Bottomless Subsidies Needed to Keep DOE Electric Truck Project Alive

Bottomless Subsidies Needed to Keep DOE Electric Truck Project Alive
July 10, 2013

Paul Chesser

Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes ... (read full bio)

Despite little news over the past nine months since its last-minute abandonment of an initial public offering that was supposed to raise $76 million in cash, stimulus recipient Smith Electric Vehicles is showing little evidence it can inspire demand for its commercial trucks, like its plug-in car counterparts.

Smith’s selling point for its step vans was that, unlike electric automobiles, delivery routes in urban areas did not require a long range between refueling (or, recharging). Frequent stops and short distances alleviated the “range anxiety” that accompanies cars like the Nissan Leaf. Frito-Lay, Coca-Cola and Staples were cited as early adopters of the truck demonstration project, which was launched with the help of $32 million in taxpayer funds.

Alas, it’s not helping. Once holding the lofty expectations of the IPO last September, the company is now quietly noting it raised $8.6 million in “bridge” funding. CEO Bryan Hansel said that the Kansas City-based company would pursue “private financing opportunities” instead, which apparently bore little fruit. Smith Electric lost $17.5 million in 2009, $30.3 million in 2010, $52.5 million in 2011, and $27.3 million through June 30 of 2012. The Kansas City Star reported in early September that Smith cut its production expectations and warning it is running low on cash, citing filings with the Securities and Exchange Commission.

A review of its grant on the Recovery.gov Web site indicates that users of Smith’s trucks under the demonstration project are only doing so at minimal cost to themselves. The most recent report (reflecting up until March 31) under the $32 million grant shows that Smith delivered 421 of its vehicles, with $27,343,311 reimbursed to the company with government funds thus far. That calculates to a whopping $64,948 taxpayer subsidy per vehicle.

As NLPC reported in December 2011, Smith has practically given away its vehicles to customers (if you want to call clients who pay next-to-nothing for your product “customers”). At that point the rate of subsidy was slightly less (about $57,000 per truck), but as the New York Times reported at the time – based upon information it received from a company representative – while the trucks range in price from $100,000 to $150,000, there were many other forms of grants and tax breaks to be had.

Smith’s Web site revealed other clues about how much its clients benefit from government program subsidies. Among the incentives were: the Alternative Fuel Infrastructure Tax Credit (up to 30 percent of the vehicle’s cost); Qualified Plug-In Electric Drive Motor Vehicle Tax Credit (between $2,500 and $7,500 per truck); EPA Diesel Emissions Reduction Act Grant (up to 25 percent of the total cost of a vehicle); Clean Cities Grant (up to 50 percent total cost of the vehicle); and Congestion, Mitigation and Air Quality Funds.

Those are just the fed subsidies. The individual states also have their giveaways and rebates, which Smith also tracks for prospective customers. For example, New York has five different programs that electric truck owners can benefit from. And considering that New York City is as appropriate an urban setting as any for Smith’s sales pitch, the company capitalized on $6 million in state and city incentives for itself in November 2011, to build an assembly facility in the South Bronx.

With this much free money, it wouldn’t surprise if the likes of Frito-Lay and Staples were paid (after netting out everything) to take Smith’s trucks and use them. While not going that far, Frito Lay’s director of fleet operations said last week electrification of his delivery vehicles is not worthwhile without somebody else footing most of the costs.

“In the short term, buying electric trucks without subsidies is extremely challenging,” Mike O’Connell told the New York Times. “In the long term, we expect costs to come down pretty dramatically.”

There’s no reason to believe that, unless Mr. O’Connell thinks the subvention has an infinite life expectancy. Consider that despite the Nov. 2011 announcement, Smith’s Bronx facility still sits empty because another expected subsidy was still in limbo. According to the Times report, a waiver was needed in order to sidestep the Department of Transportation’s “Buy America” program so that Smith could use its Czech Republic steel supplier rather than an U.S. one. The Federal Highway Administration finally waived the requirement last week for Smith and several other companies.

The already plentiful subsidies still aren’t enough to incentivize Smith to use American steel!

In addition Smith awaited the availability of voucher programs for New York State and New York City, which cover significant percentages of the costs of buying electric trucks instead of traditional diesel. Similarly, Smith announced last year it would build a plant in Chicago, but that has gone nowhere – waiting for, you guessed it, the availability of more local subsidies.

You might think the slowness of its development and dependency on taxpayers might make Smith Electric a bit humble, but we’re talking about the renewable energy world. The industry rule is to brag about any insignificant milestone or mythical development, regardless of the degree of truth behind it, so as to hype up enthusiasm for more investment. And they always ignore the fact that their businesses are complete failures that are utterly dependent on government infusions of public money coerced from taxpayers.

Smith issued its latest boasts about a month ago, when it said it delivered its 700th vehicle and reached five million miles of operation from its trucks.

“The growing demand for fleet transformation through electrification is driven by Smith Electric’s customers in recognition of the significant economic and environmental benefits of short-haul fleet electrification…,” the company said in a June 11 statement. “With these important milestones achieved, Smith will be positioned to move fully into commercial scale manufacturing and enable electric fleet transformations around the world….We look forward to the future with confidence.”

Send your investment dollars now!

The only reason for such assurance is if Smith has been promised subsidies indefinitely. As NLPC reported in April 2012, a study commissioned by the U.K. Department of Transport examined the total costs of ownership of low emission vans, in light of the British government’s plans to extend its Plug-In Car Grant program to electric trucks. It found that for electric trucks to make economic sense, government would need to provide grants indefinitely in order to compete with diesel-powered vehicles.

“The report’s authors suggest that cash incentives will need to continue to compensate owners for the higher running costs, as well as non-financial incentives…,” reported England-based Fleet News. John Lewis, CEO of the British Vehicle Renting and Leasing Association, said, “The government has put its money where its mouth is by delivering the Plug-in Van Grant and other tax incentives, but it needs to give operators confidence that these will be more than just short-term measures.”

There are reasons to refer to the British study, as that’s where Smith originated. As NLPC reported in December 2011, Smith was already a failed company based in the U.K. – a division of a larger company called the Tanfield Group. Smith-U.S. established itself in Kansas City in January 2009, following a precipitous drop in Tanfield’s U.K. stock value in mid-2008. Financial analysts became troubled because claims the company made about matters such as vehicle orders could not be verified. The company was accused of exercising poor disclosure standards and weak financial controls, according to the London Telegraph. Tanfield’s cash evaporation led the company to lose 97 percent of its value in 2008, prompted inquiries by the London Stock Exchange and by the U.K. Accountancy and Actuarial Discipline Board.

Nevertheless in August 2009 the Obama administration announced a $10 million award to Smith-U.S. – less than eight months old in America. The following March Missouri Sen. Claire McCaskill announced the additional $22 million for Smith’s truck demonstration project. All this early taxpayer money didn’t just go to a company with a nonexistent track record, or an existing one with promise, but instead it was one with a horrible history in a foreign country!

Perhaps giving away electric trucks or heavy dependency on taxpayer subsidies may not be stellar, but how many green jobs were created via the Smith Electric truck demonstration project? Going by the most optimistic measures reported at Recovery.gov (it’s unclear if some of the reported jobs are duplicative or not), an estimated 63 hires were made thanks to the $32 million grant. As mentioned earlier, $27.3 million has been reimbursed so far, so the subsidy has created one job for every $433,333 delivered to Smith Electric.

That’s the signature of President Obama’s green strategy, whether there’s a bankruptcy (Solyndra, A123 Systems, etc.) or not: it’s subsidizing failure all around.

[First Published by National Legal and Policy Center]

Paul Chesser

Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes ... (read full bio)