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Solyndra Redux in Electric Car Industry

Yesterday members of the House of Representatives grilled the founder of the failing electric car company Fisker Automotive. The Department of Energy announced in 2009 that they would be loaning Fisker Automotive $529 million, part of a raft of loans made to car companies intent on producing fuel-efficient and electric vehicles. But now, four years later, Fisker has sold only 2,000 of its $100,000 plug-in hybrid sports car, and Uncle Sam wants his money back. The WSJ reports:

Barring a last-minute rescue, Fisker is poised to become another DeLorean Motor Co. or Tucker Corp., a symbol of the difficulties of creating entirely new car companies. Unlike those others, it also represents one of the most prominent failures of the government’s use of public funds to wean American industry from fossil fuels—and of how that government interest pushed Fisker to reach too far.

Originally, Fisker wanted to start small. But, says investor David Anderson, the U.S. asked it to think big. ‘”We can’t loan you money to make a low volume car [in Finland],'” he said the U.S. argued. ‘”But if you wanted to bring forward in time your idea of the small car to be produced here in the U.S.,’ then, they’d say ‘OK,'” Mr. Anderson said. […]

Today, Fisker looks headed toward a bankruptcy restructuring. The U.S. could wind up owning all or part of the company’s assets because its loans were backed by Fisker assets. So precarious is the company that the U.S. seized $21 million this month from Fisker in anticipation of a default.

The company’s idea was remarkably similar to Tesla’s, which also received nearly half a billion dollars in government loans. But Tesla is on track to pay back its loans ahead of schedule, and founder Elon Musk seems confident about the company’s future. At Fisker, by contrast, founder Henrik Fisker resigned as the company’s chief executive last month. So what went wrong?

The company was plagued by production problems from the start. GigaOm has a good round-up of the ways in which these two electric car startups were not created equal. But the details of Fisker’s failures are less important than the fact that American taxpayers now find themselves on the hook for them.

Fisker defenders are likely to point out that only $192 million of the $529 million loan was actually dispensed; the cashflow was frozen in 2011 due to delays in production. And the DoE was able to reach into Fisker’s back pocket and recover $21 million of the money it loaned the flailing start up. But that’s still $171 million likely lost in a bet on a single company with no track record of success—a company whose product was a $100,000 sports car.

The US should get out of the business of picking winners and losers in emerging industries like electric vehicles, particularly for companies whose products cater largely to the rich.

If the US wants to kickstart an electric car industry in this country, its money would be much better spent on research and development of new technology. Battery technology would be a good place to start: No matter how sexy the cars are, electric vehicles won’t take off in this country until people feel confident in their range.

[Fisker Karma image courtesy of Shutterstock.]

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  • A Goy

    Range, reliability on the road and some semblance of affordability when things go wrong.

    Tesla factoid: the Model S carries no spare tire. A flat tire requires a call to and potentially hours-long wait for Tesla’s proprietary roadside service. Run-flat tires are not an option, last I’d heard. And a new tire is roughly $750. An early adopter acquaintance of mine has had three flats in as many months.

    • Andrew Allison

      ‘Nuff said!

  • Andrew Allison

    The presumption that Telsa can succeed is (sorry!) presumptuous. The truth is that in order to be viable, electric vehicles need much, much more cost- and weight-effective batteries. For a realistic assessment of the market, see:

  • Fat_Man

    “its money would be much better spent on research and development of new
    technology. Battery technology would be a good place to start”

    No, it would not. Batteries are very old technology. Volta invented them over 200 years ago. They rely on inorganic chemistry, a subject that was completed, at the latest, before WWII. There is very little technological headroom to work in.

    Furthermore, the rewards for new battery technology are immediate and substantial. If there were a profitable line for research, very big corporations with enormous resources would be pursuing it. Government money is not needed, nor is it called for.

  • Carney3

    The criticism ignores the reality that there were reasonable criteria in place to qualify for the loans, and Fisker met them, such as having a credible business plan, significant private sector backing, experienced leadership, etc. In fact, if DOE had not been as mindlessly rigid in its policies, and cut off Fisker for having missed deadlines (and left other companies such as Aptera to twist in the wind waiting for an answer), these problems could probably have been avoided. After all, Fisker DID produce the Karma, which, after some teething problems inevitable in a complex business by a startup, is a functional and beautiful vehicle that does what it is intended to do.

    The article also neglects to mention that design work on the followup high volume lower priced car, the Atlantic, was essentially complete but plans to move into production have been put into limbo by the DOE suddenly turning off the money. You can’t harangue a company for having financial problems when its problems stem from your decision to starve it of cash.

    And if you’re going to respond that they should just raise it in the private marketplace, you’re missing two points. First, they did, a lot. And second, the whole point of government involvement was not to “pick winners and losers” but to encourage and accelerate actual physical production and real-world market adoption of electric cars as fast as possible.

    Blue-sky R&D that no company actually picks up and uses is irrelevant, and I’m sure if the government had done that instead and zero cars had been produced we’d have similar articles talking about how we should have provided tax credits and guaranteed loans to actually produce something drivable rather than yet more studies to gather dust on shelves.

    Finally, free market orthodoxy, and economic non-intervention, are great and everything, but yield in their importance to national security. We are in a long war with global jihadis who would not exist if it were not for oil’s monopoly on transportation power. Each year we send hundreds of billions overseas to petro-tyrannies, who spend part of that money propping up our mortal enemies. The waste of this outflow crushes even the most lavish imaginable alternative motive power subsidy program by orders of magnitude.

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