Friday, March 29, 2013

Fisker looks to be finished, another $200 mil down the drain

In October of 2011, I noted that criticism of the car company Fisker--which received loan monies from the DOE--for having a facility in Finland was largely misplaced. But I also said:
Remember, the real problem with the Solyndra mess is that it was improperly vetted, it was a bad investment and this was obvious from the get-go. We can't yet say that about Fisker.

It's fair to question the loan program, of course. One might argue that the DOE shouldn't be doling out these kinds of monies at all, that companies should make due with the private sector investors. And that's completely fair, in my opinion. I think it's also completely correct.
Now it looks like we have an answer: Fisker was indeed a bad investment and the DOE loan program is most certainly a bad idea, given the monies being wasted in it. Since Fisker's battery supplier--a rather critical thing for an electric car--filed for Chapter 11 in October of last year, the Fisker Karma has been out of production. And there's little reason to suppose the situation will improve for Fisker:
Fisker has hired Kirkland & Ellis, a major bankruptcy law firm, to review the company’s options while it continues to seek investment partners... 
The company ran into a cash crunch after the federal government froze an Energy Department loan to the company. A bankruptcy liquidation or restructuring could leave the government about $192 million in the hole. That’s what Fisker borrowed under the credit line before funding was shut off.
Additionally, all 200 U.S.-based employees of Fisker have been indefinitely furloughed. The search for investors--Fisker still believes it has a viable product--is not going well. Even the Chinese company that bought A123 Systems (Fisker's battery maker) out of bankruptcy is uninterested in saving the car company.

No doubt this is partly because it's chief rival in the over-priced electric car market--Tesla Motors--seems to be something of a success. It got some of that DOE money too, by the way. And, wonder of all wonders, Tesla is actually going to pay back the loan! Ahead of schedule!
Tesla Motors Inc. (TSLA), which received $465 million in U.S. Energy Department loans to develop and build electric cars, will repay the funds five years ahead of schedule in a plan approved by the government. 
The carmaker said in its annual report yesterday that the department approved amended terms of the loan agreements that enable it to complete repayment by December 2017. Starting in 2015, the Palo Alto, California-based company will make accelerated payments from excess free cash flow, Chief Financial Officer Deepak Ahuja said in a telephone interview.
But I question the need of the loan program, still. It seems to me that Tesla simply had a good business plan and product; it could have raised the capital privately. The DOE program was just an easy option, which it rightly jumped on because it knew there would be more flexibility with the monies.

That same flexibility is why U.S. taxpayers now have to eat the $192 million that went out to Fisker. The DOE program in question is called ATVM, for Advanced Technology Vehicles Manufacturing. Here's the DOE website on the program. Fisker and Tesla are both in California. Use your mouse to hover over the two green dots there to see the details. According to the DOE, the Fisker monies created 2000+ jobs. That's nonsense, of course. As noted above, Fisker employed only 200 people in the U.S. The rest were in Finland and Fisker insisted none of the DOE money went there.

Most of the other ATVM loan monies have been sucked up by major auto companies like Ford and Nissan. Why such behemoths need government loans is beyond me. One can't blame them for taking the money when it's offered. And make no mistake, the DOE very badly wants such companies to take the money in order to "prove" the program is a success, and--under Obama--claim the program "created" jobs. But there's minimal profit involved here for the taxpayer and the idea that these large corporations needed the DOE for these loans is specious, at best.

The true measure of success for this program is in the start-ups. What we have in that regard are one apparent success (Tesla), one utter failure (Fisker), and one still up in the air (Vehicle Production Group).

Tesla cars sell from a base of about $60,000. They're hardly accessible to the average citizen; they're firmly in the "luxury car" category. So this is all about--when we talk about success from the standpoint of the DOE-- a niche market, not one that impacts the general population. Good for them, I guess, but why were taxpayer monies needed to supplement such investments?

Meanwhile, we all lose when these loans go bad, as is the case with Fisker. Tesla's paying back of its DOE loans is great news, but more of a wiping-the-sweat-from-one's-brow sort of news than the popping-the-champagne sort, at least for the taxpayer who is paying attention. The DOE? I'm sure they're high-fiving each other right and left, because they get to spin the story into one of great success, while they simultaneously try to minimize the failure of Fisker, a failure involving significnt monies. Totaling things up for these two companies alone, that's $657 million in loans going out and   $465 million being repaid, a 29% loss of capital. There's no way to make that smell good, in my opinion.

Cheers, all.

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