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Obama and Electric Cars: Ener1 Bankruptcy is a $118.5 Million Loss

By Jim Fink on January 27, 2012

Last September, I wrote about the bankruptcy of solar-panel manufacturer Solyndra and the $535 million loss of U.S. taxpayer funds the Obama Administration had caused by giving Solyndra a loan guarantee.

If you thought that disastrous example of government central planning was a fluke, think again. In October 2011 – only two months after Solyndra filed for bankruptcy – another Obama-subsidized “green energy” company called Beacon Power went belly up, and $39.1 million more in taxpayer funds is at risk of evaporating.  Beacon’s technology focuses on a near-frictionless magnetic field that enables a flywheel contraption to convert intermittent power from windmills and solar panels into a storable form of power that could be used by the nation’s electric grid.

Unlike Solyndra, Beacon’s technology remains viable and the company hopes to sell its flywheel facility by the end of January to pay back at least a portion of its government loan, but the fact remains the company failed and this $39.1 million in government money would have been better utilized elsewhere.

Electric Car Battery Company Ener1 Files for Bankruptcy

If all this weren’t enough, just yesterday (Jan. 26th) a third Obama-subsidized company called Ener1 (Other OTC: HEVVQ.PK) declared bankruptcy, causing $118.5 million more in taxpayer funds given as a grant – not a loan — to go up in smoke. According to Ener1’s press release, while the common stock will be canceled and become worthless, the claims of unsecured creditors will be “unimpaired” under a restructuring plan that includes a new $81 million equity infusion from private investors. Hopefully, this recapitalization will enable Ener1 to continue to function and the U.S. government grant will prove not to have been a total waste, but only time will tell.

Ener1 appears to be moving away from the passenger car market altogether. In a May 2011 earnings conference call, Ener1 CEO Charles Gassenheimer talked about “portfolio diversification” in which the company would de-emphasize the “light duty automotive” segment because electric passenger cars were simply uneconomic:

Without some demand creation from governments whether it be the DOE, whether it be China with $18,000 of credit, whether it be mainland Europe with VAT and other tax incentives, without some government intervention this business doesn’t work in the near term.   

Apparently, the board of directors didn’t like Gassenheimer’s candor because he was subsequently fired four months later. Ener1’s current CEO Alex Sorokin made similarly candid comments, however, in the bankruptcy filing press release:

Our business plan was impacted when demand for lithium-ion batteries slowed due to lower-than-expected adoption for electric passenger vehicles.

In other words, nobody wants an electric car because they’re expensive, have very limited driving range, and don’t go fast enough. Just look at the disastrous sales figures for the Chevrolet Volt, which has failed to catch on despite my cousin Jocelyn’s endorsement of it. As Washington columnist Charles Krauthammer put it:

The only people who are going to buy it are going to be very rich people who are going to park it outside their townhouse for ostentatious show of how virtuous they are while they drive around in their Cadillac Escalade.

This is a classic example of what happens when the political and ideological desires of an administration are imposed on a private company. It’s not how many jobs you create or even save, it’s can you sell a product in the market that will make a profit? Otherwise, it’s a farce.

The Obama Administration Wrongly Believes a Centrally-Planned Economy Will Succeed

If the Ener1 bankruptcy wasn’t such a tragedy for its common shareholders, it would be funny given the emphasis it gives to the Obama Administration’s image as the “Keystone Cops” of clean energy. In August 2009, Obama announced the Ener1 grant in Indiana before a cheering throng of partisan Democrats. Just last January – a year ago to the day of Ener1’s bankruptcy filing – Vice President Joe Biden visited Ener1’s manufacturing facility in Indiana and gave a speech touting the company’s technology and its importance to America’s clean energy future:

This Administration is forging a new path forward by making sure America doesn’t just lead in the 21st Century, but dominates in the 21st Century. We’re not just creating new jobs—but sparking whole new industries that will ensure our competitiveness for decades to come—industries like electric vehicle manufacturing.

Yeah, right. The U.S. is dominating the 21st Century just like Charlie Sheen is “winning.” But it gets funnier. Just two days before the bankruptcy filing, President Obama bragged about Ener1 in his “State of the Union” address before Congress, stating:

In three years, our partnership with the private sector has already positioned America to be the world’s leading manufacturer of high-tech batteries. I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here. 

I’m sorry, Mr. Obama, but your central-planning mentality is a big mistake. The best way to beat the Chinese and Germans is not by subsidizing specific companies with uneconomic technologies.

Basic Research Funding — Not Corporate Subsidies — is Needed

The way to win the technological arms race is to fund basic research – research without any apparent commercial application but which can be utilized by all U.S. companies in the free-for-all known as the free marketplace where the market decides which companies win and which companies lose.

In an interview with Wired magazine, Microsoft founder Bill Gates explained why U.S. government funding of basic research is much more important than subsidizing existing businesses, yet such wasteful subsidies constitute 90% of U.S. government funding:

We’re putting 90 percent of the subsidies in deployment—this is true in Europe and the United States—not in R&D. And so unfortunately you get technologies that, no matter how much of them you buy, there’s no path to being economical. You need fundamental breakthroughs, which come more out of basic research.

According to a May 2010 report from the U.S. Congress Joint Economic Committee, basic research funding needs to be doubled if the U.S. is to compete successfully in the world:

Increases in the level of research intensity in the U.S. and four other developed countries may have accounted for close to 50 percent of U.S. economic growth between 1950 and 1993. One study estimated that actual R&D expenditures may be less than half of the optimal level.

Underinvestment in basic research may be greater than that, since basic research can have a much larger impact than applied research or development. With this in mind, the level of funding for basic research may be worrisome. From 1958 to 2008, total expenditures on R&D as a share of gross domestic product (GDP) have generally hovered around 2.5 percent. Perhaps more importantly, overall spending on basic research has been substantially smaller, reaching 0.3 percent of GDP in 2008.  

U.S. Energy Policy Should Be Based on Natural Gas But We Need Action Not Just Words

One thing President Obama said in his State of the Union speech I agree with is the need to support natural gas production in the United States because it is economic, relatively clean, and reduces our dependence on foreign oil from undemocratic governments that don’t share our values. Specifically, Obama stated:

We have a supply of natural gas that can last America nearly 100 years. And my administration will take every possible action to safely develop this energy.  Experts believe this will support more than 600,000 jobs by the end of the decade. 

Yet, Obama’s “talking the talk” isn’t being followed by “walking the walk.” Quite the contrary, Obama seems to be doing everything in his power to thwart the increased usage of North American energy sources. Two cases in point:

It seems that Obama is pursuing a two-pronged strategy that is the exact wrong course for U.S. energy policy: (1) subsidizing uneconomic clean energy; and (2) thwarting the development of economic and American-sourced energy. The U.S. needs to reverse course as soon as possible before it’s too late.

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  1. avatar
    Jack Glenn Reply February 4, 2012 at 9:38 AM EDT

    You and I make two people who agree on the last paragraph. If we can get two more people tomorrow and four people on Monday and eight people on Tuesday and sixteen…

  2. avatar
    Lew Reply February 4, 2012 at 8:03 AM EDT

    The only thing wrong with a centrally planned economy is that it is centrally planned.
    Everyone who disses the Fed and Alan Greenspan should read his autobiography “Alan Greenspan, The Age of Turbulence, Adventures in a New World”.
    It is as unbiased as anything I’ve ever read:
    As a Republican I’m appalled by what occurred when the Republicans had a majority and for what Obama inherited from the Bush administration.
    As a citizen I find it beyond belief that Obama and the Democrats failed to understand all that was wrong, blamed Bush for all the wrong reasons, then proceeded to jump us off the economic cliff the Bush administration left behind.