- The Washington Times - Monday, December 3, 2012

The year after President Obama singled out the company for creating lots of American jobs, California-based Tesla Motors became the focus of a federal probe into whether the automaker was using foreign instead of American parts in manufacturing their electric vehicles, records show.

The Immigration and Customs Enforcement (ICE) investigation centered on whether the company was using its foreign trade zone status to bypass federal loan requirements that companies must buy American, according to documents obtained through the Freedom of Information Act.

Click here to view the investigative memo (PDF)

Tesla closed on a $465 million federal loan with the U.S. Department of Energy in early 2010. Founded in 2003, the company sells its electric Model S luxury sedan for anywhere from $49,000 to $97,900, after federal tax credits.

ICE investigators first approached the Department of Energy’s Office of Inspector General one year ago this week, months before the company’s application for “subzone” trade zone status was approved in September.

ICE investigators sought loan documents from the Energy Department because they were “looking into whether Tesla Motors is using foreign-made parts in manufacturing their vehicles rather than U.S.-made parts,” according to an Energy Department inspector general memo obtained by The Times.

The ICE official, whose name was redacted in records provided to The Times, also said the agency was “proactively investigating” whether Tesla was using its foreign trade zone status to bypass loan requirements that “may stipulate companies must buy American,” records state.

Created in the 1930s, federally approved “foreign trade zones” designate certain areas at or near a customs port of entry as locations where products can be imported without the usual customs entry procedures and import duties.

Tesla’s application for a “subzone” within the city of San Jose’s foreign trade zone was approved on Sept. 20, according to federal records.

The Energy Department watchdog office ultimately declined to join the probe, telling ICE that the federal loan to Tesla came about through a federal appropriations bill — not under Mr. Obama’s stimulus program.

While lots of taxpayer money was at stake either way, the difference in the funding source meant that the Tesla loan “does not have the same buy American requirement,” investigators from the Energy Department’s inspector general told ICE, according to records.

The details about the investigation came to light as a result of a request by The Times for final summaries for dozens of investigations by the Energy Department watchdog office for probes involving federal stimulus funds.

The two-page summary detailing the Energy Department watchdog’s limited involvement in the Tesla investigation provides no information on how, or whether, the customs probe concluded.

“As a matter of policy, we neither confirm nor the deny the existence of ongoing investigations,” said Gillian Christensen, a spokeswoman for Immigrations and Customs Enforcement.

Tesla makes no mention of the government investigation in its Securities and Exchange Commission disclosures, though there’s also no indication from the Energy Department investigative memo that the company was notified about the probe.

A Tesla spokeswoman declined to comment Monday and said the company would be unable to meet The Times’ deadline for publication. The Times first emailed the company on Friday afternoon, asking to what extent Tesla relies on foreign components in its vehicle manufacturing, as well as whether the company was ever notified about the ICE investigation.

Tesla drew Mr. Obama’s attention in 2010 when he visited the headquarters of now-bankrupt solar panel maker Solyndra, which collapsed last year despite more than a half-billion dollars in federal loans.

Mentioning a closed auto plant nearby, Mr. Obama said thanks to the Energy Department loan to Tesla “that shuttered plant is soon going to reopen.”

“And once again, once again, it will be a symbol of promise, an example of what’s possible here in America,” Mr. Obama said. “Tesla is joining with Toyota in a venture to put a thousand skilled workers back to work manufacturing all-electric car. And this is only the beginning.”

Earlier this month, Tesla announced that it had lost $110.8 million in this year’s third quarter, about $40 million more compared with the same period in 2011.

But the news hasn’t been all bad. Production of the firm’s Model S sedan increased from five cars per week at the beginning of the quarter to 100 cars per week by the end, with production now at more than 200 cars, according to the company.

The company also said it had drawn down its $465 million federal loan and had begun paying back the government.

“We continue to maintain a strong relationship with the [Energy Department],” the company said in a statement.

• Jim McElhatton can be reached at jmcelhatton@washingtontimes.com.

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