How Has America Fared As an Investor?


This week, the U.S. department of Energy announced that Tesla Motors had repaid the remaining balance on its $465 million loan. The loan, part of the DOE's Advanced Vehicle Technology Manufacturing program, was returned to U.S. government coffers -- with interest -- nine years early. That may sound like big money, but $465 million is pennies in comparison with the $34 billion the DOE has committed in loans for various alternative-energy projects and the development of hybrid and electric vehicle manufacturing.

There are few things that polarize the American public more than having the government provide financial assistance to private industry. The label "crony capitalism" is a popular phrase among critics. Providing federally backed loans to private industry does pose a deep dilemma regarding the interaction of governments and the free market. For a moment, though, let's set aside the philosophical debate and look at the DOE's program pragmatically. Certainly, the U.S. doesn't want to lose money on these investments, but it's not out there looking to make a huge monetary return, either. Let's look at two key reasons the Department of Energy might not be committing the free-market heresy that many claim it is.

Prime the pump for private investment
According to the DOE, the stated objective of the Section 1703 Loan Program is:

... to support innovative clean energy technologies that are typically unable to obtain conventional private financing due to high technology risks. ...Technologies with more than three implementations that have been active for more than five years are excluded.

By providing federally backed loans to these higher-risk technologies, it is in turn de-risking the investment to a certain degree. As the technology finds commercial application and becomes more attractive to private investors, the government can bow out and let the market take care of the rest.

So far, it appears that the program is doing just that. Goldman Sachs just recently announced that it will invest $500 million in SolarCity to reduce upfront costs for SolarCity's customers (and make a hefty profit on long-term contracts). The investment bank also plans to invest $40 billion over the next decade on alternative-energy projects. Warren Buffett is even getting in on the action. MidAmerican Energy, part of the Berkshire Hathaway portfolio, has invested $5.4 billion in three major solar projects, two of which got started on DOE loans.

Let's also not forget one of the largest recipients of DOE loans: Ford . The company received $6 billion to retool several facilities around the U.S. to manufacture electric and hybrid vehicles. Today, these factories churn out one of the fastest-growing segments of Ford's vehicle lineup. The company will surpass last year's total hybrid sales this month, and it expects 2013 hybrid sales to nearly double the previous record in 2010. Unlike Tesla, Ford has yet to repay its DOE loan in full, but with numbers like this, it should be able to do so rather easily.

You can argue that private investment could have done it on its own, I can't refute that. Instead of thinking of these DOE loans as the only reason these projects succeed, think of them as the choke on an engine. Injecting low-interest, federally backed loans to these "cold engine" industries helps them get up to speed and running on all cylinders in the open market faster than they might without them.

Reduce energy and the overall trade deficit
For environmentalists out there, I'm about to break your heart. Despite the claims that these programs will reduce fossil-fuel consumption, it misses out on one small point: These are reductions in U.S. consumption, not global consumption. Even if we don't use fossil fuels, somebody else will.

Strangely, this is what should make alternative energy so attractive to the United States.

According to the U.S. Energy Information Administration, the U.S. imports about 17% of its total energy needs. Being a net importer of energy profoundly affects the country's bottom line, as nearly 50% of the U.S. trade deficit comes from energy imports. Some scholars have argued that an increase in the deficit leads to greater U.S. economic growth. Well, if a majority of that deficit is energy shipments to fuel the economic engine, then of course an increase in the deficit will correlate with economic growth. If that massive energy deficit can be replaced by domestic sources, though, then we're talking about moving toward something the U.S. hasn't seen in almost 40 years: a trade surplus.

With America in the midst of an oil and gas boom, some projections from the EIA estimate that the U.S. will be a net natural gas exporter by 2020 and a net oil exporter by 2035. By increasing our alternative-energy consumption -- a purely domestic source -- we can more quickly replace our fossil-fuel consumption and export it to premium markets much sooner than projected. Doing so would dramatically shift our energy deficit and take a massive chunk out of the United States' $38 billion trade deficit.

What a Fool believes
Both sides can debate the philosophical aspect of this topic until they're blue in the face. Critics will point out the $535 million that went down the drain with Solyndra. Defenders can now point to the $465 million Tesla paid back to highlight the project's success. Combined, though, these two loans represent only 3% of the entire loan program. Rather than giving a final verdict on the program based on these two companies, we should should see how the entire loan program does at accomplishing the goals I've mentioned. If these programs can deliver a market primer for alternative energy and help us bring down the energy deficit, then it has done its job.

Warren Buffett knows a thing or two about investing. So when Berkshire Hathaway invests big money into alternative energy, investors should pay attention. One of the biggest winners from the Berkshire solar buy is First Solar. As the United States' largest solar company, it could do well with Wall Street dumping money into the solar industry. If you're looking for continuing updates and guidance on the company whenever news breaks, The Motley Fool has created a brand-new report that details every must know side of this stock. To get started, simply click here now.

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Fool contributor Tyler Crowe has no position in any stocks mentioned. You can follow him at under the handle TMFDirtyBird, on Google +, or on Twitter, @TylerCroweFool.The Motley Fool recommends Berkshire Hathaway, Ford, Goldman Sachs, and Tesla Motors and owns shares of Berkshire Hathaway, Ford, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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