Fisker Automotive lays off workers after the Dept of Energy freezes loans
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Fisker Automotive, the designer and manufacturer of high end luxury plug-in hybrid cars, has run into a cash crunch and is laying off workers. Fisker is one of the recipients of Dept of Energy low-interest loans meant to jump-start electrified vehicle manufacturing in the U.S., but their plans have met delay after delay. Having missed one or more of the required loan program milestones, the Dept of Energy has frozen Fiskers line of credit. Which, of course, puts a kink in the company's plans.
Fisker Automotive is the brainchild of Henrik Fisker, a famed luxury car designer. The company focuses on hybrid electric cars and is currently producing the Karma sedan at a contract automotive manufacturing plant in Finland. Plans are to develop several other car models and to move manufacturing to a former GM plant in Delaware. The first of those new cars, the Surf, is planned to begin manufacture at the end of 2012 and begin delivery in 2013. That is, if the company can navigate this cash crunch.
The company was one of the recipients of the giant Dept of Energy loan program announced in the summer of 2009. Fisker's slice was $527 million, most of which was to go for development of the Surf and other later models, and reopening the GM plant in Delaware to manufacture the car. A small portion of that loan was to prepare the Karma for production, in Finland. Note that Fisker received low-interest loans from the federal government, not grants as has been done in other cases.
The loan program required that Fisker meet several milestones, and as each milestone was met some cash from the loan would become available. This means that Fisker would only receive the funds they qualified for, by virtue of having met the required milestones. “Our loan guarantees have strict conditions in place to protect taxpayers,” Damien LaVera, an Energy Department spokesman. “The department only allows the loan to be disbursed as the company meets certain milestones and demonstrates results.”
The company has drawn $193 million from its loans and has raised $850 million in private capital. It's expensive to launch a car company, right? “To date we have received $193 million of the $529 million Department of Energy loan, mostly for the Karma program, and received our last reimbursement in May 2011,” Fisker spokesman Roger Ormisher said in a statement Monday. “We are renegotiating some terms of the DOE agreement for the $336 million balance of the loan related to the Project Nina program.” Fisker also received a $9 million grant from the State of Delaware, about half of which has already been used.
Ornisher went on to say “A flex model of expanding and contracting staffing for development of new cars is routine in the automotive industry. Project Nina [the Surf] is already well-advanced. Much of the engineering, design and development is near complete and we expect to ramp up operations again quickly.”
The Dept of Energy may be shy about renegotiating a loan program considering the backlash in the wake of Solyndra's collapse after the DOE modified that companies loan package.
In January, Fisker quietly doubled the size of its Series D financing round from $150M to $300M. In an SEC filing the company reported having sold $244M of stock during the series D round, with $56M remaining to be sold. This demonstrates two things, first that Fisker is intent on getting the financing they need from private investors even if the DOE is unable to modify the loan, and second that the company's investors are strongly supporting the company.
Fisker has laid off 26 of the 100 workers refurbishing the GM plant in Delaware, and laid off another 40-45 workers at its California headquarters. The move is meant to preserve cash while the company works to meet the Dept of Energy loan program milestones. "They had not geared up yet because they're still behind schedule on the Karma," said Delaware economic development director Alan Levin. Levin went on to say "We knew that this was always a possibility, what they're trying to do is conserve cash." Levin said he had talked with Fisker co-founder and chief operating officer Bernhard Koehler who, according to Levin, believes that Fisker and the DOE are close to an agreement to modify the loan program, to free up some cash so Fisker can get the program going again.
“Our loan guarantees have strict conditions in place to protect taxpayers. The Department only allows the loan to be disbursed as the company meets certain milestones and demonstrates results. As has been widely reported, Fisker has experienced some delays in its sales and production schedule -- which is common for start-ups. As Fisker works through those issues and incorporates lessons learned from the production of the Karma, the Department is working with Fisker to review a revised business plan and determine the best path forward so the company can meet its benchmarks, produce cars and employ workers here in America," DOE spokesman Damien LaVera said in a statement.
The company has seen repeated delays in readying the Karma. The most recent was a potential fire risk discovered in the battery packs, which led to a recall by Fisker and A123 Systems that has been completed. The company also recently scaled back 2012 sales projections blaming a slow process in receiving their miles/gallon and emissions certifications.
Rep. John Carney called it “deeply troubling” to hear of any layoffs in these times. “I remain enthusiastic about the prospect of Fisker building the Nina in Delaware and creating much-needed 21st century jobs in our state,” he said in a statement. “While this setback is disappointing, it is important for the Department of Energy to ensure that they are distributing taxpayer loans in a responsible manner. I’m hopeful that the Department of Energy and Fisker can come to an agreement on mutually acceptable terms in short order and find a way forward.”
"We are frustrated that Fisker and the DOE have been unable to come to terms on revisions to their loan agreement in time to avoid this," said Brian Selander, a spokesman for Delaware Gov. Jack Markell.