The U.S. Bets a Billion on New High-Tech Automakers

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Thomas Kienzle / AP

Visitors look at a Tesla Roadster, an electric-powered sports car, at the Frankfurt Auto Show

Don't think the billions in government subsidies for automobiles are all flowing to Detroit. The U.S. Department of Energy (DOE) is ready to loan nearly $1 billion to Tesla Motors and Fisker Automotive, two fledgling automakers with deep roots in Silicon Valley and Southern California.

Both companies have promised to deliver fuel-efficient vehicles with advanced power trains that will alter perceptions about cars. "The Fisker Karma is the future of driving," says Henrik Fisker, founder and chief executive of the company bearing his name. "It proves we can drive environmentally responsible cars without sacrificing the emotional things that made us fall in love with cars in the first place." Fisker, the former design director for Aston Martin, has been in the auto industry for decades.

The company plans to deliver its first Karma roadster early next year. It is getting $528 million in low-interest, government-guaranteed loans to refine its plug-in hybrid-drive system, originally developed by its partner Quantum Technology of Irvine, Calif., with grants from the U.S. Department of Defense. Using that technology, the Karma can travel for 50 miles on lithium-ion batteries before the gasoline engine turns on to act as a generator, Fisker says. The preliminary price tag for the Karma is $89,900.

The DOE has also promised $465 million to Tesla, which has already sold 700 of its pure-electric roadsters at more than $109,000 each to Hollywood stars like Leonardo DiCaprio.

The money is coming from the Advanced Technology Vehicles Manufacturing Loan Program, which was created two years ago as part of the bipartisan Energy Independence and Security Act of 2007. It was funded by Congress last fall to accelerate the production of fuel-efficient vehicles for mainstream Americans and reduce the nation's dependence on imported oil.

How do young, untested companies get such generous taxpayer funding? Promising technology certainly counts, but it also pays to have potent political allies. Tesla, founded by the boyish 37-year-old Elon Musk, who made a fortune creating and then selling PayPal to eBay, has drawn support from California environmentalists and political figures such as Speaker Nancy Pelosi and Senator Barbara Boxer, both California Democrats, while Fisker's owners include Kleiner Perkins Caufield & Byers, one of Silicon Valley's most successful venture-capital firms, whose partners include former Vice President Al Gore. "This investment will create thousands of new American jobs and is another critical step in making sure we are positioned to compete for the clean-energy jobs of the future," said DOE Secretary Steven Chu when he announced the loan to Fisker.

It also doesn't hurt to keep at least a toe in Michigan. Tesla maintains a small office in the state, while Fisker has more than 200 engineers, 150 of them from suppliers, working at its engineering center in suburban Detroit. The Michigan connection was helpful when Fisker applied for the DOE loans earlier this year. As Gary Peters, the Michigan Democrat, said of Fisker's loan: "Propelling our auto industry into the 21st century is one key to Michigan's economic recovery."

In addition, both companies have attracted overseas capital. Last spring, Daimler AG bought a 10% stake in Tesla to get access to technology, and Fisker's investors include a fund operated by the government of Qatar.

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