel metal hydride batteries used in today's hybrids.
"The battery technology has improved," said Ron Freund, chairman of the Electric Auto Association in Palo Alto. "They keep getting better. They last longer, they're smaller and they charge faster."
The success of Toyota's (TM) Prius and other hybrids have shown there's a market for eco-friendly cars. Page and Brin, Google's billionaire founders, are known to drive Priuses.
But Tesla's Eberhard thinks the Prius is "terrifically ugly" and believes other wealthy car enthusiasts feel the same way.
In Tesla's workshop about 20 miles south of San Francisco, Eberhard and Tarpenning offered a glimpse of their first model — a sleek two-seater called the Roadster that resembles a Lotus Elise — but would not allow photographs. They plan to unveil it at an event for prospective buyers next month in Santa Monica.
"We're building a car for people who like to drive," Eberhard said. "This is not a punishment car."
To build the Roadster, Tesla engineers designed a sophisticated battery system with more than 8,000 lithium-ion cells and a network of computers to control them, Eberhard said. They also built an electric motor that is more than twice as powerful as earlier electric vehicles.
The Roadster will be able to drive about 250 miles on a single three-hour charge, drive up to 135 miles per hour and accelerate from zero to 60 in four seconds, Eberhard said. It will cost between $85,000 and $120,000.
Named after the inventor Nikola Tesla, known for his pioneering research in the field of electricity, the company has big ambitions. Tesla executives talk about building a "new kind of car company" and hope to eventually introduce a series of models, starting at the market's high end and bringing down the price as technology improves.
But the company must first undergo rigorous government safety and environmental tests — a process whose complexity the founders admit they didn't anticipate.
"The car business had more challenges than we expected," Tarpenning said.
Ian Wright, who left Tesla to start Wrightspeed last year, is aiming at the same $3 billion market for high-performance sports cars. The New Zealand-born electrical engineer spent nine months retooling an Ariel Atom race car to run on a lithium-ion battery — a prototype of the car he hopes to eventually sell for about $120,000.
Wright frequently takes prospective investors — and reporters — for a spin in the hills near his Woodside home.
With no doors, roof or windshield, a drive in Wrightspeed's X1 feels like a roller coaster ride and can leave passengers wind-beaten and queasy. It accelerates from zero to 60 mph in 3 seconds, making it one of the world's fastest production cars. Last year, Wright's X1 beat a Porsche and Ferrari in separate races.
"I wouldn't describe myself as a radical environmentalist," said Wright, who is still trying to raise his first round of funding. "I think my customers will buy my cars for performance. The energy efficiency is nice to have, but it's not the reason they will buy the car."
FOXNews.com is owned and operated by News Corporation, which holds a controlling stake in Gemstar/TV Guide.