The Government Subsidized Fisker Hybrid Manufacturer is Liquidating its Assets

Posted by PITHOCRATES - November 24th, 2013

Week in Review

The Boeing 787 Dreamliner has had some problems with its lithium-ion batteries.  And now there is an icing problem with its engines.  Which is a bug to fix in their radical new design that eliminated the bleed-air system from its engines.  Reducing weight and increasing the efficiencies of the engines.  Which translates into lower fuel/operating costs.  Making the Boeing 787 Dreamliner a winning economic model.  And why airlines are waiting anxiously to add it to their fleets.  Now contrast this to a losing economic model.  The electric/hybrid car (see Fisker sells its assets to Hong Kong tycoon, files for bankruptcy by Jerry Hirsch posted 11/22/2013 on the Los Angeles Times).

An investor group headed by Hong Kong tycoon Richard Li purchased the federal loan made to Karma plug-in hybrid sports car maker Fisker Automotive and acquired the assets of the nearly defunct automaker.

Fisker has voluntarily filed petitions to liquidate under the U.S. Bankruptcy code, and Li’s Hybrid Technology has committed up to $8 million in financing to fund the sale and Chapter 11 process.

The federal government, which had lent money to the Anaheim auto company under a Department of Energy clean vehicles program, will lose about $139 million on the deal.

“Because of these actions, along with the sale announced today, the Energy Department has protected nearly three-quarters of our original commitment to Fisker,” said Bill Gibbons, a department spokesman.

The all-electric car suffers from range anxiety.  The dread a person feels as they are far from home and their battery looks like it won’t have enough charge to get them home.  Hybrids are expensive.  But carrying around that extra internal combustion engine in addition the electric system makes the car heavier.  And reduces its battery range.  Meaning that if you drive more than, say, a 45-mile round-trip you’ll be using that internal combustion engine most of the time.  Which will burn more fuel than in a gasoline-only powered car.  Because they don’t have the extra weight of the electric system to drag around.

This is why there isn’t a long list of orders for these electric/hybrid cars like there is for the Dreamliner.  For the Dreamliner is what most airlines are looking for in a jetliner for solid economic reasons.  While the electric/hybrid car is more of a novelty.  Few people are buying them.  And because of this they need government subsidies to remain in business.  Whereas Boeing’s strong sales are one of the few things driving the nation’s GDP into positive territory.

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Will Three Model S Fires make Tesla join the Long Line of Green Car Company Failures?

Posted by PITHOCRATES - November 10th, 2013

Week in Review

Tesla has had three car fires with their Model S in six weeks.  Causing their stock price to slide after surging earlier in the year.  Forbes wrote about those better days in a May article that is making the rounds again.  Explaining why Tesla was escaping the fate of so many other green car companies (see The Real Reason Tesla Is Still Alive (And Other Green Car Companies Aren’t) by Joann Muller posted 5/11/2013 on Forbes).

Add VPG to the growing list of recent green car failures: Bright Automotive (electric delivery vans) , Carbon Motors (clean diesel-powered police cars), Aptera Motors (three-wheeled electric cars), Coda Automotive (inexpensive electric sedans) and, arguably the most infamous, Fisker Automotive (plug-in hybrid sports cars).

All had applied for financing under a $25 billion U.S. Energy Department loan program to promote development of cleaner cars, but only Fisker and VPG managed to draw the lucky tickets. Fisker was awarded $529 million (but received only $193 million before the DOE cut them off because of missed milestones) and VPG received $50 million. But now, they’re all dead, or almost dead. (One exception: tiny Wheego Electric of Atlanta, an EV start-up that started out making glorified golf carts and now sells a handful of bubble-shaped two-seaters with a top speed of 65 mph. The company is talking about introducing a $44,000 electric SUV next, but I wouldn’t hold my breath.)

That leaves only Tesla Motors TSLA -1.27%, maker of the plug-in Tesla roadster and the new Model S sedan, still standing. Which begs the question: why has Tesla made it when so many others have not..?

Experience, for one thing. While most of the other green car start-ups were founded by traditional car guys with a dream but little experience running a company, Tesla founder Elon Musk, with degrees in physics and business, had already built and sold one successful company, PayPal, (to eBay in 2002 for $1.5 billion) and also runs SpaceX, a maker of rockets and spacecraft. He had the stomach to push through difficult times, and the chutzpah to twist the arms of reluctant investors…

Tesla has been clever in other ways, too. It sells credits it receives from the state of California for producing zero emissions vehicles to other automakers that aren’t so clean. At up to $35,000 per vehicle, it’s a windfall that has helped keep the company alive, according to Gartner analyst Thilo Koslowski. “At the end of the day, other carmakers are subsidizing Tesla,” Koslowski told the Los Angeles Times.

While true until now, Tesla says those credits will decline as sales spread beyond California and into Europe.  In the first quarter, Tesla said credits sold to other automakers amounted to approximately $68 million or 12% of its revenues.

So the long list of green car company failures tells us there is no market for these cars.  Making it a poor economic model.  Companies that have depended on selling cars to succeed have failed.  But if you’re creative and can think of other sources of cash you can keep a green car company in business even without selling cars.  But tax credits and government loans still weren’t enough to fund Tesla.

Musk, luckily, is a billionaire. He pocketed roughly $180 million as a cofounder of PayPal, and helped get Tesla off the ground in 2004 with an initial investment of $6.3 million. He put in another $20 million in 2007, and then in fall of 2008, with the company on the verge of collapse as the economy seized to a halt, Musk was virtually broke. He spent his last $20 million trying to keep the company afloat, while living off personal loans from friends.

The $465 million government loan helped, as did Tesla’s initial public offering in 2010, which raised $226 million.

Today, Musk is worth almost $3.8 billion — $1 billion more than Forbes estimated less than three months ago. Tesla stock has surged 40 percent this week alone, following the positive earnings report and the Consumer Reports review…

Musk could well make it happen because unlike those other green car companies, he has things you can’t get from the government: huge skin in the game, passion and talent.

This is why Tesla is still in business while those other green car companies are not.  Passion.  Something that is hard to truly appreciate unless you’re an entrepreneur.  And lots and lots of money.  While other companies ran out Musk was still able to go on by putting his money where his passion is.  Makes you want to cheer him on to success.  Even if you don’t believe the electric car is a valid economic model.  You love gasoline.  And you love the internal combustion engine.

Will those three fires in 6 weeks be too great an obstacle for Musk to overcome?  Will the passion and cash last?  Time will tell. 

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Fisker Automotive may be going the way of Solyndra

Posted by PITHOCRATES - April 28th, 2013

Week in Review

The Obama administration bet big on Fisker.  Sure that they could make the green car the Obama administration envisioned.  An upscale sportier version of Government Motors’ (GM) Chevrolet Volt.  Which isn’t selling well.  But it is selling better than the Fisker Karma.  But that isn’t saying much (see Floundering Fisker faces grilling over U.S. government loan by Deepa Seetharaman and Ayesha Rascoe posted 4/24/2013 on Reuters).

Fisker Automotive Inc, which has not built a vehicle since July, has the potential to succeed and repay nearly $200 million in government loans if the “green” car maker is able to find the right “financial and strategic resources,” according to former CEO Henrik Fisker.

Problems with the parts suppliers, delays in regulatory approval and recalls of its flagship Karma plug-in hybrid sports car were among the issues that dogged the automaker over the last few years, Fisker plans to tell lawmakers during a congressional committee hearing later on Wednesday…

The hearing comes as the automaker verges on collapse. Among the key questions is whether Fisker’s prospects were strong enough at the start to warrant the DOE’s backing, which helped trigger a flood of private financing for Fisker.

Fisker’s failure to make a payment on the DOE loan on Monday is the latest of its troubles. In recent weeks, Fisker has fired 75 percent of its workforce and hired bankruptcy advisers…

The DOE’s early public support helped open doors for Fisker, which sells the $100,000-plus Karma plug-in hybrid sports car. Fisker has raised $1.2 billion in private funds to date, according to SEC filings…

Fisker never received the full $529 million loan. It tapped $192 million before the DOE quietly decided to freeze Fisker’s credit line in June 2011 when it became clear that Fisker would not meet performance milestones as part of the loan agreement…

In the confidential “information statement” sent to shareholders in December 2011 and obtained by Reuters, Fisker said it “will not meet certain financial covenants and project milestones” required in the DOE agreement, including earnings, net worth and certain financial ratio targets.

Fisker’s troubles come after a string of green technology flops, including last year’s bankruptcy of Fisker’s lithium-ion battery supplier, A123 Systems.

Forecasts in 2009 for the sale of hybrid and electric vehicles far outstripped subsequent demand.

Forecasts outstripped subsequent demand?  Hmmm.  Let’s see if we can figure out why demand is weak for the Fisker Karma plug-in hybrid sports car.

The Fisker Karma is a luxury sports sedan.  A 4-door.  With room for 4.  Because of the large battery that runs down the middle of the car providing room only for 4 bucket seats.  Making this a subcompact.  And what range does that massive battery give you?  About 32 miles.  After that you’re running on gasoline.  Which can take you to a top speed of 125 mph.  And can go from 0 to 60 mph in 6.3 seconds.  This is what you get for $100,000-plus.

Now compare that with a Chevrolet Corvette.  A 2-door, 2-seat sports car.  With a top speed of 190 mph.  And can go from 0 to 60 mph in 4.2 seconds.  So if you’re going through a mid-life crisis and want something to impress the ladies with you can get all of this for about $50,000.  And they can’t understand why actual demand outstripped their forecasts.  Here’s a guess.  You can get a lot more car for less elsewhere.  If driving electric is more important you’ll probably buy one of the tinier hybrids and save yourself about $50,000.  If speed and power is more important to you you’ll probably buy something like a Chevrolet Corvette.  And save yourself about $50,000.

This is the problem with electric cars.  You get so little car for what you have to pay that only the most wealthy and diehard environmentalists are going to shell out that kind of money.  And there just aren’t a lot of those out there.  Which is why private investors didn’t invest.  Until, that, is, the federal government invested.

Once the government chose to subsidize Fisker then private investors found their courage to invest, too.  Figuring that with the government assuming some of the risk their investment was now less risky.  As they probably saw the future where a bunch of rich Hollywood types would have a Fisker in the garage.  To take out on special occasions.  To show that they cared.  But there were so many problems bringing this car to market that even the government bailed on it.  And for them to do that you know that there must be problems at Fisker.  Making these private investors rue the day they followed the government into this company.  Instead of staying out of it based on their original analysis.

Any company that has something to sell that the people want doesn’t need government money.  For if private investors see a good thing they will invest.  But when they don’t the government does.  Because no wise investor will.

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Another Very Expensive and Government Subsidized All-Electric Car Burst into Flames

Posted by PITHOCRATES - August 25th, 2012

Week in Review

Here’s a word of advice.  If you see one of those fascinating new all-electric cars in the parking lot when you’re out shopping don’t park anywhere near it.  Just in case (see Fisker Issues Second Recall of Electric Car by RANDY KREIDER posted 8/20/2012 on ABC News).

After the second of two mysterious fires in a Karma sedan, the government-backed electric car-maker Fisker has initiated a voluntary recall of its luxury vehicles…

As first reported by Jalopnik.com, the owner found the vehicle burning in the parking lot when he returned from shopping. At the time, the Woodside Fire Department said the immediate cause of the blaze appeared to be “heat from powered equipment,” and firefighters cut the car’s battery cable after putting out the fire. Woodside Fire Chief Dan Ghiorso told ABC News that the origin of the fire appeared to be inside the engine compartment, though Fisker said in a statement that it was determined to be outside the compartment in an area “forward of the driver’s side front tire.”

Ghiorso said Monday that he did not dispute Fisker’s new findings about the origin of the blaze. The fire did not cause any injuries but did cause damage to an adjacent vehicle, according to the Woodside Fire Department.

The fire is the second mysterious blaze in a Fisker Karma in 2012. Earlier this year, a Fisker Karma parked in the garage of a Sugar Land, Texas home caught fire, destroying a portion of the residence. Fire officials blamed the electric vehicle for the fire, according to media reports, but Fisker contended that neither the car nor its battery had anything to do with the fire, since the car was unplugged at the time of the fire and the battery pack was intact and still working after the blaze.

In March, another Karma broke down in the middle of a Consumer Reports road test, a failure that Fisker later said was due to a faulty battery.

More than 250 Fisker Karmas, out of the more than 1,000 that the company says are on the road, have been subject to a recall over the last year due to problems with the cars’ lithium ion batteries that could have led to fires in the $102,000 cars.

Gee, I’d hate to be the person who invested in these expensive cars that seem to be having so much trouble.

In 2010, the Department of Energy awarded Fisker a $529 million green-energy loan, in part to help purchase a shuttered General Motors plant in Delaware, where it predicted it would one day employ 2,000 auto workers to assemble a clean-burning gas-electric family car, known as the Atlantic.

Fisker collected nearly $200 million until February this year, when the government froze the loan because the company was failing to meet the government’s milestones. Most of those federal funds went into bringing the Karma, which Fisker assembles in Finland, to the U.S. market.

Oh.  I am the person investing in these expensive cars that seem to be having so much trouble.  Makes sense.  Obviously the technology is so questionable that they couldn’t build these cars with private money.  Like auto makers can build those cars that run on gasoline with private money.  Because that technology works.  Unlike these all-electric cars.  Based on these electric cars bursting into flames or breaking down or being recalled.

I’m not sure how this creates U.S. jobs.  Except at the port that unloads these cars from ships.  Unless the Obama administration is counting on hiring new firefighters to put out these car fires.  Firefighters do belong to a public sector union.  And the president does support public sector unions.  After all, he did say the private sector was doing well.  It was the public sector that he wanted to see some hiring in.  So maybe this was the grand plan all along.  Burning cars to support the call to hire more firefighters.

Company executives began hinting in February that Fisker would reconsider its plan and look for a cheaper place to build the Atlantic, despite the federal funding it received to build in the U.S.

“If Fisker no longer gets government monies, then obviously we are in a place where other options are open to us and have to be considered from a business perspective,” Roger Ormisher told ABC News in May…

Ormisher also said that negotiations with the DOE were ongoing. “We’re hoping for a conclusion fairly soon,” he said.

They don’t want to build in the U.S. with UAW auto workers.  Unless they get a government subsidy.  To offset the high cost of UAW labor.  Because they don’t want to go bankrupt like GM did from the high cost of UAW labor.  They’re still trying to negotiate further subsidies from Loans-R-Us.  I mean, the Department of Energy (DOE).  And they really like those loans.  Because they come with a wink.  They know they don’t have to pay them back.  Especially if they pull a Solyndra and go bankrupt.

There has to be a cheaper way to create jobs in Finland.  Then again, why should we even be trying to create jobs in Finland in the first place?  Perhaps it’s time we take junior’s credit card away.  For the DOE just doesn’t appear to be responsible enough with our money.  And another thing, why do we even have a DOE?  What?  Are they the ‘parsley’ of government spending?  Something that looks nice on your plate but has no real value?  It would appear so.  Perhaps it’s time we stop spending money on parsley.  The government should impress us with substance.  Not appearances.

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The Solution to the Bungling Bureaucracy that gave us Solyndra is to add more Bureaucracy

Posted by PITHOCRATES - February 11th, 2012

Week in Review

Big Government has failed.  So to fix Big Government those in government say the solution is to make government bigger (see Energy Loan Oversight Is Needed, Audit Finds by JOHN M. BRODER posted 2/10/2012 on The New York Times).

The Department of Energy’s loan guarantee program for alternative energy projects, which produced the ill-fated loan to the solar panel maker Solyndra, needs more rigorous financial oversight and stricter performance standards for recipients to reduce the chance of future defaults, according to an audit conducted by the White House and released Friday.

So the way to fix this bureaucratic mess is to add more bureaucracy.  Grow the size of government.  Spend more taxpayer money to provide more oversight on worthless taxpayer-financed investments.  Interesting.  Only in government.  Where they fix failures by doing even more of the same.

But it doesn’t end with Solyndra.

Solyndra and Beacon are not the only loan recipients to find themselves in trouble. Fisker Automotive, an electric car maker in Irvine, Calif., has missed some milestones that were written into its loan agreement, so the Energy Department has cut off credit. As a result, Fisker has stopped work on the conversion of an old General Motors factory in Wilmington, Del., that is supposed to produce an electric sedan, and laid off more than 60 employees and contractors.

Spokesmen for Fisker and the Energy Department both said that the terms of the loan were confidential and they would not say precisely what milestones were missed, but Roger Ormisher, a spokesman for the company, said, “We admitted very openly we were late to market with the Karma,” the company’s $102,000 sporty sedan. Fifteen hundred have been built and “a few hundred” sold, he said. Progress was slowed by a safety recall.

It wasn’t just an electric sedan.  But a sporty sedan.  And a fairly luxurious one at that coming in at $102,000.  But will people buy it?  Probably not.  You see, the biggest problem electric cars have that prevents the masses from buying them is range.  They just don’t go far on a single charge.  Especially if you use the headlights or heater.  And you can’t recharge them quickly.  Which means if you run out of charge you can’t have a friend drive out a gas can full of charge to pour into the tank.  You run out of charge on the road and you’re paying for a tow home. 

And making any car ‘sporty’ just compounds the problem.  Because if you’re accelerating quickly you drain the battery faster.  And this is the car the government is subsidizing.  Of course this is going to be another Solyndra.  No one’s going to buy this car.  Unless the government subsidizes the bejesus out of it to bring that $102,000 down to something closer to $15,000.  Where people may put up with the inconvenience of driving nothing but one short trip a day.  At least, until they get their electric bill.  Because electricity isn’t free.  And if you’re charging up a battery than can make are car zoom sportily along, it’s going to have some big batteries.  And long charge times.  Making big electric bills.

If they are going to add oversight they need to add it at the level where they decide to back these losers.  Before the money goes out.  Or, better yet, they should just stop investing in these losers.  If a company can’t get investment capital there’s a reason.  They don’t have a good idea.  At least, not one anyone will risk their own money on.

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