How to start a car company: a founder's guide

Starting a car company is a rewarding venture that blends engineering and design innovation with sharp business savvy. The global automotive market is a multi-trillion dollar industry, with consistent demand for vehicles ranging from daily commuters and commercial fleets to luxury models.

This guide will take you through the practical steps of validating your business concept, securing funding, obtaining necessary licenses, and building supplier relationships to help you launch a successful car company in the U.S.

Step 1: Plan your business and validate your concept

First, define your specific market niche. You could focus on electric city cars, luxury sports vehicles, or commercial vans. Use data from the Bureau of Transportation Statistics to analyze vehicle trends and identify gaps in the current market that your company can fill.

Once you have a niche, analyze your direct and indirect competitors. You can search the USPTO patent database to see if your unique design or technology ideas are truly novel. Market intelligence reports from firms like IBISWorld also provide deep dives into competitor performance.

Map out your startup costs

The initial capital required is substantial, so it helps to break it down. A frequent oversight is underestimating the cost of regulatory compliance. You should factor in expenses for meeting Federal Motor Vehicle Safety Standards (FMVSS) from the very beginning of your financial plan.

• Business & Legal Setup: $10,000 - $50,000
• Initial Design & Engineering: $200,000 - $1,000,000+
• Physical Prototype Development: $1,000,000 - $5,000,000+

Here are 4 immediate steps to take:

• Draft a one-page business concept that defines your target vehicle and ideal customer.
• Analyze three potential competitors using their public reports and patent filings.
• Create a preliminary budget that covers design, prototyping, and initial legal fees.
• Research the specific FMVSS regulations that will apply to your proposed vehicle type.

Step 2: Establish your legal structure and secure licenses

Choose your corporate structure

You should first decide on a legal structure. A Limited Liability Company (LLC) protects your personal assets. However, most car companies that need venture capital form as a C-Corporation because it allows for the sale of stock to investors.

A C-Corp faces double taxation—once on corporate profits and again on shareholder dividends. The structure is more complex but provides the credibility needed for large-scale funding. You will also need an Employer Identification Number (EIN) from the IRS.

Navigate federal and state licensing

With your legal entity formed, you can pursue the required licenses. The two main federal bodies you will work with are the National Highway Traffic Safety Administration (NHTSA) and the Environmental Protection Agency (EPA).

You must register as a manufacturer with the NHTSA. You also need an EPA Certificate of Conformity for each vehicle model to prove it meets emissions standards. This certification process alone can take 6-12 months and cost over $30,000 per engine family.

Many startups delay this paperwork, which can halt production. Start the application process as soon as your engineering plans are stable. In addition, you will need a state-level manufacturer license from your local Department of Motor Vehicles (DMV).

Here are 4 immediate steps to take:

• Consult a corporate lawyer to file as either an LLC or C-Corporation.
• Apply for a free Employer Identification Number (EIN) on the IRS website.
• Download and review the manufacturer identification application from the NHTSA portal.
• Contact your state's DMV to get a checklist for its manufacturer license.

Step 3: Secure insurance and manage risk

Protecting your company requires a suite of insurance policies. Your foundational coverage will include General Liability, Commercial Property for your facilities, and Workers’ Compensation as soon as you have a team. Each policy addresses a different area of operational risk.

Product Liability insurance is your most important shield. A defect in a single vehicle can trigger catastrophic recall costs and lawsuits. A frequent misstep is underinsuring this area; you should plan for a policy with at least $5 million in coverage.

Annual premiums for a comprehensive package can range from $75,000 to over $500,000, depending on your production volume. Also, secure Commercial Auto for test vehicles and Professional Liability to cover financial losses from design errors.

With this in mind, seek out an insurance broker who understands the automotive industry. Generalists often miss key filing requirements. You might want to get quotes from providers like Chubb, The Hartford, or a specialized manufacturing broker at Marsh McLennan.

Here are 4 immediate steps to take:

• Request quotes for a product liability policy with at least $5 million in coverage.
• Contact a broker from a firm like Marsh McLennan that specializes in manufacturing.
• Budget for annual premiums, anticipating a minimum of $75,000 for your initial package.
• List all prototype and test vehicles that require Commercial Auto insurance.

Step 4: Set up your facility and acquire equipment

Your first facility is for R&D, not mass production. You should look for at least 10,000-20,000 square feet in an area zoned for light industrial or manufacturing use. This provides enough room for design offices, fabrication bays, and vehicle assembly space.

When you negotiate a lease, ask for a Tenant Improvement (TI) allowance. You can use this to fund necessary upgrades like high-voltage electrical service for machinery or specialized ventilation systems, which landlords might otherwise not cover.

Source your core equipment

Many founders overspend on brand-new machinery. You can find reliable, used equipment at a fraction of the cost from industrial auction sites. For your prototype build, you will want to acquire a few key items.

• 5-Axis CNC Machine: $150,000 - $400,000+ (used options are often available)
• Vehicle Lifts (2-post or 4-post): $5,000 - $15,000 per lift
• Industrial 3D Printer: $10,000 - $50,000 for rapid part prototyping

Establish supplier relationships

You will not need large-scale contracts with major automotive suppliers yet. Instead, focus on flexible vendors for prototyping. Companies like McMaster-Carr for hardware and Digi-Key for electronics have no minimum order quantities, which is perfect for one-off builds.

A frequent misstep is to lock in bulk orders for components before your design is finalized. This can lead to expensive scrap if you need to make changes. Stick with on-demand suppliers until your engineering is stable and validated through testing.

Here are 4 immediate steps to take:

• Search commercial real estate listings for 10,000+ sq ft spaces zoned for light industrial use.
• Price out a used 5-axis CNC machine and a vehicle lift from industrial auction sites.
• When you tour facilities, ask landlords about their Tenant Improvement (TI) allowance.
• Create accounts with component suppliers like McMaster-Carr and Digi-Key for prototyping parts.

Step 5: Set up your payment processing

For vehicle pre-orders, a 10-20% deposit is standard. The final balance is typically due upon delivery via wire transfer or certified check. Many new founders focus only on these large transactions and forget about smaller, flexible payment needs.

You will need a way to handle payments at promotional events, for merchandise, or for initial service deposits. For these on-site or on-the-go payments, JIM offers a streamlined solution. You can accept debit, credit, and digital wallets directly through your smartphone.

At just 1.99% per transaction with no hidden costs or extra hardware, it is particularly useful for taking deposits at launch events. Other payment solutions often have average commission rates well above 2.5%, which cuts into your margins.

Getting started is simple:

• Get Started: Download the JIM app for iOS.
• Make a Sale: Type the sales amount, hit sell, and ask your customer to tap their card or device on your phone.
• Access Funds: Your money is available right on your JIM card as soon as the sale is done, with no waiting for bank transfers.

Here are 4 immediate steps to take:

• Define your standard deposit percentage for vehicle pre-orders.
• Establish a procedure for accepting final payments via wire transfer.
• Download the JIM app to familiarize yourself with its interface.
• List all potential scenarios where you will need to accept in-person card payments.

Step 6: Fund your company and manage finances

Explore your funding options

Venture capital is the most common path for car companies. For a seed round, investors will want to see a strong engineering team and a physical prototype. You can realistically target $2 million to $10 million to get through the next phase of development.

Many founders approach VCs too early. You will struggle to get a meeting without a detailed financial model and a clear bill of materials for your prototype. Investors need to see you have a firm grasp on your unit economics from day one.

In addition to private equity, you might look at government-backed programs. The SBA 7(a) loan program can provide up to $5 million. You could also pursue a Small Business Innovation Research (SBIR) grant, which funds high-risk R&D projects.

Calculate your initial operating capital

You should project your working capital needs for at least the first six months. This figure is your "burn rate" and is a key metric for investors. It shows how long you can operate before you run out of money.

Your budget should cover these core expenses:

• Salaries: For a small engineering and design team.
• R&D Materials: For prototype iteration and testing.
• Facility Costs: Rent, utilities, and insurance.
• Compliance & Legal: Fees for initial EPA and NHTSA certifications.

A lean startup can expect a six-month burn rate between $1 million and $3 million. This depends heavily on your team size and prototype complexity.

Here are 4 immediate steps to take:

• Research five venture capital firms with a history of investing in automotive or hardware startups.
• Review the eligibility requirements for an SBA 7(a) loan on the official SBA website.
• Create a six-month operating budget that projects your monthly expenses and total burn rate.
• Investigate the SBIR program to see if your technology qualifies for a research grant.

Step 7: Hire your core team and manage operations

Build your founding team

Your initial team should be a small group of specialists. At this stage, team size is tied to development milestones, not revenue ratios. A core team of 3-5 experts is typical for the prototype phase.

Here are the key roles to fill:

• Automotive Engineer: $90,000 - $150,000. This person will handle mechanical and electrical systems. An engineering degree is expected.
• Industrial Designer: $70,000 - $120,000. They shape the vehicle’s look, feel, and user experience.
• Fabrication Technician: $50,000 - $80,000. This role builds the actual prototype. You might want to look for technicians with Automotive Service Excellence (ASE) certifications.

Set up your operational workflow

Once your team is in place, you need a system to manage the work. Many new companies stumble by using basic file sharing for complex designs. This can create version control nightmares. Instead, use a Product Lifecycle Management (PLM) system from day one.

Software like Autodesk Fusion 360 or SolidWorks helps manage CAD files. For project management and task tracking, a platform like Asana or Jira keeps everyone aligned on deadlines and deliverables for the prototype build.

Here are 4 immediate steps to take:

• Draft job descriptions for an Automotive Engineer and an Industrial Designer.
• Research PLM software options like Autodesk Fusion 360 for design management.
• Search for fabrication technicians who list ASE certifications on their resumes.
• Create a project board in Asana or Jira to map out your prototype development timeline.

Step 8: Market your brand and acquire customers

Your marketing should start long before you have a car to sell. The goal is to build a community around your brand. Focus on a high-quality website with professional photos, CGI renders, and a vehicle configurator to capture user interest and email sign-ups.

Build pre-launch demand

A reservation system is a great way to validate demand and secure early deposits. Look at how companies like Rivian and Lucid built massive waitlists before production. They used compelling stories and exclusive updates for reservation holders to create a sense of community.

Public relations offers more credibility than paid ads at this stage. A feature in an automotive publication like MotorTrend or a tech outlet like The Verge can drive significant organic interest. Your Customer Acquisition Cost (CAC) will be high, so focus your budget on high-impact channels.

Engage through events and content

Showcasing your prototype at an event like the New York International Auto Show puts your vehicle directly in front of enthusiasts and the press. In addition, you can create behind-the-scenes content for YouTube and Instagram that documents your engineering and design journey.

Here are 4 immediate steps to take:

• Create a press kit with vehicle specifications and high-resolution images.
• Identify 10 automotive journalists to build relationships with for future outreach.
• Outline a three-month content calendar for your primary social media channel.
• Research the application deadlines and costs for a major auto show booth.

Step 9: Price your vehicle and define your sales model

Set your manufacturer's suggested retail price (MSRP)

Start by calculating your total cost per vehicle, including materials, labor, and overhead. A cost-plus model adds a target profit on top. Most car manufacturers aim for a gross profit margin of 5-10% on each vehicle sold from the factory.

Next, analyze what competitors charge for similar models using resources like Kelley Blue Book (KBB) or Edmunds. Your price must reflect your brand's position. A frequent oversight is pricing too low, which can signal poor quality to buyers.

Choose your sales channel

You can sell directly to consumers (DTC), like Tesla does. This model gives you full control over the customer experience and lets you keep the full retail margin. However, many states have franchise laws that can make this path complicated.

The traditional route involves selling through a network of franchised dealerships. In this model, you sell cars to dealers at a discount, typically 5-7% below the MSRP. The dealers then handle the final sale to the customer.

Here are 4 immediate steps to take:

• Calculate your total bill of materials (BOM) and labor cost for one vehicle.
• Research the MSRP of three direct competitor vehicles on Edmunds or KBB.
• Investigate the auto dealer franchise laws in your target launch state.
• Decide whether a DTC or dealership model better fits your brand and budget.

Step 10: Implement quality control and scale production

Establish your quality management system

Your next step is to formalize quality control. You should build your processes around the IATF 16949 standard, which is the global benchmark for automotive quality. This framework helps you manage everything from supplier audits to production line checks.

Start by tracking key metrics. You can measure first-pass yield—the percentage of cars built correctly the first time. A failure to establish a robust Quality Management System (QMS) early on often leads to costly rework and delays during the production ramp-up.

Prepare for production scaling

Once your prototype is validated and you have secured Series A funding, you can plan for low-volume production. This is the time to implement an Enterprise Resource Planning (ERP) system like Oracle NetSuite or SAP S/4HANA to manage your growing supply chain and inventory.

Your hiring should now shift to production roles. A good benchmark is to hire your first production manager and quality inspectors once you have firm orders for 50-100 vehicles. Avoid scaling your assembly line too quickly before your supply chain and quality checks are proven.

Here are 4 immediate steps to take:

• Download the IATF 16949 standard to understand its core requirements.
• Define three quality metrics, like first-pass yield, to track for your next build.
• Request a demo for an ERP system like Oracle NetSuite to see how it manages inventory.
• Outline a hiring plan for a production manager once you hit 50 pre-orders.

Building a car company is a marathon of engineering and business. The key is to balance your big design ideas with the practical details of compliance and finance. The road ahead is challenging, but your detailed plan is the best map you have. Go build something great.

As you engage with early customers, you'll need a simple way to take payments. JIM turns your smartphone into a card reader for a flat 1.99% fee, with no extra hardware. It keeps finances simple, so you can focus on the build. Download JIM.