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EV Hype and Hope

Solyndra shakeout hits the electric car business

In the past few years, hype over electric vehicles reached a crescendo in the media and in political circles. The good news is that this hype spurred major investments -- both private and public -- toward R&D and commercialization that’s already starting to show results (See “The Hundred-Dollar Race” - left) . The bad news, however, is those results haven’t yet translated into dramatically better or cheaper cars in showrooms, leaving first-generation EVs to compete against mature gas-powered cars with much lower sticker prices.

This early-phase shakeout suggests the politically driven DOE loan program needs reform.

The difficulty of that competition became clear in March 2012, when Chevrolet suspended production of the plug-in hybrid Volt, because inventory was stacking up. But in addition to slow sales for products already in the market, some new concepts have failed to get out of the garage, providing fodder for skeptics who say batteries can’t against internal combustion, and subsidies are a waste of taxpayer dollars.

Such skepticism isn’t entirely misplaced; many questions about battery technology remain unanswered. And the hype cycle for any new technology tends to raise unrealistic expectations in the early years -- expectations that might never be realized. However, potholes and problems don’t indicate the end of the road for electric transportation -- far from it. This early-phase shakeout suggests the politically driven DOE loan program needs some restructuring to ensure it achieves the goal of a competitive and financially viable electric transportation industry.

The Valley of Death

In every new industry, companies on the so-called “bleeding edge” of technology frequently find themselves at perilous risk of running out of funding before they can establish a sustainable revenue stream. Another metaphor is the “valley of death” -- the place where new technology ideas go to die, because they can’t get enough funding to become fully commercial. That seems to be happening now, as companies struggle to deliver on a promise whose technology foundation hasn’t yet solidified.

DOE loan applicants accused the Obama administration of stonewalling to avoid making loan commitments that could provide campaign-trail fodder for the president’s opponents.

The purpose of the Department of Energy’s (DOE) clean energy loan guarantee programs -- including the Advanced Technology Vehicles Manufacturing (AVTM) program -- is generally to help new technologies cross that valley of death, so they can pursue a viable commercial future. These loans are differentiated from some DOE grant programs, which fund basic research at earlier stages. But as with any government program, DOE’s loan guarantees attract a great deal of political attention, creating substantial political risks for the administration that approves them.

Such political risk turned into a scandal for the Obama administration last year, when solar technology company Solyndra went bankrupt after collecting nearly $530 million in federal loans. The episode sparked a controversy about DOE processes, and prompted allegations of political favoritism in the White House. And since then, DOE seems to have tightened the purse strings for new energy technologies. In fact, DOE hasn’t approved a single AVTM loan since before the Solyndra bankruptcy, and as a consequence,