Newly obtained documents show the Obama administration was warned as early as 2010 that electric car maker Fisker Automotive Inc. was not meeting milestones set up for a half-billion dollar government loan, nearly a year before U.S. officials froze the loan after questions were raised about the company’s statements.
An Energy Department official said in a June 2010 email that Fisker’s bid to draw on the federal loan may be jeopardized for failure to meet goals established by the department.
Despite that warning, Fisker continued to receive money until June 2011, when the DOE halted further funding. The agency did so after Fisker presented new information that called into question whether key milestones — including the launch of the company’s signature, $100,000 Karma hybrid — had been achieved, according to a credit report prepared by the Energy Department.
Fisker was losing about half a million dollars for every car they made.
The loan programs have been justified as an attempt to prevent companies from falling into the “Valley of Death”: the time after they get their initial capital but can’t get further loans but haven’t quite become profitable. Supposedly, the government makes loans to companies in the Valley of Death to tide them over to the point where they become profitable and everything works out. But I called this a load of crap two years ago:
There’s a concept behind the “valley of death” that [Austin] Goolsbee knows well – creative destruction. In order for one startup business to succeed, many have to fail. We have to find out what doesn’t work before we can find out what does. And having the government hold people’s hands and make businesses “too small to fail” interferes with that process.
We need the Valley of Death. Government should not be tipping people into it with regulations that favor big business (CPSIA comes to mind) or ridiculous taxes. But business that succeed overcome the valley by crawling over the broken bodies of those that came before. Failure to fail is not an option.
The failure of Fisker automotive is not a bad thing. Lessons can be learned by what they did wrong and future companies might be better. What was a bad thing was the government ignoring the data in front of them to prop up a dying company in the vain hope that they would get them through the Valley of Death. What was a bad thing was this was almost certainly not informed by any business sensibility. This propping up was for political reasons, including the desperate desire to not have a highly visible failure on their hands.
We should not be surprised or outraged by the failure of Fisker or Solyndra or anyone else. Failing is what most start-ups do. What we should be outraged about is the Federal Government burning money in an attempt to support business friends and cover their asses.