Energy
Fisker's Woes Put A123 Systems at Risk
Both the plug-in hybrid startup, and the company that supplies its batteries, appear to be in trouble.
- Friday, February 10, 2012
- By Kevin Bullis
Batteries included: A123 supplies the battery pack that can be seen here in a rendering of Fisker Automotive’s Karma sedan.
Credit: Fisker Automotive
After failing to meet the milestones required by a loan agreement with the U.S. Department of Energy, Fisker Automotive, a startup making high-end hybrid electric cars, announced this week that it will stop work on a factory in Delaware and lay off 26 people. Fisker's troubles could prove disastrous not only for Fisker, but for A123 Systems, which supplies the automaker with lithium-ion batteries.
The events raise the prospect of two failures at a time when the DOE loan and grant programs are under scrutiny after the bankruptcy of companies that it had funded: Beacon Power, Ener1, and most famously, Solyndra, a solar-panel maker that received a $535 million loan as part of a federal loan-guarantee program.
Fisker is a key customer for A123, using its batteries for its Karma plug-in hybrid luxury sedan. On Thursday, after news of Fisker's difficulties, shares of lithium-ion battery maker A123 Systems dropped 24 percent.
Although revenues for both companies have been increasing lately, both are operating at a loss and may need to raise more funds to stay out of bankruptcy. A123 Systems has numerous small contracts to produce batteries, and some larger ones that will come into play next year. But for now, it relies heavily on Fisker for revenue. Its fate could depend on whether Fisker can raise enough money from private investors or renegotiate its DOE loan terms.
A White House review of the DOE's loan program is expected to be released this week. In the current climate, it could be difficult for Fisker to renegotiate the terms of its DOE loan agreement, especially since the DOE is under fire for renegotiating the terms of Solyndra's agreement.
Fisker Automotive received a loan guarantee for $528.7 million, of which it has received $193 million so far. A123 Systems, a young company that was started with the help of government funds, was recently awarded a $249 million federal grant to build battery factories. It has used about half of the grant so far. Both companies have also raised large amounts of private capital.
Both companies have had good news in recent months. After years of delays, Fisker started selling its Karma sedan in October. It has now manufactured 1,500 cars and sold "hundreds," according to a company spokesperson. A123 Systems, a public company, announced high revenue growth in its most recent quarterly earnings statement, in November.
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arnetwork
86 Comments
- 465 Days Ago
- 02/15/2012
Subsidy means, to me, the government giving a company money that the company would otherwise not have. This money comes from tax revenue that might have been spent elsewhere or even left in the taxpayers pocket.
Deductions are reductions in the tax applied to money that rightfully belongs to the company.
There is an easily seen difference between the two concepts. They can be interchangeable words only if you believe all income, personal and commercial, belongs to the government which they may or may not allow you to keep.
W.R.T. the New York time article quoted:
The oil (and natural gas) field depletion allowance is recognition of the fact that eventually the field will be depleted of source material. Therefore, unlike most other industries there will be no value to the field for its intended purpose. If the oil company finds an alternative value for that field then it will be taxed at the regular rate. The depletion policy was instituted to encourage companies to take the risk of developing a field which will sooner or later, with complete certainty, lose its value. The govt. doesn't _give_ the company money. The govt. allows it to retain more of its earnings in recognition of the eventual loss of its entire revenue stream.
The article seems to accept the depletion principle but quibbles whether it should apply to the purchase price of a green field which might be virtually zero dollars or to the value of the developed producing field which might be worth hundreds of millions of dollars.
Since the point of the policy is to develop local sources of energy it seems to be eminently sensible to apply the concept to what the field is actually worth.
The second point of the article seems to be trying to show how evil it is to allow oil companies to classify royalties paid to foreign governments as being essentially the same as taxes paid to foreign governments.
While I can understand why some accounting techniques classify royalties and taxes as different, for obscure reasons, .. from a tax point of view there is no difference to the company or the govt.
There is a lot of room for discussion about deductions and which standards should apply. An easily understood debate is whether the purchase price of manufacturing equipment should be what is allowed to be deducted or its replacement cost. Should the full purchase price be deducted in the year of purchase or can it be allowed to be spread over a number of years and if so how many? These and dozens of other approaches vary from industry to industry depending on govt. policy wrt the perceived social benefits of the companies in question.
Agriculture is an example of many tax policies and some subsidies tailored to generate a supply of cheap, readily available food. Sometimes an emphasis is put on manipulating the size and efficiency of farms. Sometimes tax policy is adjusted to produce more of a certain type of product to satisfy a particular felt need such as ethanol. Sometimes farmers are paid not to produce what they would naturally produce which, of course, is a subsidy.
The point is that there are deductions and there are subsidies. All industries have varied tax deductions. Some have subsidies. They are different.
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erbium
343 Comments
Gee..
Let's bail them out with govt funds,
and let them go bankrupt anyway like Solyndra,
because they were doing 'something good'. </end sarcasm>
Reply
arpad
16 Comments
Re: Gee..
Yes, it's not results that matter but intentions.
A123's intentions are noble, as were Solyndra's and all the rest of the long, dreary list of failed "green" companies so they ought to get a pass or lots more government funding so they can continue to waste it.
Reply
ricardokramer
12 Comments
Re: Gee..
OK, but first make the government stop wasting funds subsidizing rich oil companies!
Reply
Spicoli
166 Comments
Re: Gee..
Besides being a red herring, that fiction is made possible by changing the word deduction to subsidy. A standard political word game to misrepresent something. Everyone has access to the same deductions on capital expenditures.
Reply
dcmeserve
215 Comments
Re: Gee..
So you assert that all deductions the Oil industry enjoys are the normal ones that all business enjoy -- and that there are no special deductions targeted specifically at oil/gas refinement/extraction? And no other special considerations?
Can you point to anything that will support that assertion?
Reply
Spicoli
166 Comments
Re: Gee..
Gee, if you understood basic logic, you would know demanding proof of a negative is a fallacy.
Reply
dcmeserve
215 Comments
Re: Gee..
..demanding proof of a negative is a fallacy.
No, making assertions that rely solely on such proof is a fallacy. That's what I was pointing out (and if you had actually come up a pointer to something convincing, maybe I could have learned something).
Anyways, here are some examples that disprove the negative. From a mid-2010 NY Times article, talking specifically about taxes (not trying to play any definitional games):
According to the most recent study by the Congressional Budget Office, released in 2005, capital investments like oil field leases and drilling equipment are taxed at an effective rate of 9 percent, significantly lower than the overall rate of 25 percent for businesses in general and lower than virtually any other industry.
...
Some of the tax breaks date back nearly a century, when they were intended to encourage exploration in an era of rudimentary technology, when costly investments frequently produced only dry holes. Because of one lingering provision from the Tariff Act of 1913, many small and midsize oil companies based in the United States can claim deductions for the lost value of tapped oil fields far beyond the amount the companies actually paid for the oil rights.
Other tax breaks were born of international politics. In an attempt to deter Soviet influence in the Middle East in the 1950s, the State Department backed a Saudi Arabian accounting maneuver that reclassified the royalties charged by foreign governments to American oil drillers. Saudi Arabia and others began to treat some of the royalties as taxes, which entitled the companies to subtract those payments from their American tax bills. Despite repeated attempts to forbid this accounting practice, companies continue to deduct the payments. The Treasury Department estimates that it will cost $8.2 billion over the next decade.
Over the last 10 years, oil companies have also been aggressive in using foreign tax havens. ...
The article also gives the Oil industry response that they still pay a lot of taxes. In my opinion, that is a red herring, because the issue is about whether special financial favors are being given to the Oil industry, not about taxes in general.
Reply
Spicoli
166 Comments
Re: Gee..
You failed at the first sentence, so I won't bother reading the rest of the irrational rambling.
Reply
dcmeserve
215 Comments
Re: Gee..
Your pattern is becoming clear. Start with only negative comments, inciting a response. When not able to respond to a comment with substance, declare a "fallacy" or decry an "ad hominem". Final maneuver is a condemnation as nuttiness/gibberish and a refusal to read. Collect ego points when opponents become flustered and show emotion.
So why do I respond to you? Well, sometimes I do get sucked in (you're welcome). Other times I feel the need to correct the assertions, and, as time allows, back them up with links & references, lest other less-informed readers get the wrong impression.
I do need to do more of the latter and less of the former.
Reply
yotab
56 Comments
Re: Gee..
You didn't count the price of Oil defense running into the 10s of billions if not over a $100 billion protecting Supplies in the Middle East which is shouldered by taxpayers
Reply
dcmeserve
215 Comments
Re: Gee..
A123's intentions are noble, as were Solyndra's and all the rest of the long, dreary list of failed "green" companies...
Ok, so here we have what looks like one of those assertions that "rely on the uncritical acceptance of convenient assumptions." Please show how this is not the case. Perhaps by enumerating that "long, dreary list" of failures, and/or showing how it compares to the full set of "green" companies that receive government subsidy.
Reply
yotab
56 Comments
Re: Gee..
We already bailed out Iraq, the Crown Jewel of Taxpayer toilet seats: $4 Trillion dollars, We Waste Billions protecting Oil Supplies in the Middle East, now a new Showdown with Iran. I'd rather develop new technologies that do away with Trillion dollar subsidies wars etc even though there may be some failure in the cost range of a couple of Billion dollars
Reply