If you thought the Obama administration was finished putting a hammerlock on the United States automotive industry, think again.  On Wednesday, Energy Secretary Steve Chu announced that the first loans have been finalized from the $25 billion Advanced Technology Vehicle Manufacturing Program – a pot of money that will be doled out by the Department of Energy to help manufacturers offset retooling costs in converting factories to build eco-friendlier cars. Among the lucky applicants receiving approval to borrow against the earnings of current and future American generations was Tesla Motors, a California-based manufacturer of stylish battery-powered automobiles that has made a big splash within the elite echelon of environmental correctness, and has now been granted access to $465 million in government loans.

The pre-Tesla electric car world had been plagued by a huge problem for would-be innovators in a free market, the negative perceptions that keep most buyers from considering battery-powered cars were not dismissed by snappy public relations banter.  Early electric-only vehicles (not to be confused with hybrids like Toyota’s popular Prius) were lethargic, Spartan, incredibly expensive to get off the drawing board, and required frequent charging at non-standard voltages, putting their effective ranges on par with Fred Flintstone’s foot-driven ragtop. 

So, when the Tesla Motors Roadster drove onto the scene, the hearts of both car aficionados and the tree-huggers fluttered.  Need for speed?  Zero to 60 in 3.9 seconds, and a top speed of 125 miles per hour.  Don’t like short trips?  Its 244 mile range is enough to fill out the average (even above-average) driver’s daily log.  Of course, should you have to go further than that, the Roadster’s 3.5 hour recharge time would make certain that you wouldn’t be waiting long.  But although the Roadster has comes across as a hot date, its MSRP of $101,500 is a cold shower for most would-be eco-drivers.  If the Roadster were the sole mare in the stable, it would be certain that no future generations would ever utter the phrase, “That’s not your father’s Tesla.”

Therefore, the Tesla Model S sedan was conceieved as the company’s next step in its quest to lead innovation (and eventually sales) in the electric car market.  But in the critical phase that exists between product development and driving a car off the lot, there’s an item that even the brightest innovator needs to acquire in large quantities: Capital.  With traditional venture capital being as hard to find as Governor Mark Sanford’s character, and a president in the White House who speaks as though he will be running a Make a Wish Foundation for Green Industry Entrepreneurs, it was inevitable that President Obama’s spend-lust and the Tesla’s wanton need for cash would eventually hit it off.  The fruit of their courtship: a $465 million loan that both Tesla and the Energy Department promises will be repaid no later than 2022, a guarantee made with the wild-eyed optimism of a sixteen-year-old agreeing to the conditions under which he might take Dad’s Porsche to the Homecoming Dance. 

Unlike the father weeping very genuine tears over the dented fenders on the morning after the big dance, who wishes his hindsight could have been delivered a day earlier, we have lessons from our recent past on the effects of unwise lending and borrowing that are supposed to have made us wiser.   President Obama himself capitalized on the economic calamity, railing against the poor decision-making by banks and insurers, suggesting that the men and women who made those decisions were based on something other than sound judgment and solid underwriting.  The president was right when he suggested that our financial institutions needed to take more care in their actions, and it is important that we hold his administration to the same standard.

But don’t expect the Department of Energy to reveal its lending criteria.  As CNN.com reported Wednesday, the terms of these loans will not be disclosed, although as a shareholder in the entity that made the loan I think I have a right to know how the decision was made.  For purposes of conversation then, we will pretend that you and I are the loan committee, considering Tesla’s request for nearly half a billion dollars to begin building what, based on ordinary odds for new businesses, has a better chance of being the next Edsel than the next Prius.

The battery-powered car that Tesla sought these loans to produce – the Model S sedan, a four-door car that really does incite a Pavlovian impulse when one gazes at its sleek lines and a chart of performance characteristics that rivals gasoline-powered alternatives in its class – is shown on the company’s Web site with a base price MSRP of $49,900*.  (There’s a caveat to that price, it’s one you’re going to end up wanting to know about, and I’ll get to it in a paragraph or two.)  That price tag will offer strong competition against the mid-priced European luxury sedans. It also ensures that the Model S might be driven on Wall Street, or Park Avenue, but not probably on Main Street. 

Stylish design and a comfortable ride can’t make a loan payment. Profit is what a company uses to make payment against its debts, and although details about the manufacturing costs of the Model S are difficult to come by, its sexier Roadster cousin is reported to be roll out of the factory for about $80,000 per vehicle. At a rough gross profit of $21,000 per Roadster, the gross profit per unit as a percentage of sales price is a tad more than 21 percent.  Even giving Tesla the unconventional benefit of assuming that the costs of marketing, overhead, and all other non-production expenses already exist within those figures, if that profit margin holds for the new Model S (unlikely considering how costs run in newer phases of a product’s life cycle) Tesla can expect to gross a little more than $10,500 per sedan that rolls off the lot.  With that profit ratio, even if the Department of Energy’s loan was made at zero interest, the company will need to sell 46,831 units in order to pay off the loan to Uncle Sam.  By comparison, the Toyota Prius, with the backing of an established and respected auto manufacturer, sold close to 160,000 units in 2008, according to the numbers from the U.S. Department of Energy.  For that matter, Toyota will capitalize on their preeminence in the market for alternative fuel-sourced vehicles when concept vehicles teased the Detroit Auto Show last year hit showrooms.  Will Tesla be able to compete with a plug-in Toyota sport luxury vehicle, especially when the Japanese auto giant wages a price war to drive out all smaller competitors?

Furthermore, in one of those pretzel twists of incentive that Washington, D.C. is churning out like hotcakes this year, the American taxpayer if Tesla just defaults on the loan and never sells a single car.  That’s because the $49,900 sticker price is what a Tesla owner pays after a $7,500 federal tax credit.  That’s right, if Tesla sells the 48,831 Model S sedans mentioned earlier as a hypothetical break-even to pay back the Energy Department loan, we get to pay an extra $351 million.  Or, Tesla could sell the cars and fail to repay the loan, making the taxpayer’s potential exposure a whopping $846 million and change.  Anyone who offers assurances that no such catastrophe can occur lacks the business acumen to make these kinds of lending decisions and has been living under a rock for the last two years. 

At best, because the “loan” to Tesla has been made to a business with a very short track record, one that has recently found the company limping along waiting in anxious anticipation of this government financing in order to sustain itself, it should be classified as both speculative and risky. It is precisely the sort of lending decision that precipitated the current recession.  At worst it is the classic socialist method of picking winners and losers in the marketplace based on ideological criteria, without regard for how those preferences are destroying the most vital value of the American economic system, the ability of consumers to determine what goods and services the market produces instead of government bureaucrats and politicians. 

For all of the speeches President Obama and Vice President Biden have made to support the dime-store magic act known as the Middle Class Task Force, the primary effect of government loans to Tesla will be to cut auto prices for the Sierra Club board of directors and the Hollywood elite.  The dual-income, four-job family scraping by to pay their utilities and make payments on a used 1995 Ford Bronco, getting 12 miles to the gallon, the one President Obama asks to continue their vigil of hope, will, in this case, watch their taxes go to keep auto prices low for wealthier Americans.  Maybe this is the Obama-Biden middle class initiative in action, and if so, one that reveals the non-dynamic duo’s progressive rhetoric about wealth transfer to be the electioneering ploy it has always been.

There is, however, another aspect to the emphasis the Obama administration is placing on pumping government funds into green industries.  Although his motives may be pure, after years of listening to the wage a war of allegations to the effect that President Bush and Vice President Cheney were making foreign and domestic policy decisions to line their own pockets, President Obama’s failure to disclose with specificity his financial holdings should be (but won’t be) an issue raised by the press.  Bush was accused of pushing policy for big oil; Cheney of pulling Machiavellian strings for his friends at Halliburton.  Aside from President Obama’s late-delivered and less-than-specific personal financial disclosure, what more has been done into the president’s holdings in companies that will be directly benefiting from executive decisions?  With the science of global warming still very much in dispute (it being the primary driver of the green economy) we should know exactly where conflicts of interest exist in order to be better able to ingest information in a smart and useful way.

Or, maybe we should just Velcro the motto “Do as we say, not as we do” to the presidential seal for the remainder of Obama’s term and wait for the payoff, the joyous ripping sound as it is torn free on Inauguration Day 2013 when we can begin assessing the damage and rebuilding the country.

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