February 5, 2016

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Tesla Motors Models S

Tesla Motors Models S

In a crumbling economy that has sent investors into lethargy, the U.S. Department of Energy, DoE has lent billions to car startups.  Is it a wise, calculated move or simply a desperate one?

The gist is that at some point in a crisis, something has to happen.  There is nothing worse than doing nothing.  Governments need to act, else they risk being removed by the same people who voted them into power.  So movement is better than none.  While a growing number of skeptics are questioning the logic of lending money to recent car startups, we could also question whether or not the traditional system of lending money to chronically mismanaged behemoths ever yielded positive results.

Lending Money To The Little Guys.  In one instance, lending money to a big car making company actually worked.  It was in the late 1980s when the government lent money to Chrysler that introduced its award winning mini van.  The company repaid its debt, the government made money, everyone was happy.  At least for a while.  Sadly enough, after that, it was all downhill.

The current scheme of lending money to smaller companies might look like a risk at first but it is a well calculated one with a conservative and guarded approach.  Fisker Automotive and Tesla Motors have received more than their balance sheet have.  The loan is part of more bills that are forcing car makers to make more fuel efficient vehicles.  Within it, section 136, the Advanced Technology Vehicle Manufacturing Incentive, has $25 billion to help automakers achieve the new fuel efficiency standards, as long as the new vehicles have a fuel economy of at least 25% greater than the fleet average in 2005.

While numbers do not lie but figures can, the DoE seems to have approached this with a careful stance.  While time will tell if lending money what makes up for the bulk of the U.S. GDP, small to mid-size businesses has worked, it is a breath of financial air, and also sends a message that it is acknowledging the important role startups play globally.

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