Vivek Ramaswamy, a government efficiency aide appointed by Donald Trump, has signaled his intention to scrutinize the loan the Biden administration granted to electric vehicle manufacturer Rivian, a Tesla competitor.
Ramaswamy, founder of several biotechnology companies known collectively as “Vans“, is set to take charge of the quasi-official Department of Government Efficiency, or DOGE, once Trump is sworn in. Their mission, along with Elon Musk, co-chair of DOGE, and Tesla CEO, is to radically reduce the size of the U.S. government. By cutting regulations, firing federal employees, and eliminating waste in the system, with the goal of cutting $2 trillion from the budget.
They have already pointed to spending for the Corporation for Public Broadcasting and Planned Parenthood, two organizations long targeted by Republicans, as a starting point for cuts. This can now extend to Rivian as well.
“Biden allocates more than $6.6 billion to electric car maker Rivian to build a plant in Georgia that they have already blocked.” to publish Thursday. “One of the ‘justifications’ is to create 7,500 jobs, but that would mean a cost of $880,000 per job, which is crazy. This is very much like a political shot aimed at Elon Musk and Tesla.”
The loan will go to finance construction of Rivian’s second factory, where it is expected to eventually build the R2 family of midsize Rivians, positioned below the R1T electric pickup truck and R1S SUV. In March, Rivian founder and CEO RJ Scaringe delayed construction to conserve cash.
There are reasons why this loan could be considered political in nature. Helping build a rival to financially struggling Tesla into a serious electric vehicle contender would weaken Musk, who played a key role in ousting Democrats from all branches of government this month. In fact, California’s Democratic governor has pointedly excluded Tesla from the state’s new plan to extend electric vehicle subsidies to car buyers.
luck I have reached out to Rivian, the Department of Energy, and the Trump transition team for comment.
Desirable automobile factories
However, Ramaswamy’s calculations may be overly simplistic. Auto plants are often the most valuable of all industrial manufacturing sites, not only because they directly support thousands of families with good-paying blue-collar jobs.
Just as importantly, they sit at the top of supply chains that feed entire economic sectors including steel, aluminium, electronics, chemicals, paints, plastics, rubber, leather, upholstery and many other sectors responsible for the thousands of parts built into every modern passenger car. .
Suppliers often set up shop nearby, due to the need to deliver spare parts in a timely manner and in the required sequence on the assembly line. This also contributes to job growth and builds the community’s tax base. Once these clusters settle around centers such as Detroit in the United States and Stuttgart in Germany, they tend to attract other companies as well.
Desperate to diversify its oil-dependent economy, Saudi Arabia has backed Tesla rival Lucid for this very reason. After stipulating that the electric car maker manufacture cars in the country, the kingdom later won investments from Hyundai and Pirelli as well.
Rivian’s financial problems
The Biden administration may have good reasons to support Rivian. It’s a premium electric vehicle brand with an image that speaks to America’s tough outdoorsman spirit, a growing portfolio of award-winning vehicles, all built locally and the aspirational appeal of a young company with a respectable 720,000 followers on Instagram.
Ramaswamy could have instead pointed to Rivian’s fundamental problem: it is still making losses, even on a gross profit basis. As long as this is negative, losses grow as more cars are sold. This is the opposite of what one would hope for, as automakers usually aim for size Their works Profitably.
To fix this problem, Rivian replaced suppliers and streamlined its production process, even at the cost of shutting down its assembly line earlier this year. Its main goal for 2024 was to prove the doubters wrong and demonstrate the viability of its business by finally turning a gross profit in the current year. The fourth quarter.
Volkswagen is risking private capital
However, aid to the clean energy sector is viewed with suspicion by Republicans. Many of them see the government interfering in the free market to pick winners and losers — especially when the latter are fossil fuel companies that donate heavily to the Republican Party.
Moreover, federal loans in which the risks are socialized and the gains are privatized are generally considered a last resort, something that can be used surgically in the case of promising new technologies where traditional market forces could crush a thriving industry in the bud.
It is controversial whether the assistance provided to Rivian fits these criteria. Although electric cars may not be mainstream, Tesla has shown that you can make a profit with the right product.
Moreover, investors have demonstrated their willingness to risk private capital given the right incentives. German automaker Volkswagen has come forward to offer vital funding to Rivian in exchange for access to its software.
Biden critics say seconding ‘corporate welfare’ issue
It is not surprising, then, that the conservative editorial board of The Wall Street Journal He took a critical look at the $6.6 billion loan as well.
He added, “Biden’s team is financing a distressed company with known credit risks that competes in the advanced automobile industry.” books In Thursday’s column.
The explanation, according to the newspaper, was easy: Trump would never have approved such a loan, so it had to be granted now before the next administration takes office in January.
And the solution she believes is crystal clear: Energy Secretary-designate Chris Wright must take action as soon as the fracking CEO Climate change denier He is responsible. “This includes cleaning up Biden’s portfolio of corporate welfare loans made for political reasons, rather than on principles or market expectations,” the Wall Street Journal said.
Comments are closed, but trackbacks and pingbacks are open.