The executives and backers of Fisker Automotive are being called before Congress today to answer for the failure of the electric car maker that is being called the "Solydra" of the green auto movement. The company—which received more than $200 million in government funding during its short life—has laid off most of its employees, missed its first loan payment to the government, and hasn't built a car in months. It's only a matter time before bankruptcy arrives.
Fisker (named after co-founder and legendary Aston Martin designer Henrik Fisker) entered the auto industry in 2007 with plans to build the first luxury plug-in hybrid car. The Fisker Karma, the only model it every completed, was unveiled at a 2008 auto show and immediately started taking orders at $100,000 a piece. Only about 2,000 were ever delivered and the cars were beset with software and parts problems, frustrating owners with their constant and complicated repair jobs. The company fought over its technology with rival Telsa Motors and missed numerous production deadlines. After Henrik Fisker quit in March and 75 percent of the staff was laid off, the company began looking at bankruptcy options and the Energy Department began saying goodbye to its sizable investment.
But what about all that money? In 2009, Fisker applied for a $169 million loan from the Department of Energy, which had established a $25 billion fund to support the production of clean-energy vehicles. Sensing an opportunity to boost the industry in a time of rising gas prices, the DOE actually granted them $529 million, in the hopes of pushing the experimental car to the market sooner. They bought an abandoned General Motors plant in Delaware and made plans to manufacture a cheaper model in the U.S. (The company was headquartered in California, but built the Karma in Finland.)
Then the Karma missed its initial launch date. It finally hit the market with numerous production flaws. At one point there was a recall. The bugs piled up and so did the cost to fix them. The company was losing thousands on every vehicle. After the bankruptcy of solar panel maker Solyndra put the DOE's loan decisions in the spotlight, the government halted the rest of its loans, paralyzing the company's ability to spend more money and starting it on its death spiral.
The Wall Street Journal paints the story as one about the government asking too much too soon, and pressuring a small-scale auto startup to make promises it couldn't deliver. Fox News sees a repeat of Solyndra—betting big on an unproven technology and throwing good taxpayer money after bad when it went south. Documents released earlier this week showed that Energy Department officials were aware of Fisker's production problems but kept giving them money anyway. Conservatives see that as the worst kind of cronyism and another failure of big government spending and the futile search for green technology.
Many people are now saying the Fisker project was doomed from the start, but did it have to be? After all, the government isn't the only one losing money here. Fisker had plenty of big time venture capitalists eager to invest. (They became even more eager after the DOE became a partner.) If Fisker were a normal startup, and not one being counted to revolutionize carmaking, it would probably not have been expected to go from clay models to working production vehicles in three or four years. Tesla Motors, which has also received millions in government loans, had a five-year head start, never turned a profit before last quarter, and still doesn't have a mass-produced vehicle on the road. (Total sales for its two models still number in four digits.) But investors are patient and believe the company is on the right path.
It's true that Fisker Karma was shaping up to be a disaster, but pulling the plug on the Energy loans—and when trouble was at hand—virtually ensured that the problems would never get fixed. The inability of Fisker to pay its bills bankrupted its main battery supplier, another American company named A123 Systmes. The car company will likely file for bankruptcy soon, but unlike General Motors there is nothing left to emerge on the other side and the government won't be able to recoup its investment by taking it over and selling back to the public.
Some will see Fisker as another painful reminder that the government should get out of the investment business altogether and let priviate companies develop the technology of the future. Especially gas-free cars, though one failure shouldn't discredit the entire industry. Others will see as a reminder all investing is gamble. You have to be willing to lose occasionally if you ever expect to win. (Since DOE promised $529 million in loans, and only gave $200 million, did we save $300 million?) Of course,, Congress has a different definition—and a shorter timetable—for success than a Silicon Valley VC firm.
So maybe they should stay out of commercial investment, but only because the government can never truly balance the demands of investing and politics, when the two are so often at odds. Maybe Fisker Automotive could not have been saved, but when taxpayer money is what made the business run, they were probably never going to be given the chance.