April 6 (Bloomberg) -- Fisker Automotive Inc.’s mass firings after receiving federal loans to build luxury plug-in cars is adding to the political debate over the U.S. government’s funding of clean-energy programs.
Most of the assets of Fisker’s battery supplier that received a $249.1 million federal grant, the former A123 Systems Inc., were acquired last year by a Chinese company. Now Fisker, awarded $529 million in U.S. loans, is firing 75 percent of its workforce after failing to secure a deal with an automotive partner to fund operations.
The debacle is reviving questions over whether the government should be funding makers of alternative energy ventures. Fisker and A123, whose bankruptcy halted Fisker’s output, have drawn Republican criticism of President Barack Obama’s support of green-energy programs intended to spur more fuel-efficient cars.
“The Department of Energy has never owned up to its mistakes and acknowledged it didn’t do a good job of choosing Fisker and A123 as worthy of taxpayer investment,” Senator Chuck Grassley, an Iowa Republican, said in an e-mailed statement.
Another Republican, Senator John Thune of South Dakota, predicted “the company could go bankrupt and cost millions of taxpayer dollars.”
Fisker, the maker of rechargeable $103,000 Karma sedans, told a “core group of employees in Southern California” this week of the plan and expects about 25 percent of workers to stay, the Anaheim, California-based company said in an e-mailed statement. Fisker said last week it had about 200 employees.
“Our efforts to secure a strategic alliance or partnership are continuing in earnest, but unfortunately we have reached a point where a significant reduction in our workforce has become necessary,” the carmaker said in the statement. The cuts are a “strategic step in our efforts to maximize the value of Fisker’s core assets,” the company said.
Fisker has struggled since stopping assembly of Karma sedans last year when A123, the supplier of the car’s lithium-ion batteries, filed for bankruptcy. Fisker’s access to U.S. loans was blocked in 2011. Henrik Fisker, the auto designer who co-founded the company, quit last month over unspecified disagreements with other executives.
Henrik Fisker declined to comment about the job cuts. Two telephone messages left for Chief Executive Officer Tony Posawatz weren’t returned. The firings come after Fisker instituted one-week furloughs in March.
About 160 people at the company were told yesterday that they were being fired, said two people familiar with the matter who were not authorized to discuss it publicly. Fisker, in its statement, said it met with discharged employees, without providing a number.
Last week, China’s Dongfeng Motor Group Co., a carmaker that had considered buying a stake in Fisker, said those discussions were over. Fisker has repeatedly declined to identify specific companies it’s talking to.
The closely held carmaker retained restructuring lawyers from Kirkland & Ellis LLP, said a person familiar with the matter who declined to be identified because the move isn’t public. The law firm’s corporate bankruptcy and restructuring practice is one of the biggest in the U.S.
Fisker, founded in 2007, has sold about 2,500 Karma plug-in cars. The company has said it was seeking investors to raise funds for a second model, the Atlantic, to be priced lower than the Karma.
Fisker, with celebrity customers including singer Justin Bieber and actor Leonardo DiCaprio, has raised more than $1 billion from private sources, including Silicon Valley investor Kleiner Perkins Caufield & Byers, and was awarded $529 million in low-interest federal loans in 2009 to develop and build its plug-in hybrid cars.
That hasn’t been enough to sustain operations after a slow startup, technical flaws that led to two Karma recalls and the bankruptcy of A123, also a recipient of federal funds. The Waltham, Massachusetts-based battery supplier, bought last year by China’s Wanxiang Group Co., said last week in a U.S. regulatory filing that it changed its name to B456 Systems Inc.
Fisker reached a settlement this week with B456 that reduced its claims by 89 percent to $15 million.
Fisker said last year that the Energy Department blocked access to its loans after the carmaker failed to meet an initial timetable for Karma deliveries.
“The Department of Energy stopped payment on the federal loan in 2011 after Fisker stopped meeting their milestones, and is committed to the best outcome for taxpayers,” Aoife McCarthy, an Energy Department spokeswoman in Washington, said in an e-mailed statement.
“Despite Fisker’s difficulties, our overall loan portfolio of more than 30 projects continues to perform very well, and more than 90 percent of the $10 billion loan loss reserve that Congress set aside for these programs remains intact,” McCarthy said.
Fisker’s Karma goes as far as 40 miles (64 kilometers) on electricity before a gasoline engine kicks in. The company’s U.S. loans came from the Advanced Technology Vehicle Manufacturing program created under President George W. Bush to help automakers build more fuel-efficient cars and trucks.
The Obama administration approved Fisker in 2009 for loans of $169 million for engineering of the Karma and $359 million for production of the lower-priced Atlantic, to be built at a U.S. factory. Karma was designed in the U.S. and built under contract by Valmet Automotive Oy in Finland, an arrangement set before it got the loans.
Fisker said it had drawn down $193 million from its low-interest loans when access to the remaining portion was blocked. Work on a Wilmington, Delaware, plant where Fisker wanted to build the Atlantic stopped more than a year ago as a result.
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