A recent article (Dec 15) article in the Wall Street Journal tells the story of the deal where Fisker Automotive took over a former GM plant in Delaware, that coincidentally is down the road from VP Biden's home. The WSJ article notes funding data from the Cleantech Group showing the that Dept of Energy loans and grants to cleantech companies was much larger than venture capitalist funding in the same sector. This echo's an Wired article from Daryl Siry, former Chief of Marketing at Tesla Motors, which also questioned whether the government putting capital behind selected startups is disturbing the venture capitalist ecosystem. Siry went so far to call the government an 800-pound gorilla due to the mismatch between the size of government versus private funding. Together they allege that government loans and grants are "an intertwining of public and private-sector interests in an arena where politics is never far from the surface" which putting the government in the role of kingmaker. The hint is that success of a given company might not be due to merit but political connections. Maybe.
The WSJ article quotes Delaware's chief of economic development, Alan Levin that they had a "secret weapon" in Joe Biden, and that there were five in total pulling for the deal (three congress members and the governor, besides the Vice President). A DoE spokesman is quoted saying VP Biden did not make direct contact and that the DoE process is to evaluate proposals in "deal teams" who are highly insulated from outside pressure. "Lots of people can call the [energy] secretary, but that doesn't mean that any of that necessarily flows down to the deal-team level," said DoE's Matthew Rogers.
Bright Automotive is given as an example where in September 2008 their future was, well, bright. Then the recession hit, hard, and the investors backed away from ponying up money. Now Bright's future is said to be dependent on receiving funding from the DoE. The WSJ article does not mention Aptera but its funding woes (reported earlier More, grim, revelations about the troubles at Aptera Motors) are very similar. "We are caught in this blender of historically new forces, somewhere between the public and private worlds," said Bright's chief executive, John Waters.
The WSJ article explains that the DoE came to Fisker with a proposal. That Fisker should speed up its plans to develop a more modest priced plug-in hybrid sedan, the Kx, allowing Fisker to start developing the sedan in parallel to bringing the Karma to market. It also shifted Fiskers emphasis from assembly at a plant in Finland to assembly at a plant in the U.S. leading to job creation in the U.S. rather than in Finland. GM's Boxwood Road plant dates from 1947 and was the last auto assembly plant in the Northeast U.S. Politicans were said to be determined to keep that plant in operation. It was learned that Fisker's CEO, Henrik Fisker, had become interested in this plant. At the same time their DoE loan had not yet been approved. At the same time Delaware's governor offered other incentives to Fisker.
Daryl Siry's article is focused on the thinking of the venture capitalist. The VC "evaluate a company on the basis of whether they think it will succeed and generate returns for their portfolios." The DoE funding is providing 80% of the required amount and private funding providing another 20%. This allows the VC to leverage their investment by the amount provided from the government. "Hedge funds historically used massive leverage to generate outsized returns, but if the trade turns against them, that same leverage multiplies their downside and can lead to financial ruin," said Siry. He went on to explain that "In the case of the DOE loans or grants, the upside is multiplied and the downside remains the same since the most the equity investor can lose is the original investment." The situation is so irresistible that in the current climate the cleantech VC's are only funding those companies receiving DoE financing.
Government loans and grants is not a new practice. The U.S. government has been doing this for a long time. One wonders why these questions are being raised now and not a few years ago when other government loans and grants were made.
The current situation has several contexts influencing these events.
- The recession is creating a great need for job creation.
- The environmental dangers create a need for increasing the number of cleantech companies.
- The idling of plants leaves a surplus of skilled workers who can perform skilled work.
- The political connections held by the winners of any election are always sought by operatives seeking to influence the success of one company over another.
- The right wing conservatives are clearly seeking to damage the Obama administration in any way possible.
- The Wall Street Journal is now in the hands of a media conglomerate owned by a magnate who's other media outlets are widely denounced for spewing reportage heavily slanted to the right wingers.
- Right wing nutjob harrumphers have been especially focusing on Fisker's dealings, slandering them with lies. (see Fisker, the vast rightwing conspiracy, and the $528 Mil DOE loan)
There is nothing new, of course, to political operatives lobbying for special favors for specific companies.
Post new comment