News Story

Electric Vehicle Battery Subsidy Failures Evident Early On

Former Gov. Granholm defends her policies in Detroit Free Press article

Last week, the Detroit Free Press concluded that the massive giveaway of state tax dollars to electric vehicle battery makers failed to generate the thousands of jobs that were promised.

In particular, a March 16 article noted that, "today, Michigan has only a few hundred battery workers in four plants — despite $861 million in Obama administration stimulus grants and $543 million in Michigan tax credits awarded by former Gov. Jennifer Granholm’s administration in 2009."

Readers of Michigan Capitol Confidential are not surprised by this news given that the failures of the electric vehicle battery industry in Michigan have been chronicled by this news service for years. Yet, it is good news for taxpayers that other media outlets now are paying attention.

Former Gov. Granholm described the battery industry as a "new Michigan economy" where the state would become the center for advanced battery production. 

It didn't happen.

The state and federal government awarded more than $1.4 billion in tax credits and direct subsidies to four companies — A123 Systems, Dow Kokam, Johnson Controls and L.G. Chem. Nearly $600 million in federal money alone was spent. Three of the companies went bankrupt and all have missed their job projections by a long shot. 

About 6,826 jobs were predicted, according to information in the Free Press article. The four companies have about 575 total employees today, less than a tenth of what was projected.

James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy, was talking about the problems with the state's plan early on. In April 2009 he was quoted in a MIRS story after the Michigan Economic Development Corp. made estimates that the battery industry would create 62,000 jobs.

"Considering that there are only 26,200 battery manufacturing jobs in the entire nation, the MEDC appears to be living in electric powered fantasy world," Hohman said nearly five years ago.

The Bureau of Labor statistic revised its 2009 number to 24,000 battery manufacturing jobs in the U.S. There still were just 26,200 battery manufacturing jobs in the U.S. as of January 2014, the latest month for which data is available.

The Free Press reported that former Gov. Granholm still defended her policies.

"Granholm still doesn't regard Michigan's incentives for battery makers as wasted money. 'Just because the jobs haven't happened 'yet,' it doesn't mean that cracking the code to vehicle batteries was the wrong strategy,' said Granholm, who is teaching at the University of California, Berkeley," according to the Free Press story.

Jack McHugh, senior legislative analyst for the Mackinac Center, said former Gov. Granholm's stance illustrates the combination of "hubris, folly and political deceit" he says is at the core of all government attempts to pick winners and losers in what is supposed to be a free market economy. Nearly every legislative Republican also voted for the subsidies.

"This is why what Hayek called the 'fatal conceit' of government central planners is so fatal," McHugh said. "When private investors and entrepreneurs stake their own money and reputations on a speculative venture, their motive is to make money. If it fails, they have no choice but to say 'oops' and hopefully learn from the experience. In contrast, when politicians use taxpayer dollars to make such bets, they are primarily pursuing political benefits, not economic ones. That motivation greatly increases the likelihood of failure. When it occurs, it explains why the politicians (and the bureaucrats who manage these programs) are never willing to acknowledge that the adventure was a mistake."

Michigan Capitol Confidential has chronicled the failures of green energy companies. 

In November 2012, CapCon reported that Michigan was home to half of the country's largest bankrupt green energy companies

Articles also were done on the failed promises of LG Chem; the GOP reviving the subsidy program after vowing to end it; and the MEDC (the state's corporate welfare arm) removing videos of politicians promising success. 

Michigan Capitol Confidential also did dozens of stories chronicaling the collapse of A123 Systems.

In a September 2010 story, two industry experts called A123 Systems "a risky venture."

Additionally, Michigan Capitol Confidential showed how A123 Systems increased the pay of its top executives by as much as $70,000 while it was laying off employees and suffering net losses of $170 million-plus through the first three quarters of 2011.

A123 Systems filed for bankruptcy in October 2012.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.