The growth of electric-vehicle demand in the U.S. is less contingent on rising fuel costs than advancements in battery technology, Ford CEO Alan Mulally says.

But as pump prices approach record levels, industry stakeholders warn a chill has taken hold in Washington, a supposed wellspring of support for innovation.

While established, high-volume auto makers are pressing ahead with EV rollouts – Ford will launch three this year – startup niche players are burning out. And valuable technology is being lost, critics charge.

“(U.S. government) misrepresentations, delays and dithering and bad-faith dealings will definitely compromise the trend toward electrification, but just in this country,” says Mike Donoughe, former chief operating officer of Bright Automotive.

Michigan-based Bright folded March 2 after a promised $314 million U.S. Department of Energy loan request failed to materialize.

Other nations are “aggressively” supporting vehicle electrification, Donoughe says. “We have numerous foreign entities interested in purchasing (Bright’s intellectual property),” he adds, warning the U.S. is positioning itself to “cede another potential area of competitive advantage to foreign entities.”

Renault’s vehicle unveilings at the Geneva auto show suggest Europe’s EV market is rapidly developing. The French auto maker pulled the sheet off two new offerings – the Twizy 2-seater, launching now, and the Zoe 4-passenger EV that arrives by year’s end.

Against this backdrop, Renault has orders for 15,000 Kangoo ZE electric vans from fleet customers.

“Even though I recognize the challenge, I’m not changing my enthusiasm and conviction that (electric drive is) going to be a very important technology for the future,” says CEO Carlos Ghosn, who has said Renault and its alliance partner, Japan-based Nissan, will have 1.5 million EVs on the road before 2017.

Ghosn also has said EVs will account for 10% of those markets around the world where zero-emissions vehicles are sold.

In the context of sales, current volumes are miniscule. Last year, EVs accounted for 0.09% of the 12.8 million cars sold in Western Europe, according to U.K.-based Auto Industry Data, and 0.05% of the 12.7 million U.S. light-vehicle deliveries, according to WardsAuto data.

But industry insiders urge patience. The pace of demand is “about as we expected,” Mulally says, adding: “We’re going to see more adoption of electrified vehicles as the cost of the batteries come down and the weight of the battery is less.”

Expect sufficient advancement in five years, says David Cole, chairman emeritus of the Center for Automotive Research in Ann Arbor, MI. By then, he predicts, the battery that powers the Chevrolet Volt extended-range electric vehicle will cost some 30% less than it does now.

The battery’s price tag is blamed for ballooning the car’s U.S.-market sticker to $40,000 – a factor linked to the EREV’s sales rate. But Volt deliveries have been trending upward as General Motors has moved aggressively to boost inventories.

Model-year ’13 sales in the U.S. totaled 5,402 through February, nearly six times the year-ago tally for the ’12 Volt, according to WardsAuto.

Volt technology is “terrific,” Cole says. “But it’s not ready for high volume; and that’s true of all new technology.”

However, Donoughe and others like him warn made-in-the-U.S. technology may never mature unless Washington changes its attitude.

Bright employees accepted multiple pay cuts leading up to the company’s shutdown. For months, they were led to believe relief was imminent – courtesy of the DOE’s $25 billion Advance Technology Vehicles Manufacturing Loan.

Since making initial awards to Ford, Nissan, Tesla and Fisker in 2008, the program has not approved additional loans. And since its inception in 2007, federal fuel-economy rules have undergone two separate increases – one to 35.5 mpg (6.6 L/100 km) by 2015 and a second awaiting final approval calling for U.S. auto maker fleets to hit 54.5 mpg (4.3 L/100 km) by 2025.

The ATVM was authorized in 2007 under the Energy Independence and Security Act and funded by Congress in 2008 with the goal of helping auto makers meet tightening federal fuel-economy regulations and improving the nation’s energy security.

Many industry experts think the program has become too politicized after last year’s bankruptcy at Solyndra, a Fremont, CA-based maker of solar-panel technology. A separate DOE lending program awarded Solyndra a $535 million loan guarantee.

Solyndra’s collapse came with tales of executive opulence, including the construction of glitzy new California headquarters, and Washington conservatives have latched onto it as bad policy-making by Obama. The negative publicity has infected the ATVM loan program, as well, effectively freezing funds until after the presidential election in November.

“It is hard to ignore the fact that it is an election year and (ATVM) has been a hot topic on both sides,” says Brandon Mason, senior automotive analysts at PwC Autofacts.

On March 2, despite a $5 million investment from GM, which saw Bright’s technology as innovative, as well as at least two bridge loans from consortium of investors led by the current executive team, the frugal little EV pioneer closed its doors.

Once viewed as a poster child for the Obama Admin.’s goal to put 1 million EVs on the road by 2015, slash carbon-dioxide emissions and wean America from foreign oil, Bright now is seen as a victim of suffocating government bureaucracy.

Bright says it was told as long ago as September 2010 its funding was weeks, not months away.

“We were told by the DOE, ‘Hey, we need a win for this program and you guys are the best horse in the race,’” Donoughe tells WardsAuto on a tour of Bright’s headquarters about 30 minutes north of Detroit. “We feel like they turned their backs on us.”

Bright estimates that between locations in Anderson, IN, its Michigan headquarters and a production partnership it reached with Mishawaka, IN, contract vehicle maker AM General, about 700 potential jobs are now gone.

“This area here,” Donoughe says, sweeping his hands out over a swath of empty cubicles, “we’d have probably had about 250 people working – our employees and suppliers based here – within weeks of the loan. Good, well-paying, high-tech jobs.”

In the development garage of Bright’s headquarters, a demonstration model of the company’s IDEA commercial van awaits the crusher.

A plug-in hybrid electric vehicle designed to operate on full electric mode for 40 miles (64 km) before switching over to a hybrid propulsion delivering 36 mpg (6.5 L/100 km), the IDEA was destined for business fleets and small companies. It promised a 10% to 30% lower total cost of ownership than competitive vehicles in its class.

Bright is not the first EV developer to stumble over the lure of federal loans.

Carlsbad, CA-based Aptera shut its doors late last year. It had received a “conditional commitment letter” from the DOE for a $150 million loan to fund development of passenger vehicles priced between $25,000 and the mid-$40,000 range.

Former Aptera CEO Paul Wilbur says the company was on the verge of production before it shut down. He considers the decision to pursue DOE money to fund the upstart management’s biggest mistake.

But executives in charge were left with few alternatives, he says, after the DOE “crowded out” private-equity in the space with the Bush Admin.’s decision to chip in funding to accelerate the proliferation of EVs in 2007.

Wilbur says the government’s presence compelled PE investors to scale back their involvement and provide matching, rather than full funding to startups. After three years of navigating the loan process, Aptera’s PE investors simply ran out of patience.

“In hindsight, the only way we would have been funded was to go for foreign investment,” Wilbur tells WardsAuto. “And that’s not how we were built. We were an all-American company, using American technology. That was our failure.”

Carbon Motors, developer of a diesel-powered patrol car for law enforcement touted as 40% more fuel-efficient than existing competitors and relatively inexpensive to operate over its lifetime, had its DOE loan application rejected this month.

Carbon Motors says it was told its application was “top priority” at the DOE and was encouraged to continue negotiating for the $310 million loan.

William Santana Li, chairman and CEO of Carbon Motors and a former Ford engineer, blames “political gamesmanship” for the loan rejection. He estimates it cost 1,550 direct jobs in Connersville, IN, and a possible 10,000 related jobs.

“Although the DOE’s new-found focus on protecting taxpayer interest may be a good talking point for the media, in this particular case, it fails to ring true,” Li says in a statement.

Fisker Automotive, maker of the $102,000 Karma extended-range EV, has drawn less than one-third of its $528.7 million in DOE loan guarantees because it could not comply with agreed-upon product-launch deadlines.

Workers have been laid off at the auto maker’s Delaware assembly plant, which Fisker bought with DOE loan money and was preparing for production of a second, more affordable model.

Fisker says private-equity money will keep it afloat. “We are still in ongoing negotiations with the DOE and hope to reach a mutually agreeable conclusion,” says Fisker spokesman Roger Ormisher.

Ormisher says the auto maker will pursue alternative methods for funding its second model.

Tesla Motors, maker of the $109,000 Tesla Roadster, received a loan guarantee of $465.1 million from the DOE program, which it will use to develop a second model for production in Fremont, CA, site of another cast-off GM assembly plant.

The funds also will be used to develop powertrains for OEM customers, such as Daimler and Toyota. So far, Tesla has drawn $290.7 million of its loan guarantee.

The loans attracted more than startups, too. GM sought $14 billion from the DOE program, but pulled its application in early 2011 after it went unresolved for 15 months.

The restructured auto maker cited a reluctance to carry any additional debt on its balance sheet and an ability to execute fuel-efficient vehicle programs with its own cash.

Chrysler earlier this year withdrew its application for $3.5 billion in funding, down from $7 billion originally, saying it, too, would bring advance technology cars to market on its own. One year ago, CEO Sergio Marchionne said a couple of Chrysler projects could have used the money.

Other auto makers have fared better in the ATVM loan program. Ford and Nissan joined Tesla as initial recipients of the funding, just a year after it was created.

Ford nabbed a guarantee of $5.9 billion and will complete its drawdown on the loan later this year. A number of its facilities benefited from the money, perhaps most significantly its assembly plant in Wayne, MI.

Fuel-efficient Ford Focus small cars, including an EV model, are built there now in place of lumbering Ford Expedition and Lincoln Navigator large SUVs.

Nissan gained a $1.6 billion loan from the program, which it used to upgrade its Smyrna, TN, assembly plant to accommodate production of the Leaf EV and construct a facility nearby to supply battery packs for the car.

Nissan spokesman Brian Brockman says production of the Leaf will shift from Japan to the U.S. later this year after the Smyrna upgrades are completed.

The current status of the AVTM program is unclear. Kathleen Hogan, deputy assistant secretary-Office of Energy Efficiency and Renewable energy at the DOE, said earlier this year, “We are working on the loan program to the extent that we are providing funding for it.”

PwC’s Mason says his consultancy expected some high-profile failures in the EV industry, but not so early in its development and had suspected many companies would disappear through consolidation rather than liquidation.

“There will be a time and place for EVs, but it is not right now” Mason tells WardsAuto on the day Obama announces a plan to raise the consumer credit on EVs to $10,000 from $7,500, and give it to them when they buy the car instead of a year later on their taxes.

“It will take time for (EVs) to hit the sweet spot with investors,” Mason adds.

Back in Michigan at Bright headquarters, where to save money last year employees chipped in during the workday to frame a wall and divide office space, Donoughe is calling for an end to the ATVM loan program.

“The program might be alive,” he says, “but it is not well.”

– with Eric Mayne in Geneva, and David C. Smith