By on December 1, 2009

Where's my NSFW government loan? (courtesy:blog.makezine.com)

Former Tesla PR honcho Daryl Siry lays into the Department of Energy’s Advanced Technology Vehicle Manufacturing Loan program (ATVML) at Wired’s Autopia blog, taking the $25b program to task for “stifling innovation.” At its core, his argument is a simple one:

Startup companies that enjoy DOE support, most notably Tesla Motors and Fisker Automotive, have an extraordinary advantage over potential competitors since they have secured access to capital on very cheap terms. The magnitude of this advantage puts the DOE in the role of kingmaker with the power to vault a small startup with no product on the market -– as is the case with Fisker — into a potential global player on the back of government financial support.

As a result, the vibrant and competitive market for ideas chasing venture capital that has been the engine of innovation for decades in the United States is being subordinated to the judgments and political inclinations of a government bureaucracy that has never before wielded such market power.

All of which sounds very TTAC… in fact, our lengthy Bailout Watch series began with a similar analysis of the ATVML program (albeit with a Detroit-focused twist). Unfortunately, Siry’s intentions in this case are questionable… as are his conclusions.

At the very bottom of his editorial, Siry reveals himself to be a “special advisor to Coda Automotive,” the EV startup born from the ashes of Miles Electric Vehicles. That Coda has not sought an ATVML handout (because all its manufacturing is done in China) is presumed to give Siry a free pass on conflict-of-interest questions, but Siry’s critique relates directly to the private capital market as well. Siry writes:

The proposition is so irresistible that any reasonable person would prefer to back a company that has received a DOE loan or grant than a company that has not. It is this distortion of the market for private capital that will have a stifling effect on innovation, as private capital chases fewer deals and companies that do not have government backing have a harder time attracting private capital. This doesn’t mean deals won’t get done outside of the energy department’s umbrella, but it means fewer deals will be done and at worse terms.

Translation: Coda can’t raise funds without DOE backing, a reality the company petulantly hinted at in the most recent post on its corporate blog. There, the company lashed out at analyst suggestions that DOE loans would be best spent on established automakers, and now Siry is bashing the DOE’s “kingmaking” of “small startups with no product on the market.” So which is it? The answer can be found in Siry’s conclusion:

A potential solution to this problem may seem counter-intuitive. The best way to avoid market distortion would be for the DOE to cast the net more broadly and provide loans and grants to a larger number of companies — which ironically means being less selective. Subject to the existing equity matching requirement, this would allow the private markets to function more effectively in funding a broader range of companies and driving more innovation. Several innovative companies with great potential have been in the DOE pipeline for many months. Perhaps it is time for the DOE to stop playing favorites and start spreading the love.

Give out money to more firms, less selectively. What a plan. But if Siry is suggesting that Coda Automotive represents the kind of “innovation” being “stifled” by the ATVML program, he’s able to see far more innovation in selling an electrified Chinese Hafei sedan with 100 miles of range for $45k than we do (he doesn’t explicitly, preferring Aptera as a poster child for stifled innovation). The reality is that the EV sector is crammed with as many hucksters and wannabes as legitimate innovators, and “spreading the love” is more likely to result in wasted investments. In theory we agree that DOE “kingmaking” distorts the market, and elevated some questionable firms to near-player status… but interpreting those results as a reason for the DOE to be “less selective” with its lending makes even less sense. Unless, of course, you work for a firm that might benefit from lowered loan standards.

As a lesson in the ATVML’s unintended consequences, Siry’s editorial is dead-on. As a roadmap for future DOE policy, however, it comes up way short.

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18 Comments on “Siry Slams DOE Loan Program For “Stifling Innovation”...”


  • avatar
    INcarguy

    I don’t know Siry from Adam, but I can tell you, he’s spot on. Just because he stands to gain (potentially) from a more “loving” DOE strategy doesn’t mean he’s wrong about one central point. They are “kingmaking.” $25B program, and they’ve only given out 8.5B of it. The DoE is completely erratic, telling some companies they “passed” certain viability tests, then coming back months later asking for further documentation. Asking ridiculous technical specifications of some, while greenlighting other companies whose vehicles only exist in their dreams. I am sure that there are plenty of “wannabees” trying to suck on the government’s teat, but I can tell you for certain that  “real deals” are going to die a slow and painful death because of the DoE allowing politics to decide who gets the $$$. Believe me, they can’t raise equity in the US without that loan, it just won’t happen. However, I’m guessing China will come knocking on their door if they see a chance to invest in a viable business plan. And yes, take everything I’ve said with a grain of salt because I stand to gain from the DoE approving at least one of these loans. Having seen the inside of the process, I can assure you , it has very little to do with the viability of a business plan and , like everything else, it’s quite political.

  • avatar
    gslippy

    The Volt also falls into this category, but the market will ultimately determine its fate.
     
    While he may be correct that spreading the love would be more fair, government handouts aren’t the only key to success.  In fact, I believe that government handouts tend to enslave its recipients and cause more failure than success.  Just look at the US welfare system, GM’s executive pay scale mess, or the Faith-Based Initiative.  All of these recipients have paid a heavy price (their freedom) for being on the government dole.
     
    So I’d suggest future EV companies raise their own capital and make money the old-fashioned way.

  • avatar
    psarhjinian

    In fact, I believe that government handouts tend to enslave its recipients and cause more failure than success.

     
    The system that allows you to make the comment, the internet and the world-wide web, are largely the result of government funding specific ventures, despite commercial systems being available at the time (remember CompuServe or GEnie?).**  So are a lot of things that you use or benefit from daily and often don’t think about because they work quite well.
     
    The government works as a lender and source of venture capital for enterprises that have a long-term payoff (where “long term” is beyond the pain threshold of the increasingly short-term ROI expectations of modern VCs), are threats to existing and well-established players who would knife such a venture in a back, and/or would be perennial loss-leaders but are necessary to a functioning society.
     
    The market works well enough where there’s immediate return on investment and little or no barriers to innovation erected by existing oligopolies within the market.  EVs meet neither of those criteria despite being something that would greatly benefit society as a whole.  So, do we wait until the market makes EVs profitable for a large-scale player, or do we get ahead of the game?
     
    Try to think about the kind of “market conditions” that would make EVs appealing to magpie VCs; now think about what those conditions would mean for society as a whole.
     
    ** CompuServe, IBM, GE and the Bells would have killed the nascent Internet in it’s cradle, if they could.  “The market” has shown a lot of hostility towards innovation when it threatens the big players.

    • 0 avatar
      Daanii2

      I disagree. I know of no example where a government has ever successfully invested in industry. It is true that government funding of the ARPAnet helped the Internet get started. But that was funding of research. Nothing like venture funding of a business. The Internet was built by private capital. As it should have been. 

      Siry points out the problem well. We now have “venture capitalists” at the Department of Energy picking winners to give $25 billion to. With no experience, these government employees also have no accountability. Not a recipe for success.

      My solution to the problem? Disband the program. It’s not going to help us get to electric cars. It’s just rewarding a few lucky companies. At our expense. For me at least, no thanks!

  • avatar

    Edward – I think you are reading too much into my disclosures. While it is important for readers to know of existing and past relationships that might introduce bias to my writing, I  assure you that the positions I develop in the articles I write for Wired are independently derived and not vetted with any of my clients or contacts beforehand.
    As for the “solution” I suggest at the end of the article, it may be sub-optimal, but we can’t go back in time and change the overall approach. We are where we are, and I am just suggesting that taking a broader portfolio approach will distort capital markets less than trying to pick winners.
     

  • avatar
    Jerome10

    Damn.  I agree!

  • avatar
    Durishin

    But, if the government fails to give long-term tax breaks on R&D and controls the loans to “innovative” companies, then the government is stifling innovation.
     
    Which, of course, it must as government is consensus driven and innovation is driven by experiments on the edge of knowledge; antithetical to consensus.

  • avatar
    frodo_17

    psarhjinian is right.  Governments have and continue to stimulate innovation throughout the world.  We are able to have modern communication systems and ultimately the internet because the US government decided that it could not afford the USSR having an advantage in space exploration.  We developed (with many private companies participating) the rocket technology to put vehicles (satellites) into space.  That was sponsored by the US taxpayer but it has paid for itself many times over.  There are many similar examples.  Nearly every major technological advance has been government sponsored at one point or another.  EVs are no different.

    • 0 avatar
      gslippy

      The difference between your examples and this situation is that modern communications and space travel were originally developed for the government’s own needs (i.e, national defense), not with commercialization in mind, and certainly not with profitability as a goal.
       
      All we’re talking about here is corporate welfare for startup EV companies.  Frankly, the government has no need for EVs, and anything linking government handouts is bound to have a political component.

    • 0 avatar
      Daanii2

      Gslippy is right about this one.

      The space program, in my opinion, was a waste of money. As was the Manhattan Project in World War II. If you look at the results and the costs to get them, only a government would ever call them a success.

      Governments do fund a lot of basic research, and some of it has been helpful. But the idea that the Internet and modern communications came from the space program, or even any government program, seems false.

  • avatar
    psarhjinian

    All we’re talking about here is corporate welfare for startup EV companies.  Frankly, the government has no need for EVs,

     
    I’d say the government does have a need for EVs, and that said need is being realized ahead of the “commercially viable” point in the ROI curve.  That need is to have an alternate personal mass-transit solution ready before we hit the next oil crisis.
     
    …and anything linking government handouts is bound to have a political component.
     
    This is true.  It’s also true in the market, only they don’t use quite the same verbiage: instead of it being based on the party-based nepotism, it’s based on the wants and needs of the cartel, who will develop something that serves their interest first, regardless of what that does to innovation or the best interests of the consumer, the environment, or the economy.
     
     
    Governments do fund a lot of basic research, and some of it has been helpful. But the idea that the Internet and modern communications came from the space program, or even any government program, seems false.
     
    It doesn’t matter how it “seems”, it’s how it really is.  The internet would not have happened without government fostering.  Any technology that comes out of defence or the space program would not have happened without that backing because that kind of technology is not in the interests of the market.  So is a lot of what happens in medicine, outside of commerical wunderkind like Viagra.
     
    The Internet is the easiest example: it was developed to allow academia, government and the military to communicate, and was freely expanded to allow any “member” to participate.  The private equivalents at the time (AOL, GEnie, CompuServe, Prodigy) were islands that locked their users up wherever possible, and had to be dragged kicking and screaming into the internet era.
     
    Want another example: power generation.  In parts of the world where it sees a lot of forsight and planning, it does fairly well (France comes immediately to mind).  Where it’s deregulated and left to the market, the infrastructure is badly underbuilt and consumers suffer with high costs and poor service because the providers have no interest in looking at the long term.
     
    I’ll admit there are many things the government does badly, and those are generally where the government gets involved in establishing production and eligibility benchmarks for the short term.  Other than that, though, the track record and fostering and funding innovation on average is actually pretty good.
     
     
    I’m always amazed that there’s a very focused lens turned on government, while we let just about every other entity of large economic power more or less off the hook.  It’s not like any of them couldn’t (or don’t already) oppress you**, and it’s largely the government that keeps that from happening.   Social democratic government is supposed to be a check-and-balance on the rich and powerful, and it’s only when voters let the latter sneak into the former that problems really begin.
     
    ** They’re just better at selling you on how their oppression is a good thing.

  • avatar
    frodo_17

    I don’t agree.  Electronics, computers, materials sciences, propulsion technology, telecommunications, GPS, biological sciences – and the list goes on – have all benefited tremendously from government sponsorship (the U.S. and others).  A lot of it comes from either military applications or raw research which doesn’t initially have a market application.  Personal computing as we know it would not exist had the U.S. government not 1) supplied a lot of the research capital and 2) been a huge consumer (driving the market) of the products subsequently developed.  This benefits everyone.
    I’m not saying that government is the answer to all questions.  I think a combination of government support and private industry, however, can be very beneficial in bringing new technologies to the marketplace.
     

  • avatar
    frodo_17

    I meant, I don’t agree that this is simply corporate welfare.
     

  • avatar
    Configurator77

    There is enough evidence to strongly indicate that there was corruption and influence buying in the many billions of dollars that has already been handed to the big car companies and that small, domestic, competitive, innovative car companies were intentionally stalled by the handful of men hired by DOE to run the money because they were beholden to those big car companies. If the White House did not realize the DOE staff were killing American small business, they do now!!! thanks to Daryl Siry being brave enough to put his career on the line by disclosing this. Now it is up to the White House to act to keep it’s legacy clean and to keep America’s legacy of innovation intact. The President needs to order DOE to fix this and reach out to the small American Car companies and help, not roadblock them. Aptera and Zap had never had a single letter or phone call from a single DOE official offering to help them, find them an option or assist in any other manner.

  • avatar
    windcatcher

    Siry is right of cource- showdown time comes with the end of extended unemployment benifits.  Fact: American green energy innovation and ingenuity, science really, hasn’t been funded since 2001.
    http://www.eere.energy.gov/inventions
    New renewable energy inventors have no stimulus grant money to develop their inventions. The Department of Energy and the National Renewable Energy Laboratory and in particular, Dr. Chu, has snuffed any new green energy advancements. Their agenda is to do research and development of product line for the multinational corporations and keep American innovation down.
    Old patented green energy inventions were bought up by the multinational corporations and kept off of the market so that they would not upset their New World Order agenda. The last World conquer was Hitler.
    Yes it’s a win- win for Communist China and the multinational corporations and a loss- loss for Democracy and Freedom and the American people. Remember, the American manufacturing base moved to China for cheap labor; (graduate engineer $7,000 a year and most everyone else $700 a year) their allegiance is now with Communist China.
    Bush played the bad cop, Obama plays the good cop, but the fact is we are still on the same agenda. There is no change, the free press is gone. The treason of the multinational corporations and their owned and controlled congress continues. There will be no rebuilding of America’s manufacturing capabilities from the ground up with new inventions. There will only be more debt for the American people and dominance of our government by the multinational corporations New World Order agenda.
    Ask your government representatives WHY there is no funding for new inventions to build a new American economy.
     
     

  • avatar
    joeaverage

    A quick check and I found mention that NASA is credited for 1400 inventions that have found their ways into our lives at home or in industry. Then there are national laboratories and the military scratching their collective noggins daily.
    There is plenty of evidence pointing to the idea that big oil and by extension Detroit are hindering advancements in EV production. Note that I did not say research because aside from battery improvements the rest of the technology is tried and true. See the RAV4-EV from about ten years ago. They are still on the road and most are still using their original NiMH batteries to go 100 miles+ with all the standard creature comforts.
    Chevron bought the NiMH patents from GM and then shelved them. We could have hybrid batteries but not EVs.
    I find it an advantage NOT to carry around a whole internal combustion engine like the Volt. Save the weight, cost and complexity and put in a couple more batteries. How far is your commute? Our’s is less than ten miles and less than 60 miles.

    Listen – we either get our heads right on the idea of funding innovation and building green tech like EVs, solar and wind to supplement the internal combustion engine and coal power or we’ll find ourselves buying yet more sh!t from China as they kick our backsides in yet ANOTHER category. We’ll be busy debating who has the right to criticize our choice to drive pickups and SUVs when China quietly invades our markets with all their green tech and we’ll miss out on the opportunity to buy stuff made in America that delivers American paychecks. I’m serious. The rest of the world is moving forward on green tech whether we like it or not. We have the opportunity to build our own or we’ll find ourselves surrounded with more imported goods. America is like GM right now. We’re sitting in the meeting room explaining to each other how we don’t like some new market reality when we ought to be hiring some more engineers and working hard to get the best possible product to market RIGHT NOW. Instead we’ll sit on our hands and watch some Asian company produce something that is better and lasts longer and makes a nice profit. Then we’ll continue to sit around and talk about how much better our product is but we’ve missed the opportunity to prove it. We’ll be playing catchup while losing customers.
    The US gov’t ought to be funding the green tech research and also buying and installing it on gov’t properties. A private citizen might argue that they don’t want to invent in $40K worth of solar to put on a house they may not own in a decade but the gov’t has alot of properties that they’ll own far beyond the estimated 30-40 years lifespan of a solar system. In fact we don’t even really know how long solar lasts because the 1970s solar panels are still putting out 80%+ of their original ratings. The gov’t could certainly use EVs for mail delivery and other local trips.

  • avatar
    danrowder

    Suggested for reposting:

    “A large part of the electric car projects are just a scam to get a certain group of VC’s to control the lithium fields in Afghanistan! He who controls the electric cars controls the trillions of dollars of lithium revenues. It is just like oil all over again. The U.S. Department of Energy had one guy, who George Bush appointed running $25B worth of taxpayer money. He was working with 3 other guys in this small group who gave the money only to hooked n car companies who they could control the battery orders for and thus control the Lithium profits.

    Dmitry Medvedev Came to Silicon Valley on June 22, 2010 and met with some of the venture capital companies that helped lobby the leverage for the electric car companies that just got funded. Only the car companies got funded that would play in this scheme.

    Ener1 Battery Systems who got zillions of the dollars from DOE per the Loan Guarantee and ATVM Director Seward.

    Is controlled in part by Russian “business man” Boris Zingarevich.

    Who is best friends with the Russian Dmitry Medvedev, who arranged for all of Russia to extend current agreements signed with foreign automakers between 2005 and 2008 granting preferential duties on imported components for eight years in return for sourcing 30 percent of parts locally, according to the Industry and Trade Ministry. Once those arrangements expire, the carmakers would need to commit to buying 60 percent of components in Russia within six years to get more tax breaks.

    Dmitry also appears to own interest in lots of Lithium processing and mining company technology in Russia which is pretty close to Afghanistan.

    Afghanistan is: the “Saudi Arabia’ of lithium”. American geologists have discovered huge mineral deposits (Many $1 trillion of dollars worth) throughout Afghanistan, according to the New York Times. Lithium, gold, cobalt, copper, iron, among other valuable minerals are lying beneath what is already a war-torn country with little history with mining. Off and on over the decades, geologists—Soviet, Afghan, American—would investigate and chart some of Afghanistan’s mineral wealth, only to put the work on hold as violent conflict erupted. Now, corruption, in-fighting between the central and district governments, foreign interests, and greater zeal from the Taliban might come into play to disrupt a potential economy evolving around these natural resources. With the Ministry of Mines, a Pentagon task force is now helping organize a way of handling the mineral development and bidding rights. How this unfolds socially, environmentally and politically should be interesting.

    The New York Times reports: The value of the newly discovered mineral deposits dwarfs the size of Afghanistan’s existing war-bedraggled economy, which is based largely on opium production and narcotics trafficking as well as aid from the United States and other industrialized countries. Afghanistan’s gross domestic product is only about $12 billion. The two most prevalent minerals are copper and iron. Niobium, used for making superconducting steel, has also been found.

    The effort to get that money for Ener1 was strong armed by Republican Sen. Richard G. Lugar, one of the deans of Congress, and his junior colleague, Democratic Sen. Evan Bayh.

    Richard Lugar and Lachlan Seward co-managed the Chrysler Bail-out.

    Lachlan Seward was appointed by George Bush to run all of the tens of billions for the DOE ATVM and Loan Guarantee Programs. He & Matt Rogers gave most of the money away to their closely aligned interests and negated competing applicants. –

    Another place near Afghanistan that there is lot’s of Lithium is in Mongolia. Blum Capital has targeted the Lithium fields in Mongolia, said to be the second largest fields after Afghanistan in the region. Mongolia touches Russia so mining and equipment access could first take place there via Russia. China wants the Mongolian Lithium too so there is some two-way bidding that each country (Russia and China) do not know about. The owner of Blum Capital is Senator Feinsteins husband. She recently made him the Goodwill Ambassador to Mongolia.

    Blum’s wife, Senator Dianne Feinstein, has received scrutiny due to her husband’s government contracts and extensive business dealings with China and her past votes on trade issues with the country. Blum has denied any wrongdoing, however. Critics have argued that business contracts with the US government awarded to a company (Perini) controlled by Blum may raise a potential conflict-of-interest issue with the voting and policy activities of his wife. URS Corp, which Blum had a substantial stake in, bought EG&G, a leading provider of technical services and management to the U.S. military, from The Carlyle Group in 2002; EG&G subsequently won a $600m defense contract. In 2009 it was reported that Blum’s wife Sen. Dianne Feinstein introduced legislation to provide $25 billion in taxpayer money to the Federal Deposit Insurance Corp, a government agency that had recently awarded her husband’s real estate firm, CB Richard Ellis, what the Washington Times called “a lucrative contract to sell foreclosed properties at compensation rates higher than the industry norms.

    Pan American Lithium Corp is led by Andrew Brodkey, CEO, President and Director – who has 25 years in the mining industry as a mining engineer, lawyer and senior executive with a focus on corporate legal and business development activities at major mining companies with an emphasis on Latin America, including Magma Copper Company and BHP Copper Inc. Mr. Brodkey also created the International Mining & Metals Group of CB Richard Ellis, Inc (“CBRE”). He and Mr. Blum work together on Lithium deals

    ” In 2009 the University of California Board of Regents, of which Blum is a member, voted to increase student registration fees (roughly the Univ. of California equivalent of tuition) by 32%. Shortly thereafter, Blum Capital Partners purchased additional stock in ITT Tech, a for-profit educational institution. These events suggest a conflict of interest on Blum’s part. Also see: http://la.indymedia.org/news/2010/09/242044.php and http://www.floppingaces.net/2007/04/02/the-silence-on-the-feinstein-c/ and http://www.washingtontimes.com/news/2009/apr/21/senate-husbands-firm-cashes-in-on-crisis/

    • 0 avatar
      joeaverage

      So what we are seeing is that big money begats big money (again) – not through innovation or investment but through political and corporate influence???
      Keep the details coming everybody. That will be the foundation for some interesting reading tonight via the ‘net.


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