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Summary:

At a time when dozens of vehicle and components makers are gunning for funding from the Department of Energy, it might seem that a fat federal loan is the end-all-be-all of green car manufacturing. But when the DOE makes a conditional loan commitment under its Advanced […]

At a time when dozens of vehicle and components makers are gunning for funding from the Department of Energy, it might seem that a fat federal loan is the end-all-be-all of green car manufacturing. But when the DOE makes a conditional loan commitment under its Advanced Technology Vehicles Manufacturing program — as it has to five companies in the last several months, including plug-in vehicle startups Tesla Motors and Fisker Automotive — it represents just one of many milestones for these companies as they race to bring greener cars to market in large numbers.

After the DOE approves an application under the ATVM loan program, money doesn’t start flowing out until the winner meets certain conditions — clearing manufacturing sites under environmental regulations, for example, and raising capital to meet the program’s equity requirements. And to meet aggressive ramp-up goals under the program, companies need to sign on suppliers that can keep pace. As Tesla and Fisker have illustrated in the months since the feds announced each of their nearly half-billion-dollar awards, hurdles and delays can arise en route to meeting those conditions.

Location, Location, Location

The bulk ($365 million) of Tesla’s loan award  is meant to help the company set up a production facility for its long-planned Model S sedan, with deliveries beginning in 2012 and production volumes reaching 20,000 a year by the end of 2013. But first things first: Before Tesla can deliver those cars, it needs to find a place to build them, and have that site approved under state and federal environmental requirements.

When Tesla’s $465 million loan award was announced last summer, the startup had yet to finalize the site for its Model S production facility — and the search, or at least negotiations, continue.

City officials in Downey, Calif. have been telling local reporters since November 2009 that Tesla is in the home stretch of finalizing a deal for a former NASA site in the area, while a former Boeing site in Long Beach has also reportedly been vying for the project. On Monday the local Long Beach Press-Telegram reported that Tesla “recently filed key planning applications related to locating an assembly line” at the site.

These negotiations in Southern California come as the latest episode of Tesla’s more than yearlong search for a Model S site. Tesla initially said it would build an assembly plant for the vehicle in California. It later announced plans to set up shop in New Mexico, and then it was back to California again after the Golden State put together juicier incentives, including a tax break expected to save the company nearly $29 million.

Getting the Goods

Fisker announced a manufacturing site (an old General Motors plant in Wilmington, Del.) for its Project Nina model back in October, less than two months after the DOE announced its loan agreement. But Fisker offers us an example of another potential sticking point for startups following a big DOE award: finding suppliers that can meet their performance requirements and ramp-up plans.

While the legacy automakers have a slew of longtime, high-volume suppliers, startups that suddenly have access to government support and an obligation to produce large numbers of vehicles relatively quickly may need to bring on new suppliers with advanced components.

Making this task more difficult for Fisker is the fact that the DOE expects more than 65 percent of the components for the Karma, based on cost, to come from domestic companies. Finally, after talks with Ener1 subsidiary EnerDel fell through, and batteries from Advanced Lithium Power apparently failed to make the grade, Fisker announced deal with Massachusetts battery developer A123Systems last week.

Show the DOE the Money

Once companies have lined up their manufacturing plans and suppliers, they still face the DOE’s equity requirements. The ATVM loans can cover only 80 percent of the project costs — which means startups like Tesla and Fisker need to come up with hefty capital before they can tap the government cash. Fisker did that last week, closing a $115.3 million round of financing. But as Reuters and The Truth About Cars point out, that’s just a start. The startup still needs to raise another $27 million by the middle of next month to stay current with its loan terms. After all of this, there’s the real test: Will enough people buy these cars to keep these companies in business?

Photo courtesy of Flickr user qmnonic

By Josie Garthwaite

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  1. You provide such important information related to environment I am very happy for you to give us this kind of report.This road look so nice and cool Keep it up dude.

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  2. Hi,

    Those who are interested in sustainable mobility may visit http://www.sustainable.mobility.org. You will find case studies, news as well as a “worldwide initiatives” section in terms of transport…

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  3. (Please re-post this as a community service)
    Less than 20 car companies (The ATVM people say there were tons of applications but only a handful were car companies) applied for $25 BILLION DOLLARS in taxpayer money managed by a certain smug group of people at DOE in order to get loans to make green cars for Americans. This was not all of DOE that did bad things, just a private cadre of men led by Lachland Seward

    There was enough money to help every single one of the car companies that applied. The administrators applied their interpretations of the law in order to benefit the large lobby group-related firms and avoided every one of the “politically unconnected “independent American companies.

    The amount of lobby and influence money spent by each awardee is in direct ratio to the amount of money awarded. Pay-to-play was the process.

    The smaller companies, due to lower overhead, could have dramatically more productive results with the money than the large burdened companies yet the money was given out based on political career advantages for the administrators rather than the technology advantages for Americans.

    The way the ATVM people set it up (Google “Siry says stifles innovation” for more), the smaller applicants were prevented from getting outside investor funding.

    All of the people that reviewed the applications had political and financial connections to GM, Ford, Chrysler and the large Detroit recipients.

    Each of those smaller American companies had technology and resources that presented a powerful economic threat, if they got the loans, to the large politically connected companies that did receive funds. The big car companies wanted the small companies cut-out at all costs.

    The Section 136 law was written to provide first-come-first serve funding but when the small companies got their applications in first, while the big ones arrogantly felt that they did not even need to apply because it was already pre-staged for them, the ATVM officials changed the rules in order to remove the first-come-first-serve standard of the law in order to cut out the smaller independents.

    Some of the companies that have gotten money have backed out of making the electric cars they said they would make. But they still get to keep the money.

    The Section 136 Law was created by the lobbyists for GM, Ford & Chrysler when they saw that they were about to go bankrupt and wanted to tap into additional taxpayer dollars by claiming the money was going to be used for electric cars in order to win rapid support for Section 136 by tugging at heartstrings. In retrospect, the money mostly went to gasoline car projects. Multiple public hearings have already shown the sister loan guarantee program to have been a failed program via intentional delays, the head was fired and replaced & massive complaints have been filed by many.

    Some of the companies that got the money have already wasted more money than other companies applied for as their total request.

    Some of the companies that got taxpayer loan money are not even American companies and/or are doing their manufacturing offshore with non-American employees. Thus, the ATVM process has cost American’s jobs.

    Those who got the money had to fill out little, or no, paperwork, went through little, or no, review and were connected to the DOE people who gave them the money and shepherded them through the process. Those who they wanted to keep out were forced to jump through more hoops, were slow-tracked in review and had made no political deals via hired law and lobby firms that the big companies has used to conduit “influence”.

    The decision about who would get money was made in 2008 by a private group who then pretended there was a lengthy review throughout 2009 but in fact, the money was pre-wired for a select few.

    All of the things that the rejected small companies (who did not pay lobby fees) were rejected for, were the same things that the insider big companies were doing. In at least two cases, big companies who were in violation of Section 136 rules were guided by reviewer-insiders to change their whole business structure in order to become suddenly “compliant “with section 136 while smaller companies received no such “help”.

    How does this affect you? It cost you and your friends jobs, it delayed American innovation, it made your family have to breath toxic petroleum fumes for another decade, it furthered a corrupt practice and it hurt domestic small business. This was all about money. Controlling who got to make money off of the technology and who got to delay electric cars so the old oil and steel guys could still make money off of their old assets.

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    1. Reed, How did you learn all of this information that you are sharing with us I searched the internet looking for this type of information, but I cannot find it.

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  4. @Reed – do I detect the smell of sour grapes? While I don’t completely disagree with your comments, they don’t make much sense in the context of the article which was discussing two of the relatively small startups that got government guaranteed loans. The fact that Tesla and Fisker were able to get these loan guarantees (with strings attached, of course) seems to conflict with your remarks that only the big established car companies were able to get them. One thing you said is true: I’m sure that both Tesla and Fisker spent plenty of money with lobbyists and expert consultants in putting together their proposals…

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  5. Regarding Tesla’s location hopping: you forgot that they committed to San Jose after dumping New Mexico, then dumped San Jose in favor of some yet to be named California location. If I were Downey or Long Beach I wouldn’t get too excited.

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  6. [...] After DOE Nod, a Long Road Ahead for Green Car Startups: When the DOE makes a conditional loan commitment under its Advanced Technology Vehicles Manufacturing program — as it has to five companies in the last several months, including plug-in vehicle startups Tesla Motors and Fisker Automotive — it represents just one of many milestones for these companies as they race to bring greener cars to market in large numbers. [...]

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  7. For the record – Reed posted an identical comment on my blog (7gen.com) – and I suspect he’s on a mission to post that as widely as possible on every blog everywhere.

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  8. [...] we’ve written before, securing a conditional commitment for a low-interest loan through the DOE’s Advanced [...]

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  9. [...] Quantum anticipates that its contract revenues will continue to suffer this year as a result of the slow pace of development at Fisker, which it expects to be one of its biggest customers for the foreseeable future. Quantum still expects Fisker to hit its target of producing “a certified, saleable” plug-in hybrid vehicle towards the end of the 2010 calendar year. But it notes that “delays in funding at Fisker Automotive related to the finalization of their Department of Energy loan,” resulted in “reduced levels of activities,” on the development program for the upcoming Karma model. (See: “After DOE Nod, a Long Road Ahead for Green Car Startups.” [...]

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  10. [...] we’ve written before, startups like Fisker face a long road to bring green cars to market in large numbers after winning [...]

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