DOE Puts Brakes on Alternative Vehicle Loans

By · March 21, 2013

Nissan LEAF battery plant

Low-interest government loans (not grants) allowed Nissan to begin producing high-volume electric car batteries in the United States.

The U.S. Department of Energy is no longer evaluating applications for the remaining $16.6 billion in low-interest loans—from a $25 billion program established to support advanced technology vehicles. Pending applications totally more than $1 billion were deemed either “not substantially complete” or not ready to move forward for a range of reasons, according to the D.O.E.

The cessation of loan application reviews was reported by the U.S. Government Accountability Office to the House and Senate sub-committees on energy and water development on March 15, 2013—after a nine-month review. The report spells the end of the program that was once considered vital to the future of electric cars and plug-in hybrids.

In September 2008, former President Bush established the $25 billion program of low-cost loans to help automakers retool plants to build more advanced technology vehicles, dubbed the Advanced Technology Vehicles Manufacturing Loan Program.

A round of low-interest loans were first announced in 2009. The biggest loan of $5.9 billion went to Ford to help the company shift truck plants to production of cars, and to support improved internal combustion engines and hybrid technology. Nissan received $1.6 billion in loans for plants in Tennessee to produce electric cars and the lithium ion batteries for those vehicles. Tesla received a relatively small portion of the government money, $465 million, to support production of the Model S all-electric sedan, as well as the battery-electric drivetrain designed for Toyota and Daimler. And ill-fated Fisker Automotive received a $529 million loan for the development and production of two lines of plug-in hybrid electric vehicles.

The low-cost loans carried a discounted interest rate of about 5 percent—enough to save automakers more than $100 million for each $1 billion borrowed. Automakers were given up to 25 years to repay the money.

The loan program, according to GAO reviewers, was stalled due to a number of critical reasons: applicants believed the review process was too lengthy and burdensome, and not worth the benefits of the program. And negative publicity associated with taking government support also led applicants to back away from the program, and made the D.O.E. more risk-averse.

Nonetheless, the GOA said applicants and automakers still expressed the need for the loan program, as a way to support development of fuel-efficient technologies. The program can be credited for supporting Nissan’s establishment of electric car and EV battery production to the United States, and for allowing Tesla to bring the Model S to market on schedule.

The original terms for Tesla’s loan required repayment of the loans by 2022, 10 years after the funds were drawn down. But the carmaker said in its annual report issued in early March that it would complete repayment by December 2017, five years earlier than required.

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