Coda's slow start adds to doubts

Mar 13 - McClatchy-Tribune Regional News - Dan Gearino The Columbus Dispatch, Ohio

Ten months ago, an entrepreneur came to Columbus to tout his plans for Coda Automotive, and the city greeted him with an eager embrace.

He offered a precious commodity: jobs. Coda wanted to build a battery plant in central Ohio and hire more than 1,000 workers. To do it, the company needed a loan of more than $500 million from the U.S. Department of Energy, and Ohio's elected officials vowed to help.

Today, the loan application is pending, with little indication of when the Obama administration will make a decision. Local leaders remain on board, but the underlying landscape has shifted, which raises questions about Coda and its plan.

The entrepreneur, Kevin Czinger, abruptly stepped down as head of Coda late last year. Gov. Ted Strickland, who was the company's leading supporter, lost his bid for re-election. Economists and auto analysts, many of whom were already doubtful about Coda, have grown even more pessimistic.

"I wouldn't bet a lot of money on it," said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. "The market just isn't there."

Local leaders remain ardent believers.

"Henry Ford's assembly line revolutionized how we produce cars," Columbus Mayor Michael B. Coleman said recently. "Coda Automotive's electric-vehicle technology could be just as transformative while creating thousands of jobs in the process."

And Coda remains committed to Ohio. "Advanced batteries represent a substantial opportunity for Ohio, and America, to reindustrialize its economy and create jobs, one we -- Coda, Ohio and the nation -- cannot afford to ignore," said Forrest Beanum, the company's senior spokesman and vice president for government affairs.

Stuck in the middle are taxpayers, the people who would be indirectly financing the $500 million federal loan and state and local tax breaks. Considering the wide gulf of opinion about Coda's chances, taxpayers can be forgiven if they don't know what to think.

Still waiting

The federal loan application, an element that probably will make or break the Columbus plant, is in limbo.

Coda, based in Santa Monica, Calif., is one of many applicants waiting for an answer. About 130 companies have filed applications, the agency said. And some have waited much longer than Coda, according to news media reports. Members of Congress have accused the Department of Energy of dragging its feet.

The agency has approved $8.3 billion worth of loans; a total of $25 billion is available for the Advanced Technology Vehicles Manufacturing program.

More than two-thirds of the amount approved, $5.9 billion, was authorized for Ford in 2009 to prepare several plants for electric-vehicle production. About $1.4 billion went to Nissan to build a battery plant in Tennessee. The rest of the loans have gone to companies in various stages of starting up, such as Fisker Automotive ($529 million) and Tesla Motors ($465 million).

After an initial flurry of activity, only one loan has been announced in the past 12 months. When asked for an update, the agency responded with this statement:

Agency officials have "significantly increased the pace at which loan applications are processed, and anticipate announcing a number of additional loans and loan guarantees in the coming months," said Stephanie Mueller, a spokeswoman.

Along those lines, the agency has told several loan applicants to expect a response by the end of spring, said John O'Dell, editor of the "Green Car Advisor" blog at Edmunds.com. He has heard a variety of theories about the cause of the slow progress, including that the agency was initially understaffed and that the current crop of applicants is difficult to assess. But that is speculation.

In mid-February, local, state and federal elected officials said they were forming a task force to advocate for the loan. Coda leaders have remained optimistic, but they have mostly kept quiet about the application, citing a nondisclosure agreement.

New faces

While waiting for an answer from the government, Coda has gone through dramatic changes.

Czinger, who was the public face of the company, stepped down as CEO in November and was replaced on an interim basis by the company's co-chairman, Steven "Mac" Heller. Heller described the change as a natural part of the company's transition from the planning stage to the manufacturing stage.

One of Czinger's last public statements as CEO was the release of the price of the all-electric sedan: $44,900. After a $7,500 federal tax break, customers would pay $37,400.

The vehicle would be about $12,000 more expensive than the all-electric Nissan Leaf. Czinger argued that the price difference is justified because the Coda sedan will have a maximum range of about 120 miles, which is more than the Leaf, and the Coda battery charges more quickly and manages heat more effectively.

Many in the automotive news media saw the price as ominous for Coda.

One of Heller's first announcements as CEO was that the debut sedan would not be ready for its planned December 2010 release in the California market. He pushed the rollout back to the second half of 2011, citing the need for more fine-tuning.

In late January, the company named an auto-sector veteran as CEO. Philip Murtaugh, the third person to hold the title in three months, had worked for General Motors and Chrysler. His experience at GM will be especially helpful because he led the company's China operations, and Coda has a partnership with a Chinese battery company and will do much of its vehicle assembly in China. Battery production also will be in China until a U.S. battery plant is built.

Through all the upheaval, Coda said its plans for Ohio were unchanged.

Meanwhile, in Ohio, John Kasich took over as governor. His predecessor, Strickland, had personally recruited the company. Kasich has abandoned several Strickland initiatives, but he has not diverged from Strickland's support of Coda.

So the faces are different, but both sides say the changes have had no effect on the project.

Something about this doesn't add up for James Newton, chief economic adviser for Commerce National Bank in Columbus. He sees the shake-ups as red flags, and he wonders why Ohio leaders aren't more alarmed.

"It just has the smell of death to it," Newton said. "It's not dead yet, but it's decaying before it's even been born."

Challenges

After all the developments of the past 10 months, one question remains at the forefront: If Coda gets the loan, is the company viable in the long term?

"What Coda is doing and succeeding at is extremely complex and no easy task," said Beanum, the Coda vice president. "There have been, and will continue to be, obstacles to overcome along the way."

He argued that Coda has shown its resilience in overcoming problems.

"Coda is much more than a car," he said. "We are a multifaceted company; we are a catalyst for a movement; we are a solution to a problem; we are innovation; we are industry leaders; we are jobs; we are progress; we are what we hope the future will be."

Economic-development officials have weighed the risks, and they think this is a bet worth taking. They point to Coda's success raising $200 million from private sources -- a key measure of viability -- and the potential to establish Ohio as a center for advanced-technology vehicles.

"Projects like that are few and far between," said Jamie Beier-Grant, director of the Ottawa County Improvement Corp. just east of Toledo and president of the Ohio Economic Development Association. "From the size and magnitude of the project, it's a unique project for the state."

Auto analysts interviewed for this story agree that Coda faces difficult challenges, but they disagree on whether the odds are so long that investment is foolhardy.

"I think we're at a time where the market can support a couple of independent electric-drive vehicle manufacturers," said O'Dell, of Edmunds.com. "I don't know if Coda is one of them."

One of Coda's best assets is its ties with well-regarded suppliers, said Josh Landess, an analyst for Bloomberg New Energy Finance. They include Lishen Power Battery, the China-based battery-maker that would be a partner in the Columbus plant.

The suppliers "generally seem like credible players," which lends credibility to Coda that other startups might not have, Landess said.

"We'll see," said Cole, of the Center for Automotive Research. "But I'd say it's still a long shot for any company in this kind of market."

dgearino@dispatch.com