After DOE Nod, a Long Road Ahead for Green Car Startups

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

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