Tickers in this Article: DOW, NAV, JCI, F, GMGMQ
The Obama Administration is quickly moving to make good on its promise to invest money to stimulate the development of alternative energy sources, and handed out billions in grants last week to various companies. The Department of Energy gave out $2.4 billion in grants for 48 projects for the design and manufacture of electric vehicles, batteries and various components used in that manufacturing process.

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Dual Purpose
The American Recovery and Reinvestment Act of 2008 called for these investments with the dual purpose of finding an alternative to traditional energy sources, and to stimulate the economy. The administration seems to have achieved its goal, and claims that tens of thousands of jobs will be created domestically after the companies involved match the spending.

Electric Stimulus
President Obama kicked off the grants with a visit to the Navistar International Corp. (NYSE:NAV) plant in Indiana. Navistar received $39 million to manufacture 400 electric trucks, and expects to be producing thousands when the plant is at full capacity.

Navistar was not the only publicly traded company to receive government largesse. The largest award was for $299 million to Johnson Controls (NYSE:JCI), the auto parts supplier. The company will set up two plants to manufacture battery cells and packs composed of nickel and cobalt for electric and hybrid vehicles.

Another company jumping into the electric battery business is Dow Chemical (NYSE:DOW), which received $161 million to manufacture lithium ion batteries for use on electric and hybrid vehicles. The facility will be completed by 2011 and will employ 800 people.

Helping the Autos
The auto companies also lined up at the trough, with General Motors and Chrysler receiving a total of $175 million for various projects. In the case of General Motors, isn't there a rule against the government giving itself a grant?

One issue that is raised with these government grants is what happens when the subsidies run out? One day these alternative investments have to stand on their own financial returns, and not benefit form the government. (For more, see Liquidity and Toxicity: Will TARP Fix The Financial System.)

An example of this is Ford Motor (NYSE:F), which received $62.7 million to produce an "electric drive transaxle with integrated power electronics." Since the money is a grant, it obviously doesn't have to be paid back, lowering the cost of the Ford vehicle that this part will go into. Eventually, Ford will have to build this at its own expense and make money selling the electric vehicle.

Bottom Line
I can't help thinking that if these investments made sense financially, the private sector would have made them years ago, as they certainly know more than any government bureaucrat about such things.

President Obama is putting his money where his mouth is, and is awarding billions to industry in order to create the seed and infrastructure to support alternative energy vehicles. Whether this will work out long-term is anyone's guess, as electric vehicles will one day have to stand on their own without the government's help. (For further reading, check out Top 6 U.S. Government Financial Bailouts.)

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