The resignation of Jonathan Silver, the U.S Energy Department’s top loan officer, over the Solyndra scandal may be the tip of the iceberg. He supervised a much larger DOE loan program that suffers from the same problems as Solyndra: over the last 18 months, the Department has awarded more than $9 billion in below-market loans to auto companies under its Advanced Technology Vehicle Manufacturing (ATVM) Loan Program.
The most troubling transaction: a $465 million loan to California’s Tesla Motors. Tesla received a loan rate of 1.6% from DOE to manufacture an all-electric car that will sell for nearly $50,000. It will not exactly be the people’s car. Tesla also builds luxury sports cars that retail for $103,000 to $128,000.
Tesla also is no simple new age car company. It is owned and financed by big donors to the Democratic Party and to Barack Obama’s 2008 presidential campaign. Tesla’s principal owner is Elon Musk, the founder of PayPal. He has an estimated personal wealth of $672 million. His firm received venture capital from the The Westly Group, Daimler Chrysler, and from Abu Dhabi investors. The firm has partnerships with luxury sports car manufacturer Lotus and with Mercedes-Benz.
The secret to access to the DOE money is The Westly Group, run by California Democratic Party stalwart and big Obama campaign bundler Steve Westly. The former eBay executive wasn’t merely a prodigious fundraiser for Obama, raising $500,000 for his presidential campaign. He also served as the president’s California campaign co-chairman. Another Obama $500,000 bundler was Solyndra investor George Kaiser and his foundation.
Westly got statewide attention in 2006 when he spent $35 million of his own money to run an ugly and largely negative race against California state Treasurer Phil Angelides for governor.
Westly is a personal friend of President Obama, and since the election has visited the White House for meetings and social parties. He privately dined with the president in February with a small group of Silicon Valley billionaires. It was called the “trillion-dollar dinner.”
Westly was rumored to be on Obama’s energy secretary short list. When he lost out to physicist Steven Chu, the White House got him a seat on a pivotal DOE advisory committee that made recommendations to the secretary on alternative energy policies. The committee voted in favor of changes to federal rebates for all electric cars — which would benefit Tesla.
Westly’s Washington political connections to the White House have made him a “pied piper” of DOE money for start-ups. DOE records show that Westly’s venture capital firm has reaped at least $500 million in DOE loans for his companies, wowing Silicon Valley’s VC community.
Westly also sat on Tesla’s board of directors early in the car company’s life.
Tesla’s CEO Elon Musk also has been a generous donor to the Democratic National Committee, contributing more than $120,000 over three different election cycles and $292,250 to political campaigns, overwhelmingly to Democrats.
Financial analyst Brian Krasting has called the DOE loan program “free money” for all electric car manufacturers at taxpayer expense. Others have called the Tesla deal a form of “corporate welfare” for the president’s friends. There have been complaints from alternative energy companies that the ATVM loans were awarded because of political connections.
DOE defends the Tesla loan, telling PJMedia it was sound and neutrally approved by its financial analysts. However, the DOE spokesman also acknowledged not knowing of the company’s plan for a $200 million NASDAQ IPO when it awarded the firm the loan. Nor did the spokesman say DOE knew Toyota was to become its partner in the plant when DOE issued the loan.
There is a general question of competence regarding the DOE loan staff’s ability to examine the 130 loan applications they received from high-tech firms. A February 2011 report by the U.S. Government Accountability Office concluded that the staff did not have adequate expertise for evaluating the “green” companies that were seeking the loans:
Without qualified oversight to analyze the information submitted by the borrowers and to provide technical monitoring, the ATVM program cannot be adequately assured that the borrowers are delivering the vehicle and component projects as required by the loan agreements.
Rep. Cliff Stearns — chairman of the House Energy and Commerce Oversight and Investigations Subcommittee that has jurisdiction over the Solyndra scandal — tells PJMedia he is launching an investigation “looking at the entire program, and some specific companies.”
The Model S, for which DOE awarded Tesla most of the $465 million, reportedly will sell for as much as $67,000. The company has yet to record a single quarter of profit and continues to see its own stated production schedule slip. It now promises that the Model S will be launched at the end of 2012, a year late.
Tesla says it still hopes to sell the base model for around $47,000 before governmental rebates. That still may be too steep a tag even for environmental enthusiasts.
When the White House gave a half-billion dollar loan to Tesla, President Obama lauded it as “[a] historic opportunity to ensure that the next generation of fuel-efficient cars and trucks are made in America.”
While on the committee, Westly supported a $7,500 instant rebate for electric car buyers. (Most federal rebates come long after a sale, when a customer files his income tax forms.) The new rule supported by Westly automatically deducts the $7,500 off the retail price of a car at the time of the sale. The regulation is now in force and will apply for all Tesla customers.