Recently, the Department of Energy announced their awards of loans for “the development of innovative, advanced vehicle technologies that will create thousands of green jobs while helping reduce the nation’s dangerous dependence on foreign oil.”

The awards went to Ford Motor Co. ($5.9 billion for new fuel efficient models across the Midwest), Nissan Motors ($1.6 billion to build electric vehicles in Tennessee), and Tesla Motors ($465 million to build electric vehicle plant in California). This should all be great news, but anytime the government hands out money, there is sure to be controversy.

In Michigan, the unemployment rate remains the highest in the country (14.1% in May 2009) with two of the state’s three biggest employers in bankruptcy (which is why GM and Chrysler did not qualify for the DOE loans). So when the loans were announced, many in Michigan didn’t much like the news.

Nathan Bomey of the Michigan Business Review put forth the argument as to why GM’s still in the game and opined on the problems with Tesla’s business model. This was quickly followed by Detroit News commentator, Manny Lopez, who came out even more strongly against the loans to Tesla. Both articles express an opinion that many in the Detroit area seem to agree with. Tesla is basically for the rich and famous, silicon valley types, and is a money pit (though this opinion does seem to be dripping with irony as GM and Chrysler received billions in loans).

I’d be remiss if I didn’t point out, that many of the comments that I have read in both articles also complain about Nissan (a foreign owned company) getting almost $2 billion of our tax money (despite the plant being in the U.S. employing Americans). However, the green bloggers and Californians won’t sit silently and take this from Michiganders. Sebastian Blanco shot back on autobloggreen.com with an article entitled “Huh? Detroit News columnist criticizes Tesla loan, but not exactly in a brilliant manner“

His title, in essence, sums up his argument, claiming that Mr. Lopez had some of his facts wrong, and that Tesla’s business model makes sense. Much of this was based on another blog, businessinsider.com, which also jumped on Mr. Lopez for essentially the same reasons.

All of this leaves us with the question, “So, who’s right?” Well, first, I’m already on record as saying that Tesla serves a purpose, but it’s not as a mass production company. To prove my point, Telsa celebrated its 500th delivery on June 3, 2009, which went on sale in early Feb., 2008, taking almost a year and a half to hit that milestone (for comparison, Cadillac will likely sell its 500th XLR roadster of 2009 either this month or next, which will essentially double the Tesla sales in a third of the time). But does that mean Tesla doesn’t deserve the half a billion dollars? That’s not a leap I’m ready make.

Yes, the price of the vehicles will come down with mass production; but no, the new Model S at $49000 (after tax rebates - $57,000 before) is not a vehicle for the masses. However, as the Not-So-Big Three, Toyota, Honda, Nissan, and every other automaker have so effectively demonstrated recently, the auto business on a whole is a money pit right now. This $465 million will be burned through VERY quickly, and it’s an investment that has a low probability of ever being paid back. The fact is, the answer to “Who’s right?” lies somewhere in the middle.

I remain skeptical that the business plan of Tesla is likely to succeed as an independent company in the long run, but the products of Tesla will likely help usher in much needed new thinking about electric vehicle capabilities within larger auto companies. In this sense, the $465 million “loan” seems like a pretty good deal.

Reprinted with permission from Pike Research