Message to Washington: Don't turn a good government program into a bailout

Diarmuid O'Connell, Vice President of Business Development, November 27, 2008

When Congress passed the landmark Energy Independence and Security Act (EISA) in December 2007, the media and Capitol Hill focused heavily on the Corporate Average Fuel Efficiency (CAFE) standard. Congress increased the standard from 27.5 mpg to 35 mpg by 2020, marking the first time the CAFE average had been raised since the 1970s.

Almost entirely lost in the subsequent discussion was the fact that Section 136 of EISA created a $25 billion fund known as the Advanced Technology Vehicle Manufacturing Incentive Program (ATVM). The ATVM specified that the Department of Energy (DOE) should provide loans, loan guarantees and grants to new and existing automakers and suppliers to encourage development and speed delivery of next-generation cars – vehicles that meet higher standards for fuel efficiency and stretch technology beyond the internal combustion engine. The program aimed to provide “grants and loans to eligible automobile makers and component suppliers for projects that re-equip, expand, and establish manufacturing facilities in the U.S. to produce light-duty vehicles and components that make meaningful improvements in fuel economy performance.”

The ATVM program became a reality when funds were appropriated in late September to get the program off of the ground.  Tesla Motors immediately began developing an application, proposing two advanced technology vehicle projects to be funded by DOE loans. The first project is an Advanced Battery and Powertrain Manufacturing facility that would supply batteries and components for Tesla cars and, more importantly, for other automakers. The second project would help us to finance a manufacturing facility to make our second vehicle, a five-passenger sedan known as “Model S.” We submitted our application to the DOE Nov. 16 – three days after the program became official.

Meanwhile, the macroeconomic environment deteriorated, and Detroit automakers scrambled to find a solution to quickly replenish their rapidly depleting cash reserves. October sales for nearly all large automakers plunged to near-record levels, prompting executives to consider strategically questionable mergers and even bankruptcy – moves they claimed would cost millions of jobs.

Naturally, their sights turned on Washington, seeking bailout loans from the Treasury Departments via the $700 billion Troubled Asset Relief Program (TARP). But when the White House made it clear that the TARP was off limits to the automakers, some on Capitol Hill initiated an effort to divert the $25 billion ATVM monies into a general bailout of domestic automakers -- an option that would not fund next-generation powertrain work but would instead give ailing businesses little more than a short lifeline. The pressure on Congress to pervert the intended purpose of the ATVM program will be intense when the CEOs return to Washington in the first week of December.

It would be an enormous mistake to refashion the ATVM into a bailout. The original spirit and intent of the program is critical for the nation’s economic security – and the importance of the program is even greater given the harrowing economic climate.

Earlier this month, as layoffs were mounting among the Detroit automakers, President-elect Barack Obama broadly outlined an economic recovery plan that could put 2.5 million Americans to work, many of them in “green collar” jobs, building wind turbines, installing solar panels and developing fuel-efficient cars. California is already showing that America needn’t buy into the specious argument that pits the environment vs. the economy: In October, the University of California, Berkeley, released data showing that the state’s energy-efficiency policies created nearly 1.5 million jobs from 1977 to 2007 and boosted salaries by $44.6 billion.

Since its founding in 2003, Tesla Motors has been directly addressing the pressing crises of energy security and climate change. The company is already producing the Roadster, an innovative precursor to other all-electric, zero-emission models in Tesla’s product pipeline -- de facto evidence that electric vehicle technology is here today. Tesla Motors is applying for the DOE loans in the truest spirit and intent of the program, and the company does not endorse the diversion of the ATVM resources for a bailout of any kind.