The chief executives of embattled electric car manufacturer Fisker Automotive and an official from the Department of Energy loan program will face questions from Congress Wednesday on the failure of the government-backed company.
Fisker Automotive’s Karma, a long-range luxury car, had a sticker cost of more than $100,000. The car earned a failing grade from Consumer Reports, faced multiple technical problems, and was temporarily halted after Fisker’s battery manufacturer, A123 Systems, went bankrupt.
Fisker was one of several companies to receive millions in direct loans from the Department of Energy under the Alternative Technology Vehicle Manufacturing loan program.
The department approved a $529 million dollar loan to Fisker to support the development of two different electric cars, the Karma and Nina. Only a portion of the loan was delivered after the company failed to meet development milestones.
Fisker’s bankruptcy announcement has been expected for weeks. The company recovered only 10 percent of its claim against A123 for contractual failures and in April laid off 75 percent of its workforce.
It is now facing a lawsuit from workers who contend they did not receive the legally mandated forewarning of their firing.
The company missed its first loan payment, totaling $10 million, to the federal government on Monday. The Department of Energy disclosed this week it seized more than $20 million from the company’s assets on April 11 and will apply that money to the loan.
It is unclear if the federal government will face losses from its loan to Fisker.
Fisker’s founder Henrik Fisker and current chief operating officer Bernhard Koehler will testify before the House Oversight and Government Reform Committee alongside Nicholas Whitcombe, a senior investment officer for the Department of Energy’s Loan Program Office.
The hearing is titled “Examining the Department of Energy’s Bad Bet on Fisker Automotive.”
Committee Chairman Darrell Issa (R., Calif.) has criticized the Department of Energy’s efforts to support the green energy sector.
“Attempts to create an artificial green economy have instead created a ‘house of cards’ economy,” Issa said in December when A123’s bankruptcy was announced.
A123 itself received a grant from the Department of Energy. A Chinese firm now owns the battery manufacturer and renamed it B456 Systems.
Fisker and A123 are the latest in a string of failures of companies the Department of Energy supported financially.
“It’s certainly not an outlier for the loan or loan guarantee programs,” said Nicolas Loris, an economist at the Heritage Foundation.
Fisker is the twentieth business that has gone bankrupt after participating in the loan or loan guarantee program, Loris said.
The bankruptcy of solar panel manufacturer Solyndra was the highest-profile failure of a government-supported green energy company. Solyndra was the first loan guarantee recipient under the 2009 stimulus, with the federal government guaranteeing more than $500 million in loans.
The government was projected to recover less than 20 percent of the portion of the loan that had been disbursed, according to a settlement plan in October. The government could still recover the entire loan in a lawsuit against Chinese solar panel manufacturers.
Mirror manufacturer Flabeg Solar went bankrupt after receiving tax credits from the federal government. The bankruptcy potentially delayed some government-backed solar power projects that were planning on using Flabeg’s mirrors.
President Barack Obama, who targeted much of the 2009 economic stimulus package at the green energy sector, reiterated his support in his most recent State of the Union address.
“Last year, wind energy added nearly half of all new power capacity in America,” he said. “So let’s generate even more. Solar energy gets cheaper by the year—so let’s drive costs down even further. As long as countries like China keep going all-in on clean energy, so must we.”
The failure of Fisker is indicative of the government’s inability to prop up whole sectors of the economy, said William Yeatman, an energy policy expert at the Competitive Enterprise Institute.
“Industrial policy doesn’t work,” he said. “It never has and it never will.”
Yeatman said the government subsidized both the battery manufacturer and the car manufacturer in Fisker’s case, beyond subsidizing the car’s purchase with tax credits.
A business’ success after receiving help from the federal government does not justify the tax dollars invested in the company, Loris said.
The federal subsidies crowd out private investment in successful companies, he said, while the failing companies should not have received taxpayer support in the first place.
“It’s just kind of depressing that this much money was wasted,” Yeatman said.