Green industries and the government--a sad case

I'm sure you've heard of the disaster at Solyndra, where our "wise" government leaders loaned tons of money to a green company. Despite dreams of instant benefits, the government was surprised to see Solyndra go down the drain. But that's not the only rat hole that the government's money has been poured into.

Consider Ener1 Inc., a lithium-ion battery maker also promoted by the White House. According to The Wall Street Journal, President Obama gave the company's subsidiary, EnerDel, a shout out in August 2009, in a speech in which he announced $2.4 billion in grants "to develop the next generation of fuel-efficient cars and trucks powered by the next generation of battery technologies."

EnerDel snagged a $118 million grant to produce batteries, and Vice President Joe Biden toured one of its two Indianapolis-area factories as recently as January, citing it as proof that government isn't "just creating new jobs—but sparking whole new industries." Uh-huh . . . And we know that Joe Biden always has his facts right.
Ener1 was founded in 2002, went public in 2008 and has never turned a profit. Catch that? Never turned a profit. In August, it restated its earnings for fiscal 2010 at a $165 million loss—nearly $100 million more than previously reported. On September 27 it ousted its CEO, and its share price yesterday was 27 cents—a 95% decline from its 52-week high of $5.95 in January. Gee, that sounds promising, right? I'd invest in that hot stock. Nasdaq is threatening to delist the stock, and Ener1 disclosed in a mid-August filing with the Securities and Exchange Commission that it is "in the process of determining whether the company has sufficient liquidity to fund its operations." Hmm . . . ominous words.

Ener1 attributed its financial restatement to the bankruptcy earlier this year of Norwegian electric car maker Think, in which Ener1 had invested, and with which it had signed a contract to supply batteries. Think had a long history of financial troubles and was hardly a safe investment. So not only does the government have bad powers of predicting economic success, so does the company in which it invests.

Then again, Ener1 had to rely almost exclusively on Think after it lost its bid to supply batteries to Fisker Automotive, a battery-powered car maker which received a $529 million U.S. taxpayer-backed federal loan guarantee in 2010. Fisker chose to buy its batteries from a company called A123 Systems, itself the recipient of a $249 million U.S. Department of Energy grant (announced at the same time as Ener1's grant). Do you see a pattern here? Loads of government money is flowing into these programs.

But here's the catch. It's hard to sell electric car batteries when the market for electric cars is so small. The Wall Street Journal claims electric cars are expected to make up less than 1% of car sales by 2018, but that hasn't stopped the feds from financing a glut of battery makers. Some 48 different battery technology and electric vehicle projects received federal money as part of the Administration's August 2009 announcement, including such corporate giants as Johnson Controls and General Motors.

Current estimates are that by 2015 there will be more than double the supply of lithium-ion batteries compared to the number of electric vehicles. This government-juiced industry is headed for a shakeout, taking taxpayer dollars with it. This, of course, makes no sense, but that's the government for you.

This is a sad illustration of something important. We should leave commercial financing decisions to private investors and bankers who are likely to take more care with their own money.