Saturday, July 17, 2010

Batteries are very expensive

It isn't just LG Chem, the South Korean company mentioned yesterday, getting free money for making batteries that the market obviously doesn't want. It's also A123 Systems, based in Massachusetts.
In 2009, the [Michigan] Legislature authorized $100 million "refundable" business tax credits for both A123 Systems and LG Chem.* "Refundable" means that the state will send the companies a check for however much of the credit remains after it cancels any Michigan Business Tax liability.

...According to documents it filed with the federal Securities and Exchange Commission, Massachusetts-based A123 Systems is the beneficiary of a raft of other tax breaks and subsidies provided by Michigan taxpayers, including an outright $10 million grant authorized in March of 2009, another $4 million grant in the form of forgiveness for a state loan, a $2 million "marketing" grant, and as much as $25 million in additional tax credits depending on how many workers it hires, up to a maximum of 300 jobs.
Why not just give the money to 300 individuals? They could invest their share and never have to work. Their investment decisions would be better than those of the government and would thereby create more jobs.

4 comments:

Lithicus said...

Lithium-ion batteries for cars are expensive at the moment. But they will get cheaper and more powerful very quickly as production scales up.

Because people DO want them. Desperately want them, thanks to BP and high gas prices. Nissan pre-sold its entire 2010 production of the Leaf all-electric car in a matter of days. 19,000 vehicles, without anyone even seeing it in person. There is huge demand for electric cars, and they will be very difficult to find for the next few years.

Lithium-ion batteries are the production bottleneck for electric cars, and companies like A123 will sell all they can manufacture.

Bringing high-tech manufacturing to Michigan not only creates those immediate 300 jobs, the influx of talented engineers and scientists also stimulates the economy as a whole, creating even more jobs.

Whether these kinds of tax breaks are a good thing in the long run remains to be seen. Maybe we should just let those jobs stay overseas? But if Michigan can establish itself as a center of automotive battery manufacturing, they will be getting in on the ground floor of what could be a $75 billion business in just five years.

Is that a useful thing for government to jump-start? Republicans seem to have no problem giving massive tax breaks to oil companies and defense contractors. Why is this use of public funds so objectionable? Because Democrats are doing it?

Hershblogger said...

Lithicus,

If these batteries have such high demand they would be able to be made and sold without hundreds of millions of dollars in subsidies.

The use of the term "public funds" is itself objectionable since it assumes these funds are somehow separate from taxes paid and deficits incurred. We don't have any "public funds." We borrowed this money from the Chinese.

Further, no matter if we were not broke, this use of taxpayer's money is objectionable in exactly the same way using "public funds" to pick winners and losers is in every single case. It is arrogant to assume "public funds" can be used better by politicians than by the actual public. It is stupid because it never works. It even is more economically damaging because it distorts the market.

I can't figure out where Republicans or Democrats fit into it, you will find this blog consistently blaming both parties for such idiocies as this.

And, Lithicus? Some other name would make it less likely people would suspect shilling on behalf of the corporatists.

Lithicus said...

In a ideal world, government would not get involved in free enterprise. I'm no fan of picking winners and losers either. The invisible hand is far better at that.

But we don't live in a ideal world. Michigan has a strong interest in bringing jobs back to its economy, and encouraging new industries. The federal government has an interest in shifting us away from foreign oil.

If government did nothing, battery production and jobs would stay in Asia. A123 already has production facilities in China and Korea. The only reason they are now expanding in Michigan and Massachusetts is because tax breaks made it economically competitive. That is the unfortunate reality of the non-ideal global economy we live in.

If I understand you correctly, government should remain on the sidelines, do nothing to encourage development of the alternative energy industry or jobs. Am I representing your views correctly?

I am not a shill for corporatists, far from it. I'm simply someone who want to see us transition to electric vehicles as quickly as possible, and lithium-ion batteries are a technology that makes that possible.

Once it becomes a mass market, battery subsidies will not be required. But at this point government can play a role, can build some roads into the wilderness, can help promote the general welfare.

We are about to see explosive growth in the EV industry, and our elected officials want some of that growth to occur in the US. As much as I would prefer the purity of free markets, I can't fault them for that.

Hershblogger said...

Lithicus,

I will have a longer response his morning as a new post.