In a long and proud tradition started by Solyndra and A123, and going through such Tesla ancestors as the Fisker Karma and Coda, the US government continues to demonstrate that when it comes to misallocating capital, albeit in (or due to) the pursuit of noble "green" causes, it has no peer. Fast forward to today, when we find that the latest casualty of a world in which ridiculous business models and lack of cash flows does not result in an Amazon-esque happy ending, is Eco(fa)tality, a maker of batteries and Blink charging stations [4]for electric cars, which overnight filed for bankruptcy [5].
[6]
If fact, do not pass go, do not pretend to have anything even remotely close to a sustainable business mode, and go straight to a liquidation auction.
Because of “significant liquidity constraints and the difficulty of obtaining long-term financing,” Ecotality decided on an asset sale rather than a reorganization, the company said.
Odd, does this mean the DOE was unwilling to sink even more good taxpayer money after bad? And speaking of "sunk taxpayer costs", here is the final bill to Uncle Sam, and thus, Joe Q. Public:
A unit of the company, Electric Transportation Engineering, listed assets worth as much as $50 million and debt of as much as $500 million in papers filed yesterday in U.S. Bankruptcy Court in Phoenix. The biggest unsecured creditor listed is the U.S. Energy Department, owed $6.5 million under a government contract that Ecotality is disputing. The San Francisco-based company also said it has two cost-sharing grants with the agency totaling $126.6 million.
In other words, goodbye another $133 million. Then again, in a world in which Japan buys $50 billion in US Treasurys in one month, this is a rounding error. Plus it is not as if anyone expected the money to be repaid in the first place. In fact, the company's end was well telegraphed:
In August, the company warned investors that it might be forced into bankruptcy, in part because of weaker-than-anticipated sales (ECTY:US) and a failure to release a new version of its Minit Charger this year.
The company said it plans to put all its assets up for sale at an auction overseen by the court. Before it filed, eight potential bidders signed confidentiality agreements giving them access to Ecotality financial data so they could decide whether to submit an offer.
Because of a cash shortage, the company decided to file bankruptcy before the auction process got started, according to court papers.
But wait, it gets better. Because contrary to reps and warranties by such innovators as Tesla who have yet to sell about 95% of the cars their market cap suggests they will sell, the electric battery business is going rapidly from bad to worse. WSJ reports [7]that "two executives at top automotive battery companies said this week that the cost of lithium-ion batteries used in electric and hybrid vehicles are on a steady decline and are likely to be about half of today's price by 2020. However, one cautioned the costs of the electronics systems that monitor and control the batteries could remain high because of a lack of standardization among hybrid auto makers."
Brian Kesseler, the president of Johnson Controls Inc.'s Power Solutions division said cell costs may indeed fall by half, but overall costs of battery packs, which include the control systems that surround the energy source, are unlikely to decline that quickly without standardization across different auto makers.
"The real issue is the cost of the total system," he said. With each auto maker using a customized system to run its electric vehicles, it's unlikely to overall cost of an electric vehicle is likely to decline dramatically.
And here is where it gets ironic:
Auto makers and battery makers won't disclose the cost of batteries, but Argonne National Laboratory estimates that the average cost is about $500 for each kilowatt-hour of energy storage. The Nissan Motor Co. Leaf has a 24 kWh battery pack, which would approximate to $12,000. Nissan won't say what it's costs are, but the Leaf starts at $28,800 and is built on the same basic engineering as the Nissan Versa hatchback, which starts at $13,990.
The cost of batteries has long been the greatest challenge for electric vehicles. The challenge to reduce costs has been highlighted because Tesla Motors Inc. TSLA and General Motors Co. say they intend to develop an electric vehicle that travels 200 miles on an electric charge that can be sold for $35,000 and about $30,000, respectively. To get there, both companies will need to greatly lower battery pack costs.
Ironic, because when one combines part 1 and part 2 of the article, the big picture emerges: one in which the supply chain is riddled with price inefficiencies, and zero substitution. In it, a successful electric car maker needs cheap batteries to be profitable, and battery makers need to be expensive. The problem is that the second prices drop enough, yet another (subsidized) battery maker drops dead files for bankruptcy (as it is has zero pricing flexibility courtesy of the same initial subsidy generosity) taking out excess supply from the market, eliminating further technological innovation, and keeping prices sticky. And high.
And that is precisely the reason why anyone hoping for a commoditized electric car from any maker (be it Tesla or GM), will need to see substantial subsidies by either the parent or the government first, which in turn will simply perpetuate the cycle.
Which of course is the reason the entire "green" auto space is in the predicament it is in, aside of course for that focusing on the cool electric car fad du jour and plaything for the uber-wealthy, which a year ago was the Fisker Karma (at least until it started spontaneously combusting), and now it is Tesla. Which then begs the question: when the Tesla X is no longer "cool" and the uber wealthy have moved on to the next fad "du jour", how will a niche ultra-luxury targeting company (whose potential customers are well-known for their fickle and easily changing tastes) survive with zero margin power as it moves to compete in the ever more commoditized market?