Fisker Automotive: Fraught With Failure

Does the U.S. Department of Energy have the guts to tolerate defaults on its loans?

While driving a new and very expensive car around Manhattan, it’s disconcerting to see the electronic instrument cluster fade to black, then to be told to pull over, put the car to sleep, wait a few minutes, and then restart it.

Worse still is when the manufacturer’s representative chirps, “We rely on our early customers to identify issues like this for us.”

That’s something you’d never hear from General Motors, Toyota, or Volkswagen. But it’s emblematic of the challenged development process of the US $106 000 Fisker Karma, a range-extended electric luxury sport sedan.

Venture capitalists risk their own money backing such firms; should the government do so, too, using taxpayers’ money? That’s a question not just for Washington but for any government anywhere that might be tempted to bail out a green-tinted job-making concern. And the temptation is always high for concerns that make cars, central as they are to a country’s sense of self.

Look past the Karma’s low, sleek design and you’ll see the least efficient plug‑in electric vehicle, one with so little room inside that the Environmental Protection Agency calls it a subcompact, despite a footprint equaling that of a full-size BMW 7 Series sedan. And the early cars were riddled with defects. Several hundred of them had their battery packs recalled, and at least two caught fire due to an overheating fan. Sixteen more burned after immersion in seawater during Superstorm Sandy.

Fisker Automotive is expected to declare bankruptcy any day now. It’s failed time and again to meet deadlines under the terms of the low- interest loans it got under the U.S. Department of Energy’s Advanced Technology Vehicle Manufacturing Loan Program, in 2009.

The ATVM program lent out $9 billion of $25 billion authorized. Two-thirds went to Ford, largely to roll out a fuel-efficient line of engines; Nissan used $1.4 billion to help it build its Leaf electric car, and the batteries that power it, in Tennessee.

But all the opprobrium was focused on smaller loans authorized for two high- profile venture-backed start-ups: $465 million to Tesla Motors and $529 million to Fisker Automotive. Both companies were “losers,” sneered Republican presidential candidate Mitt Romney, during the 2012 presidential election debates. Tesla has now seemingly become a functioning carmaker, albeit a small one, but Fisker’s failure proves Romney at least half right.

And therein lies the challenge: Failure comes with the territory. Seasoned venture capitalists know that of any ten start-ups they fund, perhaps five or six may fail completely, another two or three may be sold at a loss, and one or two will be successful. If just one of those successes is a biggie, the VCs will make money.

Government funding is different, because failure—or acknowledgement of failure—is politically unacceptable. Unless politicians are prepared to acknowledge up front that loan programs to businesses may have losers as well as winners, perhaps they should resolve to fund basic science and other worthy endeavors that aren’t subjected to a profit-and-loss analysis, and just let companies fend for themselves—or at least the controversial companies. Nobody has uttered a peep of protest against the loans made to Ford and Nissan.

About the Author

John Voelcker is editor of Green Car Reports and a senior editor at High Gear Media. He covers fuel-efficient and alternative auto technologies for both consumer and industry outlets.

Related Stories

Advertisement
Advertisement