The Daily Populous Saturday November 30th, 2024 morning edition
Authored by fortune.com and submitted by The_Big_Untalented

Donald Trump’s designated government efficiency co-czar, Vivek Ramaswamy, signaled his intention to scrutinize a loan granted by the Biden administration to EV manufacturer Rivian, a rival of Tesla.

Ramaswamy, the founder of several biotech firms collectively known as the “Vants,” is due to take charge of the quasi-official Department of Government Efficiency, or DOGE, once Trump is sworn in. Together with DOGE co-leader Elon Musk, CEO of Tesla, their task is to radically reduce the size of the U.S. government by slashing regulations, sacking federal employees and eliminating waste in the system with a goal of lopping $2 trillion from the budget.

They have already pointed to spending earmarked for the Corporation for Public Broadcasting and Planned Parenthood, two organizations long targeted by Republicans, as a starting point for cuts. This could now extend to Rivian as well.

“Biden is forking over $6.6 billion to EV-maker Rivian to build a Georgia plant they’ve already halted,” he posted on Thursday. “One ‘justification’ is the 7,500 jobs it creates, but that implies a cost of $880k/job, which is insane. This smells more like a political shot across the bow at Elon Musk and Tesla.”

The loan would go to financing the construction of Rivian’s second factory, where it is expected to eventually build the R2 family of mid-size Rivians, positioned below the electric R1T pickup truck and R1S sport utility vehicle. In March, Rivian founder and CEO RJ Scaringe delayed construction to conserve cash.

There are reasons this loan could be viewed as political in nature. Helping build a financially ailing Tesla rival into a serious EV competitor would weaken Musk, who played a key role in evicting the Democrats from all branches of government this month. Indeed the Democratic governor of California conspicuously snubbed Tesla from a new state plan to extend EV subsidies to car buyers.

Musk’s Tesla an early recipient of federal loans—paid back in full early and with interest

Fortune has reached out to Rivian and the Trump transition team for comment. Asked about the criticism levelled at the loan, the Department of Energy issued the following statement:

“DOE’s Advanced Technology Vehicles Manufacturing program reinforces America’s position as a global automotive powerhouse, with one of the program’s biggest successes being the 2010 loan to Tesla that catalyzed the EV industry. We will continue to ensure that American workers have the tools they need to lead the world in the technologies of the future.”

Tesla repaid an ATVM government loan of roughly half a billion dollars in full with interest nine years early. Signed into law by President George W. Bush in 2008, the program became synonymous with failed industrial policy after the collapse of high profile recipient Solyndra. Trump already proposed eliminating funding for the ATVM program in his final 2021 fiscal year budget.

Ramaswamy’s calculation may be overly simplistic, however. Vehicle plants are often the most prized of all industrial manufacturing sites, not merely because they directly sustain thousands of families with well-paying blue-collar jobs.

Just as importantly, they sit at the apex of supply chains fed by entire economic sectors including steel, aluminum, electronics, chemicals, paints, plastics, rubber, leather and upholstery and many others responsible for the thousands of parts built into every modern passenger car.

Suppliers will often set up shop nearby, given the need to deliver parts just in time and exactly in the sequence they are needed on the assembly line. That further contributes to job growth and builds out a community’s tax base. Once these clusters settle around hubs like Detroit in the U.S. and Stuttgart in Germany, they tend to attract other businesses as well.

Desperate to diversify its oil-dependent economy, Saudi Arabia has backed Tesla competitor Lucid for this very reason. After stipulating the EV maker must manufacture cars in the country, the Kingdom subsequently won investments by Hyundai and Pirelli as well.

The Biden administration may have good reasons to support Rivian. It’s a premium EV brand with an image that speaks to America’s rugged outdoor spirit, a growing range of award-winning vehicles all built domestically and aspirational appeal for a young company with a respectable 720,000 followers on Instagram.

Ramaswamy could have instead pointed to Rivian’s primary problem: it remains loss-making, even on a gross profit basis. As long as this is negative, losses grow the more cars are sold. This is the opposite of what one hopes for, since typically automakers aim to scale their business profitably.

To fix this, Rivian has swapped out suppliers and streamlined its production process, even at the cost of shutting down its assembly line earlier this year. Its milestone goal for 2024 has been to prove doubters wrong and demonstrate the viability of its business by finally turning a gross profit in the current fourth quarter.

However, aiding the clean energy sector is viewed with suspicion by Republicans. Many of them see it as the government intervening in the free market to pick winners and losers—especially when the latter are fossil-fuel companies that donate heavily to the GOP.

Furthermore, federal loans in which the risks are socialized and the gains privatized are generally considered a last resort, something to be used surgically in the case of promising new technologies where traditional market forces would crush an burgeoning industry in its infancy.

It’s debatable whether aid to Rivian fits these criteria. While EVs may not be mainstream, Tesla has shown you can be profitable with the right product.

Moreover, investors have demonstrated they are willing to risk private capital given the proper incentives. German carmaker Volkswagen stepped up to provide vital funding to Rivian in exchange for access to its software.

Biden loan a case of ‘corporate welfare’ critics say

It’s unsurprising, then, that the conservative editorial board of The Wall Street Journal has cast a critical glance at the $6.6 billion loan as well.

“The Biden team is financing a struggling company with a known credit risk that is competing in a well-developed auto industry,” it wrote in a column on Thursday.

The explanation, according to the paper, was easy—Trump would never have approved such a loan, so it had to be granted now before the incoming administration takes office in January.

The solution it believes is just as obvious: Energy Secretary-designate Chris Wright must take action once the fracking executive and climate change denialist is in charge. “That includes cleaning up a Biden portfolio of corporate-welfare loans handed out for political reasons,” the WSJ argued, “not based on market principles or prospects.”

This updates an earlier version with a comment from the U.S. Department of Energy.

Fandango_Jones on November 29th, 2024 at 17:29 UTC »

The swamp is back. But this time with black jack and hookers!

PatSajaksDick on November 29th, 2024 at 17:24 UTC »

Seems like Rivian is just getting the same help that Tesla got

senatorsparky86 on November 29th, 2024 at 17:13 UTC »

The corruption is right out in the open.