Saturday 19 November 2011

Electric vehicles: Ineptitude, apathy and piles of taxpayer money





How do you justify building cell-manufacturing capacity that’s six times greater than your supply chain can support? 

Is government somehow exempt from the duty to conduct reasonable due diligence before investing?
The dominoes have already started to fall.  

Ener1 (HEVV.PK) spent about half of its $120 million ARRA Battery Manufacturing grant before an obscenely optimistic investment in Th!nk Motors brought the company to its knees. In the process its stock tumbled from a post-grant high of $7.53 to a current price of $0.11. Now Ener1’s third management team in eight months plans to change the business focus from automotive to heavy-duty transport and grid-based applications. Thanks to $80 million of improvident borrowing and $51.8 million of additional planned goodwill impairments that are buried in an attachment to its recent Notification of Late Filing, Ener1’s fate will probably be decided in a bankruptcy case controlled by its largest creditor Goldman Sachs, which put a $3.75 price target on the stock last March while I was warning readers to run for cover.
How do you default on a grant?

A less dramatic but equally ominous surprise was the Johnson Controls (JCI) - SAFT divorce. Their ambitious plans to make automotive batteries together till death do us part couldn’t even survive the commissioning of a new factory that’s being built with $300 million of DOE grants. In the face of feeble automotive demand, JCI wanted to expand the joint venture's focus to encompass stationary and ancillary markets. SAFT wanted no part of that proposal because it didn’t want yet another competitor for its factory in Florida that was; you guessed it, built with $95.5 million in DOE grants. 

While they’re keeping a stiff upper lip in public, I can’t help but feel a little sorry for A123 Systems (AONE), which is building a factory with $249 million in DOE Grants and wants to borrow hundreds of millions more under the DOE's ATVM loan program. Their IPO prospectus spoke of strong relationships with global automotive manufacturers and tier 1 suppliers, but their automotive design wins to date are limited to a $15,000 electric upgrade to the $15,000 GM Spark and the gorgeous but corpulent Fisker Karma, which is being financed with yet another $530 million from the public trough.

While it’s a decidedly pessimistic view I can identify over $3 billion in battery and electric vehicle projects funded by Federal money that have poor to dismal business prospects, including: 

$299.2    

ARRA Battery Manufacturing Grant to JCI-Saft
$249.2
ARRA Battery Manufacturing Grant to A123 Systems
$118.5
ARRA Battery Manufacturing Grant to EnerDel
$95.5
ARRA Battery Manufacturing Grant to Saft America
$528.7
ATVM Loan to Fisker Automotive
$465.0
ATVM Loan to Tesla Motors
$1,400.0
ATVM Loan to Nissan Motors

I’m a frequent critic of the headlong rush to build electric vehicle manufacturing capacity and infrastructure without any real proof that the planned wonder vehicles will satisfy customer needs, or that the facilities will be used for something other than homeless shelters for displaced green workers. 
My fundamental problem arises from the fact that every industrial revolution in history started with a technology that proved its economic merit in a free market and then went on to change the world. Companies and indeed industries that cannot survive without government subsidies can’t thrive with them. Supporting the moribund with the lifeblood of the vibrant may be compassionate, but it can’t produce a good economic outcome.
Over a decade of experience in the HEV market shows that consumer demand ramped sharply for several early years, hit a market penetration rate of about three percent and then flatlined. Over the last three years, clean diesels and plug-ins have begun to cannibalize the HEV market, but they've done nothing to bring new buyers to the fold. 

Once again, governments are pushing on a string and trying to force the market to embrace electric drive, the only vehicle class with an unbroken 100-year history of failure. Once again governments will fail, just like they did with other panacea energy solutions including fast breeder reactors, synthetic fuels, hydrogen fuel cells, clean coal and the ever popular corn ethanol and biodiesel that turn food into fuel and make both more expensive.
In late 2008 the world fell into the mother of all recessions as it reached the peak of a decades long debt supercycle. Now the piper is demanding his due and individuals, businesses and governments around the world are being forced to reduce their crushing debt burdens. In the midst of a global deleveraging, I don’t see how insolvent governments can continue to use public funds to subsidize the ideology-based personal consumption of eco-royalty. How many bottomless pits can one nation's taxpayers be expected to fill?

Even if our governments are willing to continue this foolishness, I don’t see how a vibrant market for EVs can possibly develop among real world consumers who can buy gasoline versions of a Lotus Elise, Ford Focus or GM Spark for half the price of their electric counterparts.

This article was first published in the Fall 2011 issue of Batteries International and I want to thank editor Michael Halls and cartoonist Jan Darasz for their contributions. 

http://www.renewableenergyworld.com/rea/news/article/2011/11/electric-vehicles-ineptitude-apathy-and-piles-of-taxpayer-money

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