Type to search

Editorial Insider Only Manufacturing & Distribution News

Editorial: WuXi isn’t Fisker. It’s time to move on from fear

Avatar photo
Share

Almost as soon as we broke the story about WuXi STA’s plans for a massive pharmaceutical manufacturing campus and its subsequent request for $19 million taxpayer-backed grants, I could hear the rumblings.

Why so much? Didn’t we learn from Fisker?

It’s been more than 10 years, but for many in the public the specter of the Fisker Automotive debacle hangs heavy over much of Delaware’s economic development efforts. To their credit, Gov. John Carney and Delaware Prosperity Partnership President and CEO Kurt Foreman have always downplayed the effect that lingering feelings about the bad bet continues to have.

To compare the First State’s most recent coup to the failed Fisker investment though isn’t fair – honestly to neither WuXi nor Fisker.

A massive pharmaceutical manufacturing campus is coming to Delaware after a $19 million taxpayer-backed grant was approved. | PHOTO COURTESY OF STATE OF DELAWARE

Delaware, like nearly all states, has a history of offering tax breaks, grants and loans to attract major projects that will employ large numbers of people. It’s given $42 million to the Delaware City Refinery, more than $11.5 million to JPMorgan Chase, $10 million to Ashland and nearly $9 million to Sallie Mae.

Most of those investments have yielded returns over the years, and a bevy of smaller investments have also proven to land jobs and often convince companies to stay long term.

For every small success though, the public tends to have a much longer memory of epic failures.

For those who weren’t here a decade ago, Fisker grew out of the ashes of the General Motors Boxwood plant, which closed in July 2009. The major, generational blue-collar employment engine for Newport was snuffed out by the fallout of the Great Recession.

Then-Gov. Jack Markell sought to find a quick turnaround for the still-functional site when 2-year-old luxury electric car maker Fisker entered the picture. Backed with a $528 million U.S. Department of Energy loan made by the Obama administration, Fisker sought a new production site for its Karma vehicle. 

Markell, and even then-Vice President Joe Biden, pitched Fisker Automotive co-founders Henrik Fisker and Bernhard Koehler on the benefits of building in Delaware. Seeking to beat competitive sites in auto capitals like Michigan and California, the state and county offered up tax breaks and loan incentives to sweeten the deal. Infamously, the state signed off on a $21.5 million taxpayer-backed Strategic Fund application, which included a $12.5 million convertible loan for employment targets and a $9 million grant for utility upgrades at the site.

Now Fisker undoubtedly had its troubles, including an early recall of Karma sedans for battery coolant leak risks that could potentially start fires. A disastrous Consumer Reports review of a Karma didn’t help and recalls expanded. To expect smooth sailing from an early electric vehicle maker at the start of the industry though was perhaps asking for too much.

There were a litany of errors and issues unrelated to Fisker’s operations that ultimately helped doom the company, though. Election-year politics entered the fray when Republicans drew attention to the federal Fisker loan as evidence of President Obama’s bad bets. The Department of Energy thereafter refused to release more than half of the loan funds to help Fisker produce more of its first-generation vehicles when it was supposed to be on its second.

The Fisker Karma | PHOTO FROM ADOBE STOCK

Its battery maker, A123 Systems, was also under a crunch due to the high-profile product issues, leading to costly recalls and continued operating losses. In 2012, an investment deal to save the company with Chinese firm Wanxiang was called off after federal regulators raised national security concerns. Ultimately, the company entered bankruptcy and doomed Fisker’s needed engine maker.

Then Mother Nature threw one last haymaker. In November 2012, Superstorm Sandy wiped out 338 Karmas parked at the Port of Newark, N.J., causing an estimated $34.8 million loss and putting the company farther behind production quotas. Its insurance claim was denied.

Fisker would file bankruptcy the next year, ending Delaware’s hopes of recouping money it had doled out as a loan. The disaster was front-page news for months and it has overshadowed subsequent economic development efforts, even long after a change in administration and significant tightening of protective measures for state investments.

The reality is that Delaware’s investment model is much more risk averse following Fisker than it was before.

The state now typically shies away from making conditional loans from the Strategic Fund, which could go unpaid in another bankruptcy case. Investments under the Carney administration, including the one to WuXi STA, are typically grants paid annually as a recipient meets benchmarks. They also include “claw-back” provisions that typically require a company to retain a grant-supported job for a specified number of years or risk having to repay the funds – Bloom Energy ran into this issue.

The state also requires parent companies to be liable for the actions of their subsidiaries, ensuring that a global company doesn’t use a limited liability company to escape its contracts.

Finally, the state frankly isn’t making large bets on unproven companies anymore either. Fisker was a venture capital-backed startup with a flashy product but no concrete operational or sales history when Delaware placed its bet. The Markell administration depended on the backing of the federal government’s loan to keep the ship afloat while the company met the market demand.

WuXi AppTec, the parent company of WuXi STA, is very different than Fisker. Although relatively unknown here, it’s a leading global company in the contract development and manufacturing organization (CDMO) market, recognized by its industry as among the brightest growing companies.

It’s already publicly traded in Hong Kong, with investors valuing it at more than $72 billion. It employs more than 27,000 people at 30 sites worldwide and works with 4,400 other clients and partners.

We can debate the merits of awarding taxpayer dollars to companies like Amazon and WuXi AppTec that are already vastly successful, but let’s not put our new partner in the Fisker basket.

Get the free DBT email newsletter  

Follow the people, companies and issues that matter most to business in Delaware.

Tags:

You Might also Like

Leave a Comment

Your email address will not be published. Required fields are marked *

Premier Digital Partners

© 2024 Delaware Business Times

Flash Sale! Subscribe to Delaware Business Times and save 50%.

Limited time offer. New subscribers only.

Limited time offer. New subscribers only.

SUMMER FLASH SALE!

Subscribe to Delaware Business Times and save 50%