Pressure To Bailout Big Three Grows, But What About Startups?

United States Capitol in daylightThe net is buzzing with discussion about the fate of the Big Three automakers. The American auto industry is in the middle of a meltdown of epic proportions. As the New York Times reports:

Whichever path they choose, Democrats could be headed for a confrontation with Mr. Bush and were setting the stage for a dramatic lame-duck session

The confrontation in question is a proposal from Senate Democrats, with backing from President-elect Obama himself, to bail out the Big Three, under the premise that they are too big to fail and that if they went under, the ripple effects would be devastating. Curiously absent from the discussion, however, is the fate of a host of cleantech startups making extremely efficient vehicles powered by electricity, electricity plus gasoline or biofuels, and so forth.

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For numerous reasons, from a long time pushing SUVs because of their higher profit margins (leaving them unprepared when a combination of economic slowdown, high gas prices, and increasing concerns over the environment and foreign oil came into play) to a massive legacy of providing benefits for retired workers, the Big Three are in dire straits.

At their current cash burn rate, by the time Barack Obama takes the oath of office, they may be down to the Big One, and shortly after that, Zero. Fearing the economic repercussions that could affect as much as 10% of US employers, Democrats are in a hurry to get an auto industry bailout passed before Obama takes office.

Across this country, new companies have started up to produce a wide variety of electric and plug-in hybrid vehicles. Vectrix makes electric motorcycles and is based in Rhode Island. Electric Motorsports makes electric motorcycles in Oakland, CA. Zero-X makes them in Santa Cruz, CA. Venture Vehicles is working on a small, tandem two seater leaning, enclosed motorcycle. Fisker Automotive makes luxury plug-in hybrid cars and is headquartered in Irvine California. Aptera makes affordable, hyper-efficient enclosed electric three-wheelers in Carlsbad and Vista, California. Tesla Motors makes electric sports cars and is headquartered in San Carlos, CA. Wrightspeed, also California-based, is building electric cars that make the Tesla Roadster look slow. Phoenix Motorcars makes fast-charging electric work trucks and SUVs and is based in California.

All of these companies are either mostly or exclusively focused on electric or plug-in hybrid vehicles. So, while companies like GM and Chrysler are to be commended for their EV projects (which are quite real and working their way towards release), the fact remains that these are the same companies that shortsightedly fought tooth and nail against California’s Zero Emission Vehicle mandate in the 90s, got it overturned early this decade, and immediately killed off their EV programs. And despite frantic efforts to retool, they’re still mostly set up to produce large, inefficient vehicles.

Does that mean that we shouldn’t bail them out? Reasonable people can differ; there are some strong economic arguments that suggest it’s the right thing to do. But what we shouldn’t do is reward them for a history of bad decision making at the expense of these innovative startups, and that’s exactly what a poorly designed bailout appears likely to do.

Instead, I’d offer a list of principles any auto manufacturer bailout should provide equally to EV startups:

1) Low-interest loan guarantees: Given that car manufacturing is a capital-intense activity, the credit crunch has been hitting these companies hard. Example: Tesla Motors had ambitious plans to produce a high-volume electric sedan called the Model S. The credit crunch has put these plans on hold. They even had to undo some of their previous expansion, laying off talent that they worked hard to recruit. Clearly this is antithetical to our goals to move forwards with clean technology. The government needs to provide loan guarantees to any manufacturer of clean, efficient vehicles to ensure that they can continue the critical effort to scale up operations.

2) Fair application of tax credits: Falling gas prices and a major drop in consumer confidence are a potential deadly cocktail for manufacturers of electric vehicles, which tend to have higher purchase prices but lower operating costs. Thankfully, congress enacted legislation to provide a sizable tax credit towards the purchase of all-electric and plug-in hybrid vehicles. Unfortunately, it was tailored for GM, and left many other companies out in the cold.

At the heart of the issue is a reference that defines motor vehicles by the definition in an older piece of legislation that mandates that for them to receive anything, they must have four wheels. Thus electric motorcycle purchasers don’t get a dime. Even purchasers of enclosed three wheelers that are designed to best four wheeled cars in terms of safety, such as the Aptera, are left completely out in a cold. The legislation was also changed so that it expires once a certain number of vehicles are sold by all manufactuers combined (instead of a per-manufacturer cap), thus favoring large manufacturers such as GM. The three wheel requirement should be removed and the language should revert to a per-manufacturer limit on credits received.

3) Government assistance for purchase financing: As mentioned, electric vehicles tend to have higher purchase costs but lower operating costs. The sticker shock, however, can be a big deterrent, especially during a faltering economy. The government should assist in providing financing to customers, where requested by manufacturers, to allow the purchase price of the vehicle to be spread over a longer length of time so that at no point will the buyer be paying more for an electric vehicle than they would for a gasoline car when purchase, maintenance, and operating costs are all combined.

4) Immediate efforts to begin construction of a nationwide charging network: Let’s face it — even on our current grid, running on electricity is cleaner than running on gasoline or diesel. As we implement carbon cap and trade, it’s only going to get cleaner. It’s also far cheaper than gasoline and less subject to rapid price fluctuations.

The economic boon of electrified transport, however, will be hard to realize without a nationwide network of charging stations, preferably rapid charging stations (such as are found on Oahu, allowing for 5-20 minute charges, depending on charger and battery type). It’s economically easy to justify the costs of building and operating such chargers even if only a small fraction of the US population drives EVs, but we’re in a chicken-and-egg situation right now. The government needs to step up to the plate.

If you wish to contact your elected officials about the bailout, you can get Senate contact information here and House contact information here.

Photo credit: Kevin McCoy (licensed under the Gnu Free Documentation License, v1.2)

Karen Pease

Karen is a software developer who spends her spare time developing tools to advance green technologies -- EV charger databases, solar power economics calculators, EV/PHEV simulators, etc. She can be reached by email or by phone: [email protected] 319-337-8815