Thursday, May 31, 2012

We'll Make More

The latest example of the follies of the government trying to pick winners and losers instead of letting the market sort such matters out comes in the area of batteries for electric cars. As reported in today’s WSJ, the efforts of Uncle Sugar to spur the battery market forward have largely come to naught:

Since 2009, the Obama administration has awarded more than $1 billion to American companies to make advanced batteries for electric vehicles. Halfway to a six-year goal of producing one million electric and plug-in hybrid vehicles, auto makers are barely at 50,000 cars.

The money funded nine battery plants—scattered across the U.S. from Michigan to Pennsylvania and Florida—that have few customers, operate well below capacity and, so far, have created less than a third of the jobs promised by 2015. Customers including start-up Fisker Automotive Inc. and auto makers like General Motors Co. that urged the funding have struggled to produce and sell battery-powered cars, though they insist a market is coming.

President Obama heralded the "birth of an entire new industry" during the ceremonial opening of A123 Systems Inc.'s production plant in 2010. The president's 2013 budget proposal asks for an increase in tax credits to car buyers to amp sales.

Getting to that electric-car nirvana is proving more difficult. A123 is scrambling to stanch losses and raise new money to stabilize its finances. Rival Johnson Controls Inc. used government grants to build a battery plant in Holland, Mich., but that facility is nearly idled now after its main customer went bankrupt. Korea's LG Chem built a plant in Michigan to supply General Motors, but that plant, which employs 220 people, hasn't yet begun production, a company spokesman confirmed.

What happened? The U.S. provided grants that tied the battery makers to aggressive timetables, requiring each to achieve production and staffing targets that would supply tens of thousands of vehicles a year. But those production timetables weren't linked to market demand, leading to a shakeout among suppliers.

Yes, that old pesky market demand side of the equation again. Reading about the government’s aggressive production timetables and staffing targets is remindful of the five year plans that the Soviets were so found of. We will bury you with our production. Whether or not anyone actually wanted what was being produced was entirely beside the point.