Smyrna And The Solyndra Problem

Ever since the messy collapse of solar panel maker Solyndra just two years after it received over half a billion dollars in government loans, the political climate around all green energy loan programs has heated up considerably. As the White House opened an investigation of the Department of Energy’s entire loan portfolio, loan recipients and startup automakers Tesla and Fisker found themselves under attack. And why not? Fledging firms with unproven products in brutal, scale-driven industries are hardly safe bets, even in the best of times. And with the government drowning in deficits, who’s in a gambling mood?

What gets left out in the hue and cry is that Tesla and Fisker between them represent “only” about a billion dollars worth of DOE loans in a program that was supposed to be able to loan out $25b (the final tally could be closer to $18b). Dwarfing the half-billion-each investments in Fisker, Tesla, and Solyndra are projects that seem a lot less risky in contrast to the startups. Here, in Smyrna, TN, I got to see one of them being built.

This plant, which was still very much under construction when we visited two weeks ago, will be able to build 200,000 battery packs per year when it reaches full capacity. That will make it one of the largest battery manufacturing plant in the US, and will add 1,300 workers to Smyrna’s already Nissan-swollen economy. Perhaps most astonishing in the age of the global supply chain, it will be a remarkably integrated production center: batteries built from raw lithium will be assembled and mounted in Nissan Leafs built at the main manufacturing facility next door, using electric motors built down the road in Decherd, TN. It’s as close to Henry Ford’s ideal of the materials-in, product-out “complete factory” as you’re likely to find in the auto industry, let alone the green-car startups.

And though the Smyrna EV manufacturing capability may be a throwback to the days of vertical integration, the battery assembly plant itself couldn’t be more different than anything ever seen in the auto industry. We weren’t allowed to bring cameras into the plant, but it would have been difficult to photograph anyway. Instead of a huge, open space full of robots and stamping presses, this plant is a huge open space full of gigantic clean rooms. Materials move in one end of its U-shaped assembly flow, where they are assembled into cells. The completed cells are tested at the back in what looks like giant racks of servers, and then they move down the other arm of the U, where they are assembled into packs. But none of this is obvious from any point inside the main structure, as the huge clean rooms where assembly work is done obstruct any view of the complete process.

For now there’s not much to see at the Smyrna battery plant. Equipment is only just being installed amid the ongoing construction, and because the manufacture of cells is so unlike traditional automaking processes, it’s difficult to picture what these rooms-inside-of-rooms will look like when production gets rolling. Only the giant HVAC ducts which keep the clean rooms relentlessly ventilated speak to the kind of white-glove environment that will eventually take root in this plant. Some b-roll footage from the Leaf’s pilot plant in Oppama fills in a few blanks.

It doesn’t take a good imagination to understand what the Department of Energy invested in at Smyrna. Though EVs are, in the sweep of the industry, a relatively risky segment, Nissan already has a plant pumping out Leafs in Japan, and the resources to manage a ramp-up in volume. When Smyrna joins a Sunderland (UK) plant in production, Nissan could muster a quarter-million electric cars each year… and likely has left room to grow. There’s no awkward transitions in the business plan from high-price, low volume to low price, high volume, no question of the company’s manufacturing ability. The car was developed in-house, by a company that is backing it at a scale aimed at crushing the start-ups. If the US government wants to lay the foundations for an EV manufacturing base in the US, it’s hard to imagine a better project to stimulate.

Whether the government should be involved in developing any specific kind of economy is, as always, a matter for philosophical debate. Practically speaking, however, neither the Solyndra scandal nor the possible future collapses of Tesla and Fisker will have much bearing on real the value of the DOE’s ATVM program. Especially if political patronage did indeed play a role in Fisker, Tesla and Solyndra’s funding, they will simply prove that government programs are vulnerable to waste and corruption. No surprise there, nor any problems unique to the “green economy.”

If, on the other hand, events in a certain turbulent region of the world (combined with demand pressure from China and India) send gas prices soaring again, Smyrna could end up justifying the entire loan program.If the market turns to EVs in an energy crisis scenario, the Leaf will be the only EV with the combination of (relatively) low price, adequate performance and most importantly production scale to meet a spike in demand. In a scenario in which EVs are suddenly in high demand, what good are Tesla and Fisker with their expensive low-volume luxury cars?

Like any other investment or gamble, you always have to balance risk and reward. Not only does Nissan’s project offer the least risk, as it has the resources to absorb losses, but it also offers the most clear reward of any other EV bet. Certainly the government should have stayed away from Tesla and Fisker, but it’s difficult to say that we won’t one day be glad to be hosting the epicenter of EV manufacturing for the leading pioneer in EV manufacturing.

Disclosure: Nissan bought myself, Bertel and Steve Lang lunch at a “Meat and Three” on the day we visited the Smyrna facility. Don’t know what a “ Meat and Three” is? I didn’t either…