Tuesday, October 27, 2009

(BN) Electric-Car Makers Use U.S. Taxpayer Cash to Enter Market `Full of Risks'

Bloomberg News, sent from my iPhone.

Electric-Car Companies Grab U.S. Cash to Blunt Risks

Oct. 27 (Bloomberg) -- Electric-car makers ranging from Ford Motor Co. to California startups are using $11 billion in taxpayer funds to supply a market that doesn't yet exist.

Fisker Automotive Inc., backed by a $528.7 million U.S. loan, said today it will join the rush to the assembly line by buying a closed Delaware plant from the former General Motors Corp. for $18 million. It will spend $175 million to refurbish and retool the factory to build plug-in hybrid cars.

"The cars built here are truly going to be the cars of the future," Vice President Joe Biden said at the announcement in Wilmington, Delaware. "It's important that we take the lead in this new technology," Biden added.

Obama administration aid to spur demand for more fuel- efficient autos is luring companies including General Motors Co. and Nissan Motor Co. into the electric-car push. The result may be a supply of new vehicles that outstrips demand, said Michael Omotoso, a senior manager for J.D. Power & Associates in Troy, Michigan.

"The U.S. government is saying we'll have 1 million electric vehicles on the road by 2015; we're saying it will take three to five years longer," Omotoso said. "Realistically, manufacturers could be selling 80,000 to 100,000 by 2015."

Investors betting on acceptance of electric autos include Kleiner Perkins Caufield & Byers, the venture-capital firm that employs former Vice President Al Gore and is backing Fisker.

Government Capital

"A huge amount of private capital is on the sideline, so a new locus for funding right now is the U.S. government," said Ray Lane, a managing partner at Kleiner Perkins who works on the firm's alternative energy investments. "The Department of Energy has stepped into the role of private capital, at least temporarily."

There are about 50 alternative vehicle ventures competing for capital right now and 40 of them will probably fail because they "never got scale," Lane said. Of the surviving 10, perhaps two will remain independent companies while the rest are acquired for their brand or technology, he said.

Former Treasury Secretary Henry Paulson is advising Santa Monica, California-based Coda Automotive, which seeks to import China-built electric sedans in 2010. He also is a Coda investor.

While Coda isn't requesting U.S. aid, Ford, Nissan and Irvine, California-based Fisker are among the companies approved for Energy Department loans and grants to build autos that meet President Barack Obama's goal of cutting tailpipe emissions and easing dependence on oil imports.

New Field

Making passenger vehicles that run on a charge from a household outlet is such a new field that global output this year may total only a few thousand autos. Obama seeks to have 1 million on the road within six years.

"Hybrids are still less than 3 percent of the market, and that's a relatively proven technology," said Rebecca Lindland, an IHS Global Insight Inc. forecaster in Lexington, Massachusetts. "Modern-day electric cars are still chock full of risks."

U.S. auto sales averaged 16.8 million this decade through 2007. PricewaterhouseCoopers LLP projected in an Oct. 19 report that global electric-vehicle output might reach 700,000 by 2015.

The idle so-called Boxwood plant, which was never part of the post-bankruptcy GM, will be used to build as many as 100,000 hybrids annually.

"This is a major step toward establishing America as a leader of advanced vehicle technology," Henrik Fisker, the company's chief executive officer, told more than 1,000 people gathered at the plant for the announcement. "We can lead the world again in car manufacturing."

Union Shop

Fisker has committed to making the plant "a union shop, so we are expecting union wages," said Kerry Kryspin, a trustee of UAW Local 435, which represents workers at the facility. The average autoworker made about $28 per hour at the plant before it closed last year, he said.

Automakers worldwide will introduce 42 plug-in and electric models from 2009 to 2012, according to an estimate from PricewaterhouseCoopers. The autos include new entrants from Ford and Detroit-based GM, which championed full-size pickups and sport-utility vehicles in the 1990s.

Nissan is making the biggest electric-vehicle commitment. It is targeting its $1.6 billion government loan to build as many as 150,000 battery-powered Leaf hatchbacks annually and produce lithium-ion battery packs in Smyrna, Tennessee.

"We think that we are the only full-line maker that's offering an electric vehicle as a mass-market vehicle," said Fred Standish, a spokesman for its U.S. unit. "We don't issue sales forecasts. We don't know where this market will be."

Tesla, Too

Ford, whose approval for $5.9 billion in federal aid makes it the largest such recipient, plans an electric version of its Transit van next year, an all-electric Focus sedan in 2011 and a plug-in hybrid in 2012. Some of the money for Dearborn, Michigan-based Ford is going to improved gasoline engines.

Tesla Motors Inc., which began delivering $109,000 Roadster electric sports cars last year, was approved for $465 million in Energy Department funds to help finance a battery plant and a factory to make the Model S electric sedan.

GM has said it will build as many as 60,000 Chevrolet Volt plug-in electric cars annually after sales begin in November 2010, while Toyota City, Japan-based Toyota Motor Corp. plans to build a plug-in model for fleet customers by next year and for retail buyers in 2012.

Electric cars may make up 10 percent of global demand by 2020, Nissan Chief Executive Officer Carlos Ghosn said on Aug. 2 at the company's new headquarters in Yokohama, Japan. IHS Global Insight estimates the total may reach 18 percent by 2030.

Fuel Prices

Fuel prices will be pivotal, according to the Center for Automotive Research in Ann Arbor, Michigan.

With gasoline at $6 a gallon, U.S. sales of plug-in vehicles may reach 518,000 by 2015, the center projected, based on a survey of executives at vehicle powertrain companies. At $2.50 a gallon, the total may be only 169,400. The U.S. retail average was $2.67 a gallon on Oct. 25.

Since June, the Energy Department has awarded $8.5 billion in loans to Ford, Nissan, Tesla and Fisker for development and production of advanced vehicles, and $2.4 billion in grants to set up lithium-ion battery factories in the U.S.

"Consumers aren't pulling on demand for electric vehicles," said Lindland, the IHS Global Insight forecaster. "Instead regulation and policy is pushing these vehicles into the market."

To contact the reporters on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

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- Kenyatta Lovett

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