Energy Department Revives Stimulus Loans as Another Electric Vehicle Company Stalls

Energy Department Revives Stimulus Loans as Another Electric Vehicle Company Stalls
April 7, 2014

Paul Chesser

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

As Energy Secretary Ernest Moniz announced last week a renewed push to provide $16 billion in taxpayer-backed loans for “clean” technology vehicles, more bad news emerged from another stimulus-funded electric vehicle company over the weekend.

Smith Electric Vehicles, the truck company that was supposed to “make it” because electrification made so much sense for short, urban delivery routes, halted production at the end of 2013. A quarterly report at Recovery.gov attributed the stoppage to “the company’s tight cash flow situation.”

While not a beneficiary of the Advanced Technology Vehicles Manufacturing Loan Program that Moniz wants to revive, Smith Electric is another reason why subsidies of any type for this floundering pseudo-industry – loans, grants, tax breaks, etc. – are enormous wastes. In light of the hundreds of millions of dollars that other companies like Fisker AutomotiveEcotality and A123 Systems received, Smith’s $32 million in grants is comparatively modest. But perhaps no company was less deserving of the subsidies than the Kansas City-based truck maker.

Smith’s selling point was that delivery routes in urban areas did not require a long range between refueling (or, recharging). Frequent stops and short distances alleviated the “range anxiety” affixed to cars like theNissan LeafFrito-Lay, Coca-Cola and Staples were cited as early adopters of the truck demonstration project, which the grants were supposed to support.

But in reality, as NLPC reported in December 2011, Smith was already a failed company based in the United Kingdom – 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 theLondon 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.

Despite that track record, in August 2009 the Obama administrationannounced a $10 million award to Smith-U.S. – less than eight months old in America. The following March Missouri Sen. Claire McCaskillannounced the additional $22 million for Smith’s truck demonstration project. All this early taxpayer money didn’t just go to a company with no history, or an existing one with promise, but a foreign flop.

Still, the Obama administration and McCaskill did their best to inflate prospects for Smith, with both visiting the manufacturing facility and boasting of its promise. And every so often in the last couple years there would be a flurry of positive media coverage for which there was no justification: An empty promise to build a manufacturing facility in The Bronx, and another unfulfilled pledge to build a plant in Chicago. In reality the boasts never came to fruition because they were wholly dependent on state and local subsidies that never materialized. Bottom line: prospects for the business were not based on a vehicle that the market actually demanded, but instead upon government financial favors.

How do we know? Because fundamental math shows that Smith waspractically giving away their trucks for the demonstration project. 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 Dec. 31, 2013) under the $32 million grant shows that Smith delivered 439 of its vehicles, with $29,150,672 reimbursed to the company with government funds thus far. That calculates to a sizable $66,402 taxpayer subsidy per vehicle.

As the New York Times has reported, 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. And then there are various state and local government support as well.

Alas, all that taxpayer dough still didn’t appear to be enough to make Smith viable. And at the current rate the Department of Energy has supported its trucks, there isn’t enough money left in the grant to reach the goal of 510 vehicles in the demonstration project – they will fall about $2 million short, assuming they have any money left at all. With 44 percent to 67 percent of the trucks’ cost subsidized just under the grant program – let alone all the other government incentives – Smith’s survival without training wheels looks virtually impossible.

According to the Kansas City Star, company officials aren’t talking, which also looks bad. An email from a DOE spokesperson said, “DOE continues to work with Smith Electric on the path forward for the remaining vehicle production.” Whether or not the company is making its lease payments to the city’s Aviation Department is going unanswered.

It’s more bad timing for Secretary Moniz to start making the case for more subsidies to electric vehicles, but then again, there is never a good time with this administration’s track record.

 

[Originally published at NLPC]

Paul Chesser

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