For Obama’s green-car revolution, fits and starts

The Obama administration has poured roughly $5 billion in taxpayer funds into the electric-car industry, offering incentives to manufacturers, their suppliers and even car buyers who might want to go green.

But analysts say the risk is rising that taxpayers in many cases will not see a return on their money soon, if ever. Instead, they warn that some federally subsidized companies could be forced to shut down in coming months.

For President Obama, who has made clean-technology investment a hallmark of his job creation efforts, troubles in the electric-car sector pose a potential new political problem after the collapse of solar-panel maker Solyndra, which recently defaulted on a half-billion-dollar federal loan after filing for bankruptcy. The administration has channeled an estimated $80 billion of the stimulus recovery effort into grants and loans to clean energy and energy efficiency programs, companies and research.

Obama predicted in 2008 that green cars would create thousands of new U.S. jobs as demand soared. But in recent months, production lines and sales expectations have been dramatically scaled back.

A123 Systems, a battery maker that received $380 million in government support, announced recently that declining orders had forced layoffs. Instead of up to 3,000 new Michigan jobs as Obama and the company had predicted, it now has 690 employees.

Battery maker EnerDel, recipient of a a $118 million federal grant, took a hit when its key customer, electric-car maker Think, declared bankruptcy this year. Johnson Controls, which received a $299 million stimulus grant, opted to build one factory instead of two because of lower-than-projected demand, a company official said, and that one is now operating at half capacity.

California electric-car maker Aptera announced it was shutting its doors because of problems raising capital. And General Motors — whose moderately priced Volt was supposed to drive Obama’s push for 1 million alternative vehicles by 2015 — revealed last week that it would fall roughly 38 percent shy of its goal of selling 10,000 Volts this year.

“Many in this industry have jumped the gun on how aggressive the growth of electric vehicles will be,” said Kevin C. See, an analyst at Lux Research.

Supporters of Obama’s green-car initiatives say that there are still industry bright spots and that this start-up sector will simply take longer to deliver results.

“Certainly, with electric-vehicle sales, we’re not on track to meet the president’s goal,” said Brendan Bell, clean-vehicle expert at the Union of Concerned Scientists. “But . . . these investments are good ones toward that goal.”

Alex Molinaroli, a Johnson Controls vice president, said the funds give U.S. factories the capacity to deliver when demand arrives and position them as industry players.

“Is it worth the premium?” Molinaroli said. “We’ll have to wait a long time to see if this was a good investment or not.”

Obama’s green-car goal

Obama started his alternative-vehicle push in the 2008 campaign, and his administration soon after put money behind the plan. Like Solyndra, several of the firms receiving support had investors who were also important Obama campaign donors.

Nissan, Tesla Motors and Fisker Automotive received $2.4 billion in loans to support building U.S. manufacturing plants for electric vehicles through an Energy Department program. In a stimulus push in August 2009, Obama announced $2.4 billion in more than 40 grants to car industry firms, much of it to advanced-battery manufacturers.

The president said the strategy would revive the country’s manufacturing base while nurturing a domestic green-car industry.

“If we want to reduce our dependence on oil, put Americans back to work and reassert our manufacturing sector as one of the greatest in the world, we must produce the advanced, efficient vehicles of the future,” Obama said.

At the time, many auto analysts questioned whether federal subsidies would create a glut of electric batteries and cars.

Obama reasserted his goal in his January State of the Union address, and the Energy Department made hopeful projections. In February, an agency report said U.S. car production “should be sufficient to achieve the goal of one million EVs by 2015,” with enough capacity to produce 44,000 of the top seven electric vehicles in 2011.

Actual sales of those models this year stand at 16,800 — roughly two-tenths of 1 percent of 2011 domestic auto sales. The vast majority were Chevrolet Volts or Nissan Leafs, which were in development long before Obama took office.

Some experts said the administration’s political goal — quickly announcing job creation in a recession — conflicted with the practical realities of expanding a complicated auto industry and wooing consumers.

“This is an investment that could have been planned better,” said Menahem Anderman, a leading auto battery expert and founder of Total Battery Consulting. “This has created a lot of publicity, but people have not bought many more cars as a result.”

White House officials say the electric-car emphasis has had a positive impact by accelerating the shift from foreign oil dependence.

“That effort continues to be successful as sales of advanced­technology vehicles keep increasing and these technologies continue to support growth of American auto companies, reduce oil dependence and create jobs,” said White House spokesman Clark Stevens.

Ripple effects

Problems in one part of the electric-car sector tend to have ripple effects. A123, for example, is hampered by production delays at a primary customer — Fisker Automotive, which was two years behind on delivering its first model, the luxury sports car Karma.

A123 chief executive David Vieau said in an interview that his company will rebound from these temporary troubles and rehire workers next year to deliver on contracts with other companies, including BMW.

“We’re humbled but not beaten,” Vieau said. “It’s not surprising you’ve seen some bumps and challenges. These are things to be expected in a brand-new space.”

A123 received a $249 million Energy Department grant to build its battery plant in Livonia, Mich., plus $125 million in state incentives. Like Solyndra, the company won presidential praise for its business model. It was cited by Obama in a 2010 Rose Garden news conference and in a Michigan news conference. Obama used an audio conference to congratulate the company on its factory opening.

Some watchdog groups question the value taxpayers are getting for their clean-car investments. The administration devoted $257 million to helping spur Volt battery production, through a $106 million battery assembly grant to GM and another $151 million to its battery provider, LG Chem.

A key industry problem is that electric cars are generally far more expensive than gas guzzlers. That’s true even with up to $7,500 in stimulus tax credits offered for each vehicle.

Obama announced the $2.4 billion in advanced-battery grants at a recreational-vehicle assembly plant in Wakarusa, Ind., where Navistar said it planned to build the eStar, an electric truck for fleets.

“Just a few months ago, folks thought these factories might be closed for good, but now they’re coming back to life,” Obama said that day.

But a large Maryland truck dealership tried for a year to sell an eStar, then sold it back to Navistar. Sam Eitel, marketing manager for Beltway Cos., said customers liked the truck’s sleek looks but were stopped cold by its $150,000-plus list price.

“People are scratching their heads saying, ‘How will we pay this?’ ” Eitel said.

A Navistar spokeswoman said 100 have been sold so far.

Anderman, who advocates reducing U.S. fossil fuel consumption, said he warned early on that economics did not support the administration’s push. Now he fears failures may undermine industry support.

“Politicians with an ax to grind will say, ‘Here it is — we spent $10 billion, we had companies collapse,’ ” Anderman said. “ ‘Here. We tried it. It didn’t work.’ ”

Research director Alice Crites contributed to this report.

Joe Stephens joined The Washington Post in 1999 and specializes in in-depth enterprise reporting.
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