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.