Proterra, an electric bus and battery company that President Joe Biden touted as a success of his green energy initiative, filed for bankruptcy in August. Last week, it finally sold its embattled battery business at a rock-bottom price as part of the bankruptcy proceeding. The rise and fall of Proterra demonstrates once again that politicians should refrain from betting taxpayers’ money on business ventures to advance their political agenda.
According to the Wall Street Journal, Proterra has sold only 550 electric transit buses since its founding in 2004. Most of the sales were underwritten by government agencies with federal grants. Proterra’s electric buses were plagued with mechanical defects and other performance issues, such as limited range and long charging times. Besides government subsidies, the company only survived as long as it had due to powerful political connections. Former Michigan governor Jennifer Granholm, Biden’s energy secretary, served on its board.
Despite all the quality issues of its EV buses, Proterra went public in January 2021 and raised $650 million, more than three times its annual revenue. A month after the company’s IPO, Biden tapped Granholm as his energy secretary. Proterra’s political connection to the Biden administration paid off in many ways.
Surviving on Grants and Tax Credits
In April 2021, Biden took a virtual tour of a Proterra facility to promote his infrastructure plan. The proposal included $6.5 billion in grants to help replace diesel-powered school and transit buses with electric ones. During the tour, Biden lauded Proterra for “getting us in the game.” He predicted that Proterra and other electric vehicle companies would “end up owning the future.”
Biden’s 2022 Inflation Reduction Act further enriched Proterra’s coffer. The law had little to do with reducing inflation, but it gave massive government handouts to the green energy sector. For instance, IRA includes a $40,000 per vehicle tax credit for purchasing electric commercial vehicles and an additional tax credit for EV batteries.
Proterra admitted in its quarterly report that “the availability of this new unprecedented level of government funding for our customers, suppliers, and competitors to help fund purchases of commercial electric vehicles and battery systems will remain an important factor in our company’s growth prospects.” Proterra’s political profile rose even more after Biden appointed Gareth Joyce, CEO of Proterra, to serve on the President’s Export Council in February this year.
Backed by Biden, Buried by Biden
Excessive government spending under Biden has sparked high inflation rates that were last seen in the 1970s. To bring inflation rates down, the Federal Reserve has aggressively raised interest rates. Higher rates increased production and operations costs for many companies. As legendary investor Warren Buffett famously said, “Only when the tide goes out do you learn who has been swimming naked.” Proterra was one of those companies that had been caught “swimming naked” in this new environment.
The company struggled because it had difficulty passing rising costs on to its existing customers, since most were government agencies with little budget flexibility. Nor could Proterra outsource its production overseas or import components at lower costs. Receiving government grants comes with strings attached. One requirement is that companies like Proterra must produce at least 70 percent of their EV components in America. Proterra couldn’t afford to cut the prices of its EVs to drum up sales.
Finally, Proterra filed for bankruptcy in August. Government subsidies could not offset the financial pressure of rising inflation, higher interest rates, and falling sales. Last week, a Swedish automobile manufacturer, Volvo, bought Proterra’s battery business for $210 million, a great deal considering Proterra was valued at $1.6 billion a year ago.
Another party who got an excellent deal was Granholm. She sold her Proterra shares for $1.6 million last year. They would have been worth nothing if she had held on to her Proterra shares until this August. The biggest loser of the whole Proterra saga is American taxpayers.
No Good News for Electric Vehicles
Proterra was not the only EV company that went under. Michigan-based Electric Last Mile declared bankruptcy in June 2022. Ohio-based Lordstown Motors went bankrupt a year later. Ironically, these companies benefited from the Biden administration’s climate handouts, but the economic consequences of the same policies eventually doomed them. Even large automobile companies’ EV units are struggling. Ford estimates it will lose $3 billion this year on its EV business. The company relies on sales of gas-powered vehicles and government subsidies to keep the EV business afloat.
More bad news about EVs is coming. The Wall Street Journal reported that Americans seem to have fallen out of love with EVs because they are more expensive than gas-powered ones. After all, the EVs cost more to make.
Additionally, the travel range of EVs is limited because few charging stations exist around the country. When Granholm took a road trip with EVs to highlight the Biden administration’s climate initiatives this summer, a Georgia family reportedly called the police on her staff for using a gas-powered vehicle to block access to a charging station.
Companies from GM to Tesla are considering putting additional EV investments on hold due to weak consumer demand. The WSJ Editorial Board remarked, “One lesson from Proterra’s failure is that government subsidies alone don’t create business success.”
A History of Government-Backed Failure
Biden should have known better. He was the vice president under former President Barack Obama when Solyndra, the solar panel manufacturer that Obama claimed would be a “sure winner in the solar industry,” filed for bankruptcy less than two years after the Department of Energy provided Solyndra with a loan guarantee for $535 million.
Although politicians have a poor record of picking business winners, don’t expect them to learn lessons from their spectacular financial failures. Ryan Yonk, a Research Fellow at the Independent Institute, observed that “support for renewable energy has reached the status of a moral imperative, and more importantly, a political imperative that elected officials must engage.”
That means American taxpayers will see more Solyndra and Proterra in the future and continue footing the bill for “green-washing” Democrats’ failed climate policies. The only way to stop this madness is to vote these politicians out of office. If any of these politicians made money from taxpayer-funded bets, they should surrender their profits to make taxpayers whole.
Comments are closed.