Vivek Ramaswamy, Donald Trump’s government efficiency appointee, has signaled his intention to scrutinize a loan the Biden administration made to rival electric vehicle maker Rivian. Tesla.
Ramaswamy, founder of several biotech companies collectively known as “Vants,” should take responsibility for a quasi-official Department of Government Efficiencyor DOGE, after Trump is sworn in. Together with DOGE co-chair Elon Musk, CEO of Tesla, their task is to radically shrink the size of the US government by cutting regulations, laying off federal employees and eliminating waste in the system with the goal of cut $2 trillion from the budget.
They have already pointed to spending on the Corporation for Public Broadcasting and Planned Parenthood, two organizations that have long been targeted by Republicans, as starting point for cuts. This could now be extended to Rivian.
“Biden is giving more than $6.6 billion to EV maker Rivian to build a factory in Georgia that they’ve already stopped,” he said. published on Thursday. “One ‘justification’ is the 7,500 jobs it creates, but that implies a cost of $880,000 per job, which is insane. This smells more like a political attack on Elon Musk and Tesla.”
The loan will go towards financing the construction of Rivian’s second factory, where it is expected to eventually build the R2 family of mid-size Rivians, sitting below the electric R1T pickup truck and R1S sports utility vehicle. In March, the founder and CEO of Riviana RJ Scaringe delayed construction save cash.
There are reasons why this loan could be considered political. Helping build the financially struggling Tesla rival into a serious EV contender would weaken Musk, who has played key role in ousting Democrats from all branches of government this month. Indeed, the Democratic governor of California conspicuously snubbed Tesla from a new state plan to expand electric vehicle subsidies to car buyers.
Musk’s Tesla, an early recipient of a federal loan, paid it back in full early with interest
Wealth has reached out to Rivian and the Trump transition team for comment. When asked about criticism of the loan, the Ministry of Energy issued the following statement:
“DOE’s Advanced Technology Vehicle Manufacturing Program strengthens America’s position as a global automotive powerhouse, and one of the program’s biggest successes is the 2010 loan to Tesla that catalyzed the electric vehicle 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 has repaid ATVM’s approximately half a billion dollar government loan in full with interest nine years earlier. Signed into law by President George W. Bush in 2008, the program has become synonymous with failed industrial policy following the collapse of high-profile recipient Solyndra. Trump has already proposed ending funding for the ATVM program in his final Budget for the fiscal year 2021.
Desired car factories
However, Ramaswamy’s calculation may be too simplistic. Vehicle manufacturing plants are often the most valued of all industrial production sites, not least because they directly support thousands of families with well-paying jobs.
Equally important, they are at the top of the supply chains that feed 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 in the exact order they are needed on the assembly line. This further contributes to job growth and creates a community tax base. Once these clusters are located around centers like Detroit in the US and Stuttgart in Germany, they tend to attract other companies as well.
Saudi Arabia is desperate to diversify its oil-dependent economy supported Tesla competitor Lucid for this very reason. Once determined, the manufacturer of electric vehicles must to produce cars in the country, the kingdom subsequently won investments from Hyundai and Pirelli as.
Rivian’s financial woes
The Biden administration may have good reasons for supporting Rivian. It is a premium EV brand with an image that speaks to the American spirit of the outdoors; increasing range award-winning vehicles everything 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 continues to make losses, even on a gross profit basis. As long as this is negative, losses increase as more cars are sold. That’s the opposite of what we’d hope for, as that’s what automakers tend to strive for measure their job profitable.
To fix this, Rivian switched suppliers and streamlined its manufacturing process, even at a cost closing its production line earlier this year. His key goal for 2024 was to prove the doubters wrong and show sustainability of its business finally by converting gross profit into current fourth quarter.
Volkswagen risks private capital
However, Republicans are suspicious of helping the clean energy sector. 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 that can be surgically deployed in the case of promising new technologies where traditional market forces would crush a growing industry in its infancy.
It is debatable whether the aid to Rivian meets these criteria. While electric vehicles may not be mainstream, Tesla has shown that you can be profitable with the right product.
Moreover, investors have shown that they are willing to risk private capital with appropriate incentives. German car manufacturer Volkswagen stepped up to secure vital funds for Rivian in exchange for access to its software.
Biden’s loan is a case of ‘corporate welfare,’ critics say
Therefore, it is not surprising that the editorial board of the magazine is conservative The Wall Street Journal he took a critical look at the loan of 6.6 billion dollars.
“Biden’s team is financing a troubled company with known credit risk that competes in a well-developed auto industry,” it said. wrote in Thursday’s column.
The explanation, according to the newspaper, was simple – Trump would never approve such a loan, so it needed to be approved now before the new administration takes office in January.
The solution he believes is just as obvious: Energy Secretary-designate Chris Wright must do something after the fracking CEO and climate change denier is in charge. “This includes cleaning up Biden’s portfolio of corporate welfare loans that were doled out for political reasons,” WSJ claimed, “is not based on market principles or prospects.”
This updates an earlier version with commentary from the US Department of Energy.
