Despite having come under considerable fire and having handed out no money since 2011, the U.S. Department of Energy announced that it will revive its beleaguered "green car" loan program in earnest soon. They have $15 billion they can give to automakers. Here's how they can make more Teslas than Fiskers this time.
A little backstory on the Advanced Technology Vehicle Manufacturing program: though it has become a punching bag for Republican lawmakers already irked by the Solyndra debacle, the program was established during the Bush administration with strong bipartisan support in 2008.
Its goal was to float loans to established automakers and up-and-coming startups so they could produce a new generation of fuel efficient and eco-friendly cars, ultimately helping America to gain a competitive advantage in the production of green automobiles — and add and retain much-needed manufacturing jobs.
The results were decidedly mixed, to put it kindly. At least 18 new or existing car companies applied for the funds, but only five — Ford, Nissan, Tesla, Fisker and the Vehicle Production Group — received the money. (This may have been a good thing since more than half of those 18 companies are now out of business, though some of them blamed their failure on not having received the money.) About $8.4 billion was allocated for them.
And of the companies who received the funds, two have effectively failed. VPG ceased operations and laid off most of its staff, and Fisker hasn't produced cars in more than a year; they are currently being courted by a new German buyer.
Ford and Nissan got the lion's share of the funds and they used them to upgrade their factories and bolster hybrid and electric vehicle production.
But the biggest winner was without a doubt Tesla, who have since turned a profit, increased production to rave reviews and safety ratings, and paid back their loans nine years early. Nissan and Ford certainly would have survived and completed their projects without the loans, but Tesla may owe their very existence to them.
At the same time, the program has received a great deal of criticism. During his 2012 presidential bid, Mitt Romney accused the government of backing "losers." And the program was lambasted in Congressional hearings in April over Fisker's $192 million loans and whether or not they received the money because of their admittedly questionable ties to Democratic elected officials and donors.
In part because, critics say, of heat from the demise of California-based solar panel manufacturer Solyndra — which received a $535 million Energy Department loan under a similar program — no new funds have been handed out in two years, though several companies have applied.
And now, the Energy Department says ATVM is back in business, with a plan "to conduct an active outreach campaign to educate industry associations and potential applicants about the substantial remaining funds available and the application process in general," as a department spokeswoman told Bloomberg.
The merits of the government handing out loan money to risky business ventures, in and of itself, is extremely debatable. One also has to wonder who would actually want to apply for ATVM money considering the stigma the program has now, and that credit is much more widely available than it was in 2008.
But since the program appears headed for revival, here are some ways I think the program can avoid the mistakes of the past and help build even more successful car companies.
One of the biggest criticisms of Fisker was that the Karma wasn't even made in the U.S. It was built in Finland by Valmet. According to the Energy Department's website, Fisker used their $169 million "to support the design and engineering, equipment and manufacturing processes for their first vehicle, the Fisker Karma." Then the money was supposed to support production of the U.S.-built Fisker Atlantic, which of course never came to fruition.
That can't happen again. If this money is coming from American taxpayers, it has to go to American workers, and not just a few employees in California.
Nissan received criticism for their acquisition of the loan money, but this is 2013; we live in a globalized world now where Japanese cars aren't just made in Japan. Their money was used to retool their Smyrna, Tennessee plant to produce the Leaf. It benefitted American workers by creating some 1,300 jobs.
American money for American jobs. That's the only way to do it.
Fisker also came under fire for the involvement of one of their biggest investors, the firm of Kleiner, Perkins, Caufield & Byers. As the National Legal & Policy Center notes, firm partner John Doerr netted a spot on Fisker's board after Tesla declined his offer. Doerr sits on President Obama's Council on Jobs and Competitiveness; he and other firm employees are major Democratic donors; and former Vice President Al Gore is also a partner there.
Are all these ties to prominent Democrats the reason Fisker got their money? More than a few critics have said yes. (To be fair, Tesla also had its share of political connections.)
Even if these associations don't explicitly spell cronyism, at the very least it looks really, really bad. If ATVM wants to avoid becoming a target again, it would do well these sorts of entanglements in the future.
David Hester over at The Truth About Cars was spot on a few months ago when he said that now-dead purpose-built police car manufacturer Carbon Motors' "business plan seemed to revolve around borrowing money from the government to build cars that they would then sell exclusively to the government."
Carbon applied for ATVM funds and didn't get it, although they did get money from the state of Indiana.
How was this plan supposed to make money, really? And how was VPG's disabled-accessible van, sold largely to governments and fleets as well as a few private buyers, expected to be truly profitable?
People have been critical of the Tesla Model S' high price tag that puts it out of reach of most car buyers, but due to scale costs, there's only two real ways to make money if you're an automaker: make a small number of very expensive cars or a very large number of cheap cars. Let's face it: the companies who want to make a few $12,000 electric cars probably aren't going to cut it. I can barely keep track of all the failed "affordable electric car" companies that have failed at this point.
Tesla will build less expensive vehicles eventually, but they had to start somewhere.
While we're on the subject of VPG, can someone please explain to me how a body-on-frame van powered by a Ford 4.6-liter V8 engine was supposed to be "green?" Yes, it had a natural gas option, but is that really the best we can do?
For all their flaws, Tesla is on the forefront of the electric car revolution, leading not just with their cars but in terms of infrastructure as well. ATVM needs to invest in cars that will hopefully help to wean us off our national addiction to fossil fuels. Some enthusiasts may balk at that, but we'll be better off from both an economic and national security standpoint when we do.
One of the most common comments about Henrik Fisker is that while he was an ace designer, he didn't have the experience or the know-how to keep all the different moving parts involved with a car company in order. While Elon Musk was hardly a seasoned automotive industry veteran — far from it, in fact — he had already launched a successful business in the form of PayPal when he co-founded Tesla.
Fisker was beset by many troubles, including fires and losing $30 million worth of cars to Hurricane Sandy. But one of their biggest problems is that the Karma just wasn't all that great. It looked amazing, but it was also heavy, cramped, and full of subpar materials for its price tag. It can't hold a candle to the Model S.
Many questions remain about exactly when the Energy Department knew Fisker wasn't meeting their targets and when they decided to cut them off from the remainder of their allocated loans. In addition, the department's own website is hilariously outdated and makes it seem like everything at ATVM is still running great.
The Government Accountability Office issued a report this year that outlined several problems with the loan program, including the charge that it "lacks sufficient performance measures that would enable it to fully assess whether the ATVM program has achieved" its goals, and that it hasn't offered enough engineering expertise to make sure that the projects are delivered as agreed.
Have those issues been addressed yet? If not, then why is the program being restarted?
The Energy Department can't just hand out money in any manner it feels is appropriate after two of their five ventures failed. The public needs to know what the specific performance targets are for each automaker who receives the funds, and we need detailed reports of their progress. ATVM has a long way to go in terms of accountability.
Let us know what you think of the ATVM revival, or of existing startups you think deserve the loans, in the comments.
Graphic credit Jason Torchinsky