Bloomberg News

Fisker Struggles Mark Blow to Obama’s Electric-Car Goal

April 08, 2013

The possible bankruptcy of Fisker Automotive Inc., which last week fired three-quarters of its workforce, is the latest blow to President Barack Obama’s goal of having 1 million electric vehicles on U.S. roads by 2015.

Fisker’s downfall after receiving $193 million in U.S. taxpayer money and producing 2,500 cars may complete the U.S. government’s transformation from electric-vehicle promoter and financier to debt collector, two years after it approved its last loan.

Obama’s goal was “misguided” in the first place, putting the administration’s eagerness to rush out loans and grants while money was available ahead of due diligence, said Menahem Anderman, president of Total Battery Consulting Inc., in Oregon House, California.

“The timing was based on the government’s spending schedule rather than the schedule of the market and the readiness of the technology,” Anderman said. “You had a very complex vehicle to produce, a questionable market, in terms of demand, with a team that hadn’t proven it could build it or sell it.”

While Fisker’s luxury vehicles weren’t one of the largest drivers of Obama’s goal, the company had planned to make its second model more affordable to broaden the market. Its failure to manufacture any cars in the U.S. after being promised more than a half-billion dollars of taxpayer financing may add to criticism of the loan program and plug-in vehicles.

With no batteries to make cars and many of the vehicles it made earlier destroyed by Hurricane Sandy, Fisker has tried to find an investor and partner while hiring bankruptcy counsel and negotiating with the Energy Department.

‘Poster Child’

About 87,000 electric and plug-in hybrid cars have been sold so far in the U.S., two years before the million-vehicle benchmark was to have been reached, according to data compiled by Bloomberg.

“Politically it’s obviously not a good thing,” said Jeremy Anwyl, vice chairman of auto-researcher Edmunds.com. “This is going to be another Solyndra, a poster child for perhaps a lack of due diligence on the part of the federal government when it’s investing funds.”

Aoife McCarthy, an Energy Department spokeswoman, declined to say where the agency would rank among creditors should Fisker file for bankruptcy.

A123, Fisker

“While this is a difficult time for Fisker’s employees, the long-term future of America’s growing electric vehicle industry is bright -- and the Energy Department’s portfolio of investments in this industry is performing well,” she said in an e-mail. “Sales of electric vehicles tripled last year, and we just can’t afford to sit on the sidelines in the global race to capture this rapidly expanding market.”

Obama in his first term made electric vehicles a centerpiece of his clean-energy policy. He spent $5 billion on loans, grants and purchaser tax credits to support them.

Fisker, based in Anaheim, California, was awarded $529 million in U.S. loans in 2009 on the promise of reviving auto manufacturing in Vice President Joe Biden’s home state of Delaware. The Energy Department cut off the company’s access to most of the money in 2011 for failing to meet production targets for its first model, the $103,000 Karma.

As a startup with no manufacturing capacity, Fisker depended on contractors including its battery supplier, the former A123 Systems Inc. (AONEQ:US), which had received a $249.1 million grant from the government. A123 produced defective battery packs that caused a Karma to quit running during a road test by Consumer Reports, leading to a recall that dried up A123’s cash, forced it into bankruptcy and left Fisker without a supplier to maintain production.

Romney’s ‘Losers’

As the four years of his first term progressed, Obama stopped citing the 1 million vehicles goal and his Energy Department stopped approving loans from the program that gave money to Fisker. That program, intended to help develop more fuel-efficient cars and trucks, was created by President George W. Bush, who focused on developing fuel-cell vehicles and ethanol made from non-food crops.

Republican presidential nominee Mitt Romney in last year’s election campaign used the label “losers” in referring to Fisker and Tesla Motors Inc. (TSLA:US), which had its first profitable quarter in the three months ended March 31, according to Chief Executive Officer Elon Musk.

While trying to salvage its loan to Fisker, the Energy Department has pushed Tesla to speed up repayment of its $465 million loan, which the company has said it will do.

Battery Costs

One of the administration’s goals of its investments was to bring down the cost of rechargeable car batteries.

Plug-in cars sell at a premium over conventionally powered vehicles because of the cost of the batteries. That puts them out of reach of many consumers even as the average transaction price for light vehicles in the U.S. rose to $31,087 in March, up 1.1 percent from a year earlier, according to TrueCar.com, which analyzes automotive pricing.

Costs for some components have been reduced, with battery cathodes an example, said Constantine Samaras, an engineer who studies advanced battery technology for Santa Monica, California-based RAND Corp., and serves on technology panels for the National Academy of Sciences.

“The Department of Energy wants to cut the costs of current batteries in half by 2015 and in half again by 2022,” he said. “This will be very challenging without some transformational manufacturing advances.”

Government Incentives

California’s zero-emission vehicle program requires the six largest automakers to sell about 60,000 rechargeable autos through the 2014 model year. That figure rises starting in 2015, expanding to as many as a combined 1.4 million electric, plug-in and hydrogen fuel-cell vehicles a decade later in California and states that have adopted the program.

Obama’s goal was more aggressive than even California’s, Anderman said.

Without policy and financial incentives, automakers would stick to less fuel-efficient and more profitable vehicles using existing technology, said Dan Becker, director of the Safe Climate Campaign, based in Washington.

“I don’t think anybody has any reasonable expectation that companies that bring us the Hummer and the Ford Expedition and the Chrysler Dodge Ram are going to bring us clean vehicles without any major government involvement,” he said.

“The reality is if we want to buy all of our electric cars in the future from China, then absolutely we should stop helping the electric vehicle industry in the United States,” he said in an interview. “But I think that would be a very stupid idea.”

Company Mistakes

The government should promote alternative-fuel vehicles without propping up the companies manufacturing them, said Rebecca Lindland, an analyst with Rebel Three Media & Consultants, based in Cos Cob, Connecticut.

“It reminds me of the role of government in sports,” said Lindland, who serves on an Energy Department committee preparing a report on how to make it easier to deploy electric vehicles in the U.S. “Often you will hear that the government will relax taxation when it comes to stadiums, but they’re not providing the payroll.”

The collapse of A123, now B456 Systems Inc., and Fisker’s problems “bring out the huge challenges in this industry,” Dan Sperling, a member of California’s Air Resources Board and director of the Institute of Transportation Studies at the University of California, Davis, said in a telephone interview.

“The fact that some of these companies fail is because companies make mistakes,” he said. “Fisker made mistakes.”

To contact the reporters on this story: Angela Greiling Keane in Washington at agreilingkea@bloomberg.net; Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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