Excerpted from Forbes Online, September 25, 2012; for the full article, go to http://www.forbes.com/sites/larrybell/2012/09/25/obamacar-bad-karma-for-taxpayers/.
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Okay…first we provided a stimulus loan to Fisker Automotive, Inc., a politically connected start-up company, to help finance development of a $100,000 Karma “economy” car which is actually being built in Finland. Since then, the company has suspended construction of a U.S. manufacturing facility for a different car and has laid off 26 employees and 40 contractors. This is to allow time for an original $529 million loan guarantee commitment to be renegotiated with our government due to Karma production delays and a vehicle recall… after already spending $193 million of that amount.
Then, because of that stoppage and lagging sales projections, Fisker’s battery supplier, A123 Systems, laid off 125 employees after they received $249.1 million from generous U.S. taxpayers, plus $141 million in State of Michigan tax credits and subsidies. Once touted by former Michigan Governor Jennifer Granholm as another stimulus success, that doesn’t seem to be working out particularly great either. Well, except maybe, for China.
Fisker’s Karma plug-in luxury sports sedan was one of four projects to receive loans under the Obama administration’s $25 billion Advanced-Technology Manufacturing Program funded through the U.S. Department of Energy. In addition to the federal loan, the company also raised more than $850 million from private investors, including Kleiner Perkins Caufield & Byers, Advanced Equities, and the Qatar Investment Authority. KPC&B partner John Doerr, a billionaire tech mogul, serves on President Obama’s Economic Recovery Advisory board. Another senior partner is Al Gore.
Fisker had originally planned to sell 15,000 Karmas in 2012, but then ratcheted down its projections to 10,000. Reportedly, as of now, more than 2,000 have been produced. Over four years of development, the Karma’s price rose from $80,000 to more than $100,000.
Vice President Joseph Biden heralded the $529 million Fisker loan as a” bright new path to thousands of American manufacturing jobs.” Part of the money was used to help purchase a shuttered General Motors plant in Biden’s home state of Delaware where it was predicted that one day it would employ 2,000 workers to assemble a cheaper gas-electric family car called the Atlantic (formerly called Nina). But actually, DOE knew that the Karma was not going to be built in Delaware even before it approved the loan. As Henrik Fisker explained, “There was no contract manufacturer in the U.S. that could actually produce our vehicle. They don’t exist here. We’re not in the business of failing; we’re in the business of winning. So we make the right decision for the business. That’s why we went to Finland.”
It now appears that the Atlantic may not be built in Delaware either. After DOE froze the $336 million loan balance, Fisker now suggests that it may look for another location, quite possibly one outside the U.S. Company spokesman Roger Ormisher said: “If Fisker no longer gets government monies, then obviously we are in a place where other options are open to us and have to be considered from a business prospective. However, given the work that we have done at the plant in Delaware and the fact that we own it, it is still our primary option to consider.”
Fisker has begun to sell its Karma in Europe, and may soon be marketing them in the Middle East. In late 2010 they reached an agreement with the large China Grand Automotive Group to distribute the car in China beginning in November. It will base its Asia operations in Shanghai.
Fisker’s production delay that resulted in DOE’s loan freeze was largely due to car fires and other problems caused by faulty batteries supplied by A123 Systems. A123, in turn, suffered a big setback when Fisker decreased orders.
A123 was one of nine companies to receive DOE grants to build advanced-battery factories as part of the 2009 Recovery Act. A tenth factory is planned to be created through a joint venture between Nissan and NEC with help from a $1.4 billion federal loan guarantee. Now, after A123 has posted at least 12 straight quarterly losses, it appears that the beleaguered company may get a critical $450 million lifesaving infusion from Wanxiang Group Corp., China’s largest auto parts maker, in exchange for an 80 percent ownership stake. Wanxiang also proposes to invest $25 million in Kansas City, Missouri-based Smith Electric Vehicles Corp, an A123 customer.
The A123 investment plan is drawing scrutiny from some lawmakers. Becca Watkins, the spokeswoman for House Oversight and Government Reform Committee Chairman Darrell Issa (R-CA), commented that such a deal “…raises more troubling questions about the direction of this government-led effort,” She added, “This acquisition appears to have been made possible by taxpayer funds made available through the stimulus.”
A major concern centers upon China’s access to competitive proprietary information that U.S. taxpayers and companies are financing. A123 president and CEO David Vieau reported in a Bloomberg interview that while the plan “…does imply that they [Wanxiang] could become the majority owner at the end of this deal, the implication is that they would have access to how we make batteries. But we’re a commercial maker of batteries, and frankly 98 percent of the battery industry today is owned, operated and controlled by companies that are operating out of Korea, Japan and China.”
It’s difficult to imagine why A123 Systems, a company that calls itself “the U.S. leader in advanced batteries”, would expect to gain enthusiasm for such an argument. If most of the battery industry is already controlled by Asian countries, how are interests of U.S. taxpayers possibly served by transferring technology enhancements they have subsidized at the expense of American competitiveness….
A123 Systems had reported in a May regulatory filing that its losses and cash burn “raise substantial doubt on the company’s ability to continue as a going concern”. John Gartner, an industry analyst with Boulder, Colorado-based Pike Research, observes, “…the market was never going to develop as quickly as DOE expected.” Carter Driscoll, an alternative energy company analyst at Capstone Investments, blames the problem on the Obama administration’s overly rapid setup and staffing of these operations: “It was about making jobs in certain areas. It wasn’t market driven…..”