Fisker Failures May Prevent Delaware From Getting Its Money Back

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Fisker logoAmidst its ongoing financial problems and search for a “strategic alliance” that it says is not an attempt to sell the company, Fisker Automotive continues to make its current business partners extremely nervous.

In particular are those “investors” that represent the taxpayers of Delaware, who foolishly committed $21 million in public money to the California-based company, in exchange for a promise to take over a former General Motors manufacturing plant to build its next electric car, the Atlantic. But rather than generate thousands of “green jobs,” instead the factory sits dormant while Gov. Jack Markell and the state’s economic development officials stew. And now the state has learned that if Fisker goes belly-up or fails to operate in Delaware, the repayment of the funds it has outlaid is subordinate to the rights of other lenders to get their money back, including the U.S. government.

The problem isn’t just zero production and no employment. The First State taxpayer insult added to the injury is that they have been stuck paying hundreds of thousands of dollars in utility bills for the facility. Meanwhile, as NLPC reported two weeks ago, Fisker has hired investment bank Evercore Partners, Inc. to find business partners or investors (while it denied it is considering bankruptcy or a sale of the company). In addition the bankruptcy sale of battery supplier A123 Systems has stalled Fisker’s production of its only model, the Karma, which has been assembled in Finland.

The fact that Fisker cannot operate without further financial help – despite claims it has raised over $1 billion in private capital, and was loaned $193 million by U.S. taxpayers – plus the uncertainty of where a new business partnership might shift future production (if there is any), does not boost the confidence of Markell and the Delawareans. Fisker spokesman Roger Ormisher, in an interview with the Delaware Journal, did not offer firm assurance.

“The logical first choice at this stage is still Delaware,” he said. “I can’t tell what the end result is going to be. We feel as a company that Delaware and local officials have been extremely supportive of Fisker as we’ve gone through this process.”

The feeling is not mutual in Delaware. Not only has there been inactivity at the empty plant in Newport, but Fisker has not produced a single Karma anywhere since July, according to the Journal.

“If you’re not producing your product, you’re in a world of hurt,” said Rebecca Lindland, an industry analyst at IHS Automotive. “They’re not making product, and their battery, basically the motor of their car, isn’t being produced, either. That’s two strikes against them.”

Acknowledging the obvious, the Journal reported that Fisker has “lowered its expectations for Delaware,” which had been an unbelievable 100,000 vehicles per year for the plant. Production had been scheduled to begin by now. Previous statements by company officials also indicated second thoughts about Delaware, as previous CEO Tom LaSorda in April said Fisker was considering leaving the state.

“Tom’s comments may have been a little exaggerated,” said Jeff Garland, a Fisker official based in Delaware, in an email to the director of the state’s economic development office, which was obtained by the Journal. “Our situation is simply about a federal loan issue and finding the funds necessary to build Atlantic and other cars. It has nothing to do with whether Delaware is competitive.”

Three days after the email exchange, Garland was terminated in Fisker’s last round of Delaware layoffs. Markell said that while the company was partly to blame, he also attributed Fisker’s troubles to the politics surrounding the high-profile bankruptcy of Solyndra, which made Department of Energy bureaucrats skittish about approving stimulus funding for green energy projects (especially during election season). Fisker had been due $529 million in U.S. taxpayer-backed loans until DOE halted payouts due to failures to reach milestones for the $102,000-plus Karma.

The Solyndra debacle now haunts Delaware’s situation with Fisker. With Solyndra, repayment of U.S. taxpayer funds was secondary to the entitlement of other lenders/investors to get their money back first after the solar company went bankrupt. With Fisker, according to the Journal, “U.S. Department of Energy officials pushed for contract provisions in the (Delaware) incentive agreement that ‘deeply subordinated’ the state contracts to the earlier loans arranged by the federal agency and (Silicon Valley Bank).” The newspaper cited memos it had obtained via public records requests as the source of its information.

It’s not like Fisker hasn’t had a lot going for it, especially financially, if the $1 billion claim is believed. Celebrities – including Leonardo DiCaprio, Justin Bieber and Al Gore – are high-profile owners of the Karma. “Tonight Show” host and automotive expert Jay Leno delivered a positive review on his YouTube video series. And prolific Silicon-Valley investment firm Kleiner, Perkins, Caufield and Byers is a major backer, in addition to boasting political connections that likely helped Fisker get the attention of the Obama administration and the DOE.

But the bad news has been pretty bad. The firm that has been used to raise much of Fisker’s private investment, Advanced Equities, was subject to fines and punishment by the SEC and by the Financial Industry Regulatory Authority due to unethical practices, which ultimately led to its shutdown. Alleged misrepresentations led to an investor lawsuit against the company. Mishaps such as fires (due to technology failures and Hurricane Sandy) led to losses and hiccups in production. And those and several other factors led Consumer Reports to label the Karma the worst luxury sedan, and fourth-worst sedan overall.

Still, Fisker has many powerhouse venture capitalists and individuals on its side – so many that it’s ridiculous that it took taxpayer money in the first place. There is no good reason for them not to find more private investment. Kleiner Perkins senior partner John Doerr alone could assure the continuation of Fisker’s existence.

Too bad no one is around to make sure taxpayers are made whole again.

Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.