Cash-Strapped Electric Car Companies Seeking Federal Funds Too

Wall Street Journal

The heads of the struggling Detroit auto makers aren't the only car makers looking for help from Washington. The electric vehicle industry has its hands out, too.

If anything, representatives of the electric and electrified vehicle business jumped ahead of the "legacy" auto industry in the transportation bailout queue that formed in the nation's capital last week. A conference sponsored by the Electric Drive Transportation Association attracted a crowd of electric vehicle manufacturers and their boosters to Washington's convention center during the first half of the week.

Officials from the Department of Energy on Monday presented tips to attendees on how electric vehicle companies could apply for federal loans. The CEOs of the legacy car industry – General Motors Corp., Ford Motor Co. and Chrysler LLC -- didn't get to town with their begging bowls until Thursday.

Joseph White talks with Brian Wynne, president of the Electric Drive Transportation Association, about government support, research and development and the cost of driving electric vehicles. (Dec. 7)

The electric-vehicle industry positions itself as the future of personal transportation. President-elect Barack Obama is now the industry's highest ranking advocate. He's said he wants to see one million plug-in vehicles by 2015, as part of his broader goal to end U.S. dependence on Mideast oil.

But right now, the electric-vehicle community has a lot of the same problems as the legacy car business, and a few more besides. Brian Wynne, the head of the EDTA, says manufacturers in his group need the government's help now.
"We have a gap," he says. "We need to get over this gap."

The credit crunch and the economic slump are slamming the crop of electric-vehicle companies that sprung up in recent years, fueled in part by Silicon Valley venture-capital money.

FiskerTesla Motors LLC, once the darling of the green car movement, is now scrambling to stay afloat and is asking for a $400 million loan from the same $25 billion federal Energy Department program that Detroit's car makers are looking to tap in their own fight for survival.

Tesla is now taking some flak for seeking handouts from taxpayers, most of whom could never afford its current product, a racy electric sports car that starts at more than $100,000. Detroit's chiefs might say: Welcome to our world.

The electric-vehicle industry's need for government assistance doesn't stop with subsidized loans.

Mr. Wynne says the government's existing tax credits for purchases of electrified vehicles – meaning all-electric and gas-electric hybrids – should be expanded. Currently the credits, which range from $2,500 for a plug-in hybrid vehicle with a four kilowatt per hour battery pack to as much as $7,500 for an electric vehicle weighing under 10,000 pounds. (There are larger credits up to $15,000 for bigger, commercial electric and hybrid vehicles.) But these credits start to fade away once 250,000 such vehicles are sold. "We'll need more head room," Mr. Wynne says.

(Since now it looks like the Big 3 will get a loan there is any doubt that Barack Obama will not extend the handout to one of his pet projects? And in fact may combine the two as part of the loan to the Big 3)

The U.S. should also do more to promote development of advanced vehicle batteries, he says. After access to capital, batteries are one of the biggest anxieties among U.S.-based electric and hybrid vehicle manufacturers – from the Detroit Three down to the smallest Silicon Valley EV upstart. Right now, there's no company producing advanced automotive batteries suitable for electric vehicles or hybrids in the U.S., Mr. Wynne says.

To the extent that such batteries are made in volume anywhere, it's in Japan, Korea or elsewhere in Asia. Executives at GM and Ford and their major U.S. based suppliers worry that when push comes to shove, expensive Asian battery making capacity will be dedicated first to Asian auto makers – mainly hybrid leader Toyota Motor Corp.

Moreover, trading U.S.-made gasoline engine blocks for Asian-made battery packs might not be quite what Congress had in mind when it decided to offer loans backed by U.S. tax money to subsidize electric-vehicle production.

Finally, U.S. electric-vehicle makers are hoping that the government can be not just the financier of last resort, but also a customer. "The federal government owns 600,000 vehicles," Mr. Wynne says. The government should be a buyer for electric vehicles – not just cars, but commercial vehicles.

There's no question that the electric-vehicle industry has scrambled to a higher plateau during the past few years. The association's conference included a small auto show where visitors could stroll from a prototype of GM's Chevrolet Volt plug-in hybrid, to a full-sized hybrid city bus made by Germany's Daimler AG, to a tiny, electric dump truck made by e-Ride Industries, a maker of neighborhood electric vehicles and small work vehicles that are catching on in places like national parks and college campuses.

Established auto makers, including Toyota, GM, Chrysler, Nissan Motor Co., all are talking about plans to field significant numbers of partially electric or fully electric vehicles over the next several years. Powerful interest groups – many of them members of Mr. Wynne's organization – see profit potential in diverting more of the money spent on transportation from the oil industry toward the electric utility industry – with a few dollars sprinkled on the technology industry (for new "smart" grid software and other enabling systems.)

Not so long ago, the electric-vehicle industry's moment seemed to have arrived, after nearly a century of frustration and failure. Soaring oil prices, technology advances and the enthusiasm of deep pocketed investors appeared to be coming together to overcome the obstacles that have relegated electric vehicles to the auto market's sidelines since the days of Thomas Edison.

Now, oil prices have crashed, clouding the economic case for switching to expensive battery-boosted cars. Investors are holding on to their cash, forcing companies like Tesla to scale back and scrounge for funding. And the legacy car makers – whose support for battery-boosted vehicles will be crucial if electric vehicles are to achieve sufficient sales volume to drive down costs – are on the ropes.

Long term, Mr. Wynne says, the case for switching the fuel for our daily commutes to electricity still makes sense, in terms of costs per mile, national security and environmental preservation.
"The short term," he says, "is tough."