Virginia voters have swept Terry McAuliffe into the dustbin of political history, so one might reasonably ask if there is any point in re-hashing more of the GreenTech Automotive story than Bacon’s Rebellion has already detailed in a recent five-part series. The answer is yes. One part of the tale is still worth retelling — how employees of the Virginia Economic Development Partnership (VEDP) acquitted themselves when confronted by the GreenTech Puffery machine. — JAB
by Carol J. Bova
Terry McAuliffe’s proposal in 2009 to build an electric-vehicle manufacturing facility in Virginia did not come through normal economic-development channels. The idea landed first in Governor Tim Kaine’s policy shop, which forwarded it to the state’s economic-development professionals at VEDP.
McAuliffe was spinning his plan to build hybrid and electric vehicles as a potentially multibillion-dollar economic-development opportunity. While approaching Virginia, however, GreenTech officials also were engaged in talks with Mississippi about locating an electric-vehicle manufacturing plant in the Magnolia state. The apparent goal was to get the two states into a bidding war over incentives.
VEDP staff needed no coaching about the political sensitivity of the proposal. McAuliffe, who was chairman of GreenTech, was known nationally in 2009 as an intimate of Bill and Hillary Clinton and in Virginia as an unsuccessful candidate for the Democratic Party nomination for governor. It went without saying that he was well connected in Democratic Party circles. But VEDP staffers treated GreenTech like they would any other economic-development project. They asked tough questions, and when they got dodgy answers, they persisted. Their skepticism would prove fully warranted, as Mississippi would discover to its humiliation when GreenTech defaulted on more than $6 million in incentives.
In re-telling this story, it is also worth noting what did not happen. No evidence surfaced that anyone in the Kaine administration intervened on behalf of McAuliffe, as well connected as he was. The Governor’s office handed off the initiative sponsored by a prominent Democrat Party politician to Virginia’s economic development professionals and then, as far as we can tell, stayed out of it.
The following account is based on emails culled from a 688-page Freedom of Information Act Request published by the America Rising PAC in 2015 and stored in archive.org.
In the fall of 2009, McAuliffe took on the role of major shareholder and chairman of WM GreenTech Automotive. (The W stood for Wang, as in Xiaolin “Charlie” Wang, the CEO, and the M for McAuliffe, the new chairman and one-quarter owner of the company.) The company had no meaningful assets, just a plan to build electric vehicles with capital raised from Chinese investors through the EB-5 program, which granted green cards to foreign nationals who invested $500,000 or more in American business enterprises. One of the first things GreenTech (also referred to as GTA) needed to do was find locations for an EB-5 regional center to process the green cards and a manufacturing plant to build the cars.
In early September 2009 Chief Operating Officer Gary Tang contacted the policy office of Governor Tim Kaine about opening a regional center and manufacturing center in Virginia. GreenTech did not advertise its McAuliffe connection at this time. After the initial contact, Roy Dahlquist, International Investment Manager for VEDP, emailed Tang to request information about the planned operations. It was only when he checked the GreenTech website that he learned McAuliffe was GreenTech’s Chairman.
GreenTech officials were concerned about maintaining their confidentiality, and VEDP provided nondisclosure forms they signed after some adjustments by GreenTech counsel. Only first names were used at the first site visit that Gary Tang and Yuntong Xu, both board members, made September 11, 2009. The Virginia Gateway Region, which handled economic-development marketing for the area around Petersburg, arranged the site-visit arrangements for the GreenTech team. The delegation included an individual, a Chinese national, who was said to have built auto assembly plants in Shanghai and China for Ford and GM.
After the get-acquainted meeting, VEDP’s Transportation Team Leader Mike Lehmkuhler had questions about the viability of the offer. He expressed his concerns in an email to Randy Marcus, chief of staff for Lieutenant Governor Bill Bolling: “He (Tang) keeps talking about doing this in Virginia but VEDP will not take another step until he has a qualified business plan and evidence of adequate financing. No different treatment than any other prospect we work with.”
Lehmkuhler also emailed Tang with a request for more information. Among the questions:
- Of the $1 billion investment the company said it planned to invest, what was the breakdown between headquarters location and assembly plant location?
- What were the timeframes, (if applicable) for site decision, construction period, equipment installation and start of operations for both the auto plant and the headquarters?
- How many of the Phase 1 full-time jobs would be created for the HQ location?
- How many direct jobs would be attributable to assembly plant employees (on the company payroll), construction workers, and supplier operations?
- Could GreenTech clarify its calculations for the number of jobs it claimed it would create?
- What was the estimated average wage, and what benefits would be provided?
- Who were members of the management team with experience in design, engineering, procurement, production and logistics?
- Who were the strategic European design and powertrain technology partners?
- Would GreenTech have any strategic investors?
- What percentage of the billion-dollar-plus investment was expected to come from the EB-5 program?
Tang replied, “Thanks for your due diligence. I will get back to you on those questions.”
While waiting for a response, Lehmkuhler dug into GreenTech’s history. He followed up with another email to Tang. “What is the address of WM Greentech and where is it incorporated? One last important point of clarification: Can you please explain how this venture differs from the manufacturing plants, strategic partnerships and EB-5 investors supporting Yang Rong and Hybrid Kinetic Automotive Holdings, Inc.?”
Yang (who also used the first name of “Benjamin”) had founded Hybrid Kinetic Automotive Holdings with the idea of pursuing a hybrid-electric vehicle project financed by the EB-5 program, and he had hired Wang, who was living in the Washington area, to run it. Hybrid Kinetic was a sensitive matter for GreenTech. Yang had made a verbal agreement to give Wang an ownership stake in the company, but the necessary documents were never drawn up and signed. Exasperated, Wang seized control of the company, froze Yang out, assumed ownership, renamed it to GreenTech, invited McAuliffe to join as a partner, and never reimbursed Yang for his $1.6 million in start-up expenses. The two men settled their dispute but signaled their intentions to independently pursue the original idea.
In replying to Lehmkuhler, Wang minimized Yang’s competitive threat. “In addition to Gary’s [Tang’s] point, I am not sure whether there is a real EB-5 program supporting Yang Rong. He bought a regional center in Alabama. However, we are not aware that the USCIS (U.S. Citizenship and Immigration Service) approved this regional center for auto manufacturing.”
After Wang’s reply, Lehmkuhler said, “It looks from your website like you all are still working with Gulf Coast Funds Management (a corporation connected by common ownership with GreenTech) for EB-5 investors. Is Mississippi (specifically Tunica) still an option for you?”
Replying a few minutes later, Wang sidestepped the Tunica question. “That is the only regional center through which we can bring in investors. This is also the reason why time is of the essence to get a regional center in Virginia. Once an EB-5 investor invested in this project through one regional center, it is unlikely the same investor will invest through another regional center in the same project again. In essence, Virginia will lost (sic) one investor when Gulf Coast gains one.”
On September 16, 2009, Gary Tang replied to all of the September 11 questions. All details are redacted in the FOIA document, except the discussion of benefits for GreenTech workers: “There will be standard benefits offered, such as medical insurance, 401K and paid vacations, etc. Other perks including training, etc. We hope we can get state incentive in this regard, including tuition deduction if our workers and their children go to state colleges.”
Between redactions, the emails revealed some information about members of the GreenTech management team: “Our product engineer Dr. Lei is the owner and [long redaction]. Your team is more than welcome to visit the above two institutions in China and visit auto factories designed and managed by them. MS team visited those facilities in China last year as part of their due diligence and was greatly impressed. We have also discreetly approached the [redacted] group regarding production management, logistics, and distribution.”
(GreenTech at this time had little expertise in-house. It would be several months before the company purchased a boutique Hong Kong-based designer and fabricator of electric vehicles, including a prototype of the MyCar that would become GreenTech’s main product.)
On the question of where GreenTech expected to raise $1 billion, Tang replied to Lehmkuhler:
Strategic investor have already invested in the technology and car design (over [redacted] million for four lines of vehicle). Once we start breaking ground, more will join. We expect to raise another [redacted] million from this group. Based on market research, each year, approximately 20,000 Chinese migrate abroad through investment immigration at $500,000 to $1,000,000 each, If we obtain a fraction of that market alone, the funding will be substantial. Mr. Wang has been working on the investment immigration channel since 2006 and a conservative estimate as shown in the attached spreadsheet will provide a great portion of the funding. In addition, we plan to open EB5 funding platform in other countries in Eastern Europe, Middle East and Southeast Asia.
On Monday, September 21, Tang requested a site visit to Sussex County the next day so he, Wang and Chief Financial Officer Jack Deng “could explain the project in greater detail and answer any questions.”
A September 25 email between Lehmkuhler and VEDP and people from the Virginia Gateway Region program expressed serious skepticism. “[The] project is not the best reason to support use of an EB-5 center as an economic development tool… Highly doubtful that the projected…EB-5 funding for [the] project will create enough jobs to satisfy the job creation requirements… Are the $$$ more important than the project?”
Three days later Wang emailed Lehmkuhler: “Attached please find EB-5 Regional Center application and a checklist. It is self-explanatory. All the docs are based on an application that is already approved by USCIS (U.S. Citizenship and Immigration Services). In the PPM (private placement memorandum), we use the maximum production of 1 million units to leave room for growth. Please let us know if you need anything else. Either VEDP or the Governors Office can apply as some other states did. VEDP can register a LLC to be the management company or just manage it by VEDP for the application purposes. Once the Regional Center is approved, then if VEDP sees fit, you can outsource it to us.”
He followed up with another message that the job multiplier number — needed to meet EB-5 job-creation goals — was based on an independent economic analysis.
Lehmkuhler replied: Thanks. The most generous economic impact multiplier I have ever seen used for automotive assembly plant projects is a factor of 7. I am surprised that USCIS has accepted 11.86, but appreciate the explanation.”
Lehmkuhler then joked in an email to VEDP staff, “How soon can we start using an 11.86 multiplier in our ROI’s? (-: “
Even though Wang said his numbers had been accepted by EB-5 program managers, Lehmkuhler continued to question the number of EB-5 investors and jobs needed to fund such a plant, as well as the multiplier GreenTech used to calculate the number of indirectly created jobs, A senior economist with VEDP emailed Lehmkuhler September 30th:
I suspected it was a national multiplier, and taking a look at the U.S. model for IMPLAN, it probably is. For the U.S., IMPLAN has cars at 7.57, light trucks & SUVs at 23.26, and heavy trucks at 11.65. The “independent economic analysis” probably used REM I or RIMS multipliers, or perhaps was based on a combined industry of vehicle assembly and electronics.
Much the way we use the statewide multiplier for projects, it would be reasonable for a U.S. agency to use a national multiplier to understand the impact of an event or activity on the country as a whole. But the same way we do not use the statewide multiplier for a region or locality, the U.S. multiplier is not appropriate for a state-level analysis.
Then the kicker:
To me, this suggests either the company does not have its facts straight or they are trying to make the project look better than it is.
In a flurry of activity in late September and early October 5, VEDP and the Virginia Gateway Region group worked to arrange Virginia site visits for Gary Tang and Yuntong Xu, on October 7 and 8. They chose suitable locations, assembled maps, arranged transportation and hotel accommodations, and set up meetings with local officials.
On Oct. 6, Lehmkulher notified his team:
Just wanted to make everyone aware that … our Chinese automotive assembly plant project is announcing a smaller deal in Mississippi today. The company has explained that this was always their intention to do something there, but that the large project is slated for Virginia. Didn’t want anyone to get caught off guard. Alleyn-please make the appropriate folks in C&T and at the Governor’s Office aware.
In my opinion, the Mississippi announcement today was prompted by the need to quickly establish an alternative for Chinese investors who are growing tired of waiting for Wang to get the EB5 process started in earnest somewhere. After telling them about Mississippi for so long, Wang has told prospective investors that Virginia will now be their primary focus. He needs to have a Virginia EB5 regional center up and running asap to accommodate those still willing to wait a little longer for the “best” opportunity. Their immediate focus in Virginia is to pick a site so they can then put pressure on us to make a decision regarding EB-5.
Tang, the chief operating officer, made the following comment this evening on his way from Mississippi to Virginia. “Thanks for the info. Unfortunately, my goal for this trip is for site visits. We will talk about MS in a different occasion when our VA operations are on more solid ground. MS is moving fast, so we need get VA RC up running quickly.” (RC refers to an EB-5 regional center.)
Although the VEDP team was caught off-guard by the Mississippi announcement, it continued to gather and relay information and media reports about the Mississippi unveiling of the four prototype vehicles. There was an undercurrent of concern that GTA was more interested in establishing a Virginia EB-5 regional center for funding than building an automotive plant.
Lehmkuhler wrote an email to Wang on October 22, 2009, that was heavily redacted:
…We believe that the use of a multiplier effect of [redacted] for [redacted] direct and indirect job creation is overstated. Independent economic analysis already exists in several states and by several economists that shows automotive assembly operations in North America result in a range of 4.6 to 8.1 indirect jobs for every employee directly engaged in vehicle production. (Virginia’s experience has historically been between 4.6 and 5.0).
Even with the redactions, we can fill in some of the key details using the program requirements. For the EB-5 green-card-for-investment program to fund $1 billion for construction of the plant would have required 2,000 investors to put up $500,000 each. To meet EB-5 requirements, Greentech would have needed to create 10 new jobs for each investor, or 20,000 direct and indirect jobs by 2012. With an 11.86 multiplier, 1687 direct jobs each producing 10.86 indirect jobs would reach that number.
Lehmkuhler’s October 22 email prefaced the EB-5 issues with other serious problems VEDP saw in the GreenTech plan. “After a second review of the business plan, we still do not see a unique value proposition that explains how Greentech will reach forecasted sales that equal 100% of planned capacity, both at start of production in 2012 and after major expansion occurs through 2015. No established OEM that we are aware of is able to sell every vehicle produced in a given year.”
In addition, the sales forecasts suggest a completely successful start-up, despite:
- no brand recognition
- no demonstrated vehicle performance
- no safety and fuel economy certification from the National Highway Traffic Safety Administration
- no emissions approval from EPA
- no established distribution network
- no demonstrated automotive industry experience within the executive management team.
“We request your help in better understanding the company’s unique value proposition for a successful start-up of operations in [redacted] especially in light of Greentech’s recent announcement to establish a $1 billion and 1,500 employee assembly plant operation in Mississippi,” wrote Lehmkuhler. “How do you plan to successfully start-up two major automotive assembly operations at the same time?”
On December 14, 2012, Bob Lewis, a writer from Associated Press, emailed Mike Lehmkuhler with a request to discuss the concerns VEDP had with GreenTech’s project. He said, “AP will have a story this weekend that shows contrary to Terry McAuliffe’s public claims more than a week ago, VEDP never rejected an application from GreenTech because no application was ever filed. But it’s clear from the emails, notes and other material that several senior economic development officials under two governors never got satisfactory answers about several aspects of the proposed project and harbored serious misgivings about it.”
As a practical matter, the Virginia deal was dead. It seems clear in hindsight that obtaining an EB-5 regional center was the main driver of the GreenTech contacts with Virginia, not creating an assembly plant in Virginia for a company whose first venture was an abject failure for Mississippi.
As governor, McAuliffe divested himself of his ownership stake in GreenTech, but he didn’t give up on the idea of importing Chinese companies to Virginia. On June 18, 2014, after his Asia Marketing Mission, McAuliffe announced Shandong Tranlin Paper Co., Ltd. would bring 2,000 jobs and $2 billion in investment to Chesterfield County. The Washington Post wrote on October 28, 2014, “McAuliffe has tapped his global address book to help seal 191 deals with more than $4.7 billion in capital investment, according to the Virginia Economic Development Partnership, which set up his trip to China, Japan and Korea.”
A press release on November 5, 2014, ran the headline, “Governor McAuliffe Announces 349 New Jobs in Appomattox County… Project result of Governor’s meeting with company officials in Beijing, China during Asia Marketing Mission.” McAuliffe was quoted saying, “I had the great privilege of meeting with company officials in Beijing, China and close this significant win during my Asia marketing mission.”
Both Chinese deals went bust. Tranlin created only 10 of the promised 2,000 jobs by 2016. And in an eerie parallel to how GreenTech had bilked Mississippi, Lindenburg delivered none of its promised jobs, and made off with $1.4 million released from the Governor’s Opportunity Fund.
VEDP staffers who protected Virginia from losing millions to McAuliffe’s GTA venture were thrown under the bus for McAuliffe’s bad judgement on Lindenburg and Tranlin. After a negative 2016 report the Joint Legislative Audit and Review Commission (JLARC) claimed that VEDP adopted formal due diligence procedures only after “paying $1.4 million to an illegitimate company.” That report led to the total reorganization of VEDP. Mike Lehmkuhler, with 19 years VEDP experience, and Liz Povar with 23, lost their jobs.