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Fisker, Tesla, and American Auto Innovation

October 20, 2011 - 10:36pm

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Two years ago, critics said we shouldn't be investing in American auto manufacturing because the industry wouldn't survive. They were wrong then and they're wrong today. From well established names like Ford to innovative startups like Tesla and Fisker, America's auto industry is being reinvented, and the Department’s loan program is helping play an important role.

Created with strong bipartisan support in 2008 and signed into law by President Bush, the Department’s Advanced Technology Vehicles Manufacturing (ATVM) Loan Program is helping America compete for and win the auto manufacturing jobs of the future.

Our portfolio of auto manufacturing loans includes both large, existing manufacturers as well as new, cutting-edge start-up companies. Ford, for example, is using a $6 billion loan to retool manufacturing plants across Illinois, Kentucky, Michigan, Missouri, and Ohio and introducing new technologies that will raise the fuel efficiency of more than a dozen popular vehicles. This one loan is supporting 33,000 American jobs.

The portfolio also includes smaller, start-up companies like Tesla and Fisker that are creating thousands of new jobs and hold the potential to further expand if the companies are successful.

Congress set aside a $7.5 billion loan loss reserve because it recognized that creating American jobs and cutting our dependence on foreign oil means taking some risks.

About the Fisker Loan:

With the help of a $529 million loan, Fisker is producing high performance vehicles with an advanced hybrid electric powertrain that could significantly improve performance and fuel economy.

Fisker’s loan has two parts. In the first part, Fisker used $169 million to support the engineers who developed the tools, equipment and manufacturing processes for Fisker’s first vehicle, the Fisker Karma. That work was done Fisker’s U.S. facilities, including its headquarters in Irvine, California which has 700 employees and plans to continue hiring. While the vehicles themselves are being assembled in Fisker’s existing overseas facility, the Department’s funding was only used for the U.S. operations. The money could not be, and was not, spent on overseas operations. The Karma also relies on an extensive network of hundreds of suppliers in more than a dozen U.S. states.

The larger portion of the loan -- $359 million – is supporting the production of Fisker’s Nina vehicles. Fisker is using this funding to bring a shuttered General Motors plant in Delaware back to life and employing more than 2,500 workers. Fisker was attracted to this site in part by the opportunity to rehire some of the trained, dedicated workers who lost their jobs when that plant closed.

Fisker’s production schedule was delayed by regulatory issues that were outside of its control, but the company has successfully raised more than $650 million in private sector investment to support its ongoing operations since closing its DOE loan.

About the Tesla Loan:

Tesla will use a $465 million loan to reopen an abandoned GM/Toyota auto manufacturing plant in Fremont, California to produce the Model S, which is expected to be the first zero-emission, zero gas, full-size electric vehicle on the market. It will also produce battery packs, electric motors and other powertrain components that will power all-electric plug-in vehicles manufactured by Tesla and other original equipment manufacturers including Daimler and Toyota.

Prior to receiving the loan, Tesla employed 400 people. The company has since added over 1,000 new jobs and 100 contract engineers and expects to add another 1,000 in the coming year. This doesn’t even include the additional jobs created up and down the supply chain.

Like the Fisker loan, the Department’s investment in Tesla supports the commercial scale deployment of advanced technologies that could help keep American auto manufacturers competitive in the growing global market for advanced vehicles. Like Fisker, Tesla has also attracted significant private sector investment, including $620 million in private investment capital since receiving the Department’s loan.

Critics have complained that the first vehicles introduced by Fisker and Tesla are more expensive, high-end vehicles, while other loans in the Department’s portfolio are for more affordable vehicles. But this complaint misses the mark in several respects. First, both manufacturers plan to start with high end vehicles and then quickly move to more affordable product lines. These are start-up companies that intend to grow over time, so they are following a common pattern for emerging companies: starting with a premium product for a smaller customer base, and eventually moving to lower cost, mass marketed products as they gradually scale up operations.

Remember that plasma TVs, cell phones, personal computers and many other common products were once fabulously expensive luxury items, but quickly became a staple for middle class Americans. These price declines wouldn’t have been possible without the first, commercial scale marketing as premium products.

Each of these projects, like the loan program itself, has received strong bipartisan support. More importantly, both were approved on the merits after extensive review the Department’s loan program office. They represent exactly the type of cutting edge, innovative manufacturing this program was intended to support, and are part of a large, robust portfolio of investments that are helping America become more globally competitive.

Read What They're Saying: Industry and Bipartisan Support for Fisker and Tesla Loans

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