Proterra and the Anatomy of an EV Failure

All of President Biden’s subsidies couldn’t save Proterra, the electric bus maker

WSJ editorial. 

"President Biden predicted two years ago that the U.S., with the help of electric bus manufacturer Proterra, would “end up owning the future.” This week Proterra became the third electric-vehicle manufacturer in just over a year to file for bankruptcy. Its failure provides yet another warning of the perils of government-driven investment.

Proterra went public during the pandemic by merging with a Special Purpose Acquisition Company. Although Proterra had delivered only about 550 buses since its founding in 2004, it raised $650 million in the public offering—more than three times its annual revenue.

There were flashing red lights from its start. The company had a history of defective manufacturing and costly repairs, including cracked wheel wells in 2018. Two years later it discovered laminate cracks near bus door frames. The same year it issued a recall related to a component that could compromise steering.

But it had politics on its side: Energy Secretary Jennifer Granholm served on the company’s board prior to her confirmation. As Governor of Michigan, Ms. Granholm had doled out billions of dollars in subsidies for green-energy companies, including battery manufacturer A123 Systems, which failed in 2012.

Proterra investors can’t blame Ms. Granholm for not delivering. The Inflation Reduction Act included a $40,000 per vehicle tax credit for purchasing electric commercial vehicles, which was on top of some $6.5 billion in grants for electric buses in the 2021 infrastructure bill. The IRA also included tax credits for battery manufacturing that would benefit Proterra.

“We expect that the availability of this now unprecedented level of government funding for our customers, suppliers, and competitors to help fund purchases of commercial electric vehicles and battery systems will remain an important factor in our company’s growth prospects,” Proterra’s most recent quarterly filing noted.

Yet Proterra ran into financial problems as inflation and higher interest rates increased costs, which it struggled to pass on to its government customers after contracts had been signed. Buy America requirements tied to public grants also limited its ability to reduce costs. At least 70% of vehicle components by cost have to be made in the U.S. “Buy America regulations have the effect of rendering the cost of our supply chain more expensive when compared with our competitors,” Proterra recently warned.

It’s no small irony that inflation and regulatory costs under the Biden Administration are offsetting its subsidies. The same is occurring for offshore wind farms, several of which have recently been canceled because of soaring development costs.

This week New Jersey Senate President Nicholas Scutari and Assembly Speaker Craig Coughlin said that they had “unanswered questions about the economic impact” that offshore wind “will have on ratepayers as well as potential impacts to one of our state’s largest economic drivers, tourism at the shore.” Is Ms. Granholm listening?

One lesson from Proterra’s failure is that government subsidies alone don’t create business success and can blind investors to problems. Its investors took a risk and will lose money, but taxpayers should never have to."