In the world of federal loans for green car projects, the old saying, “another day, another dollar,” is more like another year, another couple billion dollars. In 2010 the Department of Energy’s Advanced Technology Vehicles Manufacturing program, or ATVM, finalized more than $2 billion in loan agreements for three car companies and awarded a nearly $50 million conditional loan commitment to one more. But while Uncle Sam has tapped a select few companies as winners (in all, six companies have secured conditional ATVM awards and four of them have closed) in the race to build more fuel efficient, less polluting vehicles, it has left a much longer list of loan applicants disappointed or stuck in limbo.
Created under Section 136 of the Energy Independence and Security Act of 2007, the ATVM program holds authority to award up to $25 billion in direct loans. Projects can include re-equipping or expanding existing manufacturing facilities, establishing new plants in the U.S., or dealing with the engineering integration associated with these types of projects. Under the program rules, ATVM-funded vehicle projects from new companies have to deliver fuel economy improvements of at least 25 percent compared to the average for that vehicle class in 2005. For a manufacturer that already had cars on the market five years ago, its own 2005 fleet average serves as the base.
The Energy Department named electric car startup Tesla Motors, Ford Motor Co. and Nissan North America in its first round of awards (on a conditional basis), back in June 2009. After that initial flood of conditional loan commitments, however, announcements from ATVM slowed to a trickle. Plug-in hybrid vehicle developer Fisker Automotive scored a $528.7 million conditional commitment in September 2009, while parts maker Tenneco followed up with a $24 million conditional commitment a month later.
For 2010, it’s notable how few new names appear among this year’s clear winners, having scored a final or conditional ATVM award. Tesla, Nissan and Fisker all finalized loan agreements with the DOE, sealing the deal on the conditional awards announced last year (Ford closed in late 2009).
Tenneco, meanwhile, quietly withdrew from the process in March of this year before closing, we’ve learned from the DOE. And with little more than a week left in 2010, ATVM has announced one solitary conditional loan commitment during this calendar year, for Vehicle Production Group, or VPG. Backed by oil baron and natural gas vehicle advocate T. Boone Pickens, VPG secured the nearly $50 million award in late November for work on a wheelchair accessible SUV that can run on natural gas.
General Motors and Chrysler are among the companies still awaiting official decisions on loan requests. The two Detroit automakers, each requesting billions of dollars, cleared the hurdle of demonstrating financial viability under the ATVM evaluation process in May of this year — a significant milestone for companies that toppled into bankruptcy in 2009. GM and Chrysler are still in negotiations with ATVM to secure a conditional loan commitment.
Several smaller automakers, which throughout 2010 have pinned their hopes for large-scale U.S. manufacturing on the ATVM program, remain in a kind of limbo, working their way through the agency’s evaluation and negotiation process.
For example, the Scandinavian electric car maker Think, which already sells its Finland-built Think City model in Europe and has formed a U.S. joint venture with Kleiner Perkins and RockPort Capital Partners, hopes ATVM loans will help finance a manufacturing project in Elkhart, Indiana. Although Think’s Chief Marketing Officer Michael Lock said in September that the company expected a final yea or nay on its loan application by the end of 2010, Think is now backing off that timeline.
While claiming that “nothing has changed” since September and that the company is “optimistic about the tone and pace” of its negotiations with the DOE, Think spokesperson Brendan Prebo told us in an email that the DOE has “not indicated to us that they are planning to announce anything about our loan negotiation before the end of the year.” Rather, Think remains in “late-stage, active negotiations,” he said.
Earlier this month Think delivered the first vehicles produced at the Elkhart plant, and the company plans to begin retail distribution in a handful of U.S. cities during the second half of next year. However, more ambitious plans for the U.S. market still hinge on the ATVM loan. As Charles Gassenheimer, CEO of Think investor and battery supplier Ener1, and chairman of Think’s board, said recently to the Wall Street Journal, “For next year’s production, the loan is important, but not critical.” Although ATVM loans are specifically not intended to finance research and development, Gassenheimer added, “It’s vitally important to be able to fund future product development.”
Think and other relatively unknown car makers hoping to get in on the ground floor of the electric car market face time pressure to get products out in front of consumers. It’s crucial for companies with low profiles among U.S. consumers to gain recognition early on, Pike Research analyst John Gartner explained to us recently. These automakers “have to be at the table,” when electric models start coming out and their more established rivals are still new to the EV game, said Gartner. The window of opportunity for a company like Think to build its reputation, he predicts, is a slim 9-12 months.
Coda Automotive, another electric car developer that has been working to raise its profile in 2010, also aims to set up a U.S. manufacturing facility if requested ATVM funds come through. This is take two for Coda, which last year requested more than $38 million with partners Lishen (the Chinese battery giant) and Yardney Technical Products to build a lithium-ion battery plant in Connecticut. Those funds fell through, however, and now Coda hopes to build a battery factory in Ohio that would replicate the 1 million-square-foot plant it has set up with joint venture partner Lishen in Tianjin, China.
Not all ATVM hopefuls have been able to, like Think and Coda, move ahead with vehicle production plans (even scaled back) without a leg up from ATVM. Aptera, the developer of three-wheeled hybrid and electric vehicles that in April 2010 said it had more than doubled its initial ATVM loan request to $184 million, has hit the financial skids. And Next Autoworks, formerly called V-Vehicle, has undergone a shakeup since the DOE rejected its high-profile bid for $321.1 million in loans early this year.
Four-year-old Next Autoworks — which is backed by T. Boone Pickens, Google Ventures and the venture capitalists at Kleiner Perkins — dropped its old name, ditched its founding CEO and brought in new executive blood (steps that are common among ventures whose investors are unhappy and pushing for a restart). The startup also submitted a revised application under ATVM, and according to new CEO Kathleen Ligocki, will be rethinking “sales and distribution.” That was one of the areas where the DOE found Next Autoworks’ initial loan application lacking, according to reports from the News Star.
Bright Automotive, a spinoff from the Rocky Mountain Institute that won the first investment from General Motors’ new venture capital arm GM Ventures this summer, has applied for a loan as well. But the company has also sought to build a business that can succeed without large scale manufacturing. In the difficult financial times of the last couple years, Bright has focused more on selling engineering services. As Michael Brylawski, Bright’s corporate strategy chief, put it to National Geographic in September, “The loan doesn’t necessarily make or break Bright Automotive, but it’s a key ingredient for the IDEA,” referring to the plug-in hybrid IDEA work van that Bright aims to commercialize if ATVM funds come through.
So many companies have held up the prospect of ATVM funds as the holy grail for green car manufacturing, and most applicants that venture to discuss the evaluation process seem incredibly confident that an influx of cash is just around the bend. But while it’s true that a nod from the DOE can help pave the way to mass production for upstart car companies, it’s a long road that lies ahead.
After the agency approves an application under ATVM, money doesn’t start flowing out until the company meets certain conditions — clearing manufacturing sites under environmental regulations, for example, and raising capital to meet the program’s equity requirements (ATVM loans can cover only 80 percent of project costs). And to meet aggressive ramp-up goals under the program, companies need to sign on domestic suppliers that can keep pace. At the end of the day, many of these projects also still have to face those big unknowns for green car makers: How many buyers will step up to the plate, and how soon?
Image courtesy of Flickr user e-magic
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