Battery Startup A123 Rescue Plan: Chinese Firm To Own 80%

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A123 lithium-ion cells

A123 lithium-ion cells

It's been a very, very tough 18 months for lithium-ion cell maker A123 Systems.

In late May, the company said there was "substantial doubt" about its ability to remain in business.

Now, A123 has announced a tentative deal to recapitalize the company that would--if approved--give an 80-percent ownership stake to China's largest auto parts company, Wanxiang Group Corp.

Wanxiang would invest up to $450 million in A123, though the deal will have to be approved by both the U.S. and Chinese governments. A123 said it hopes to close the deal by the end of this year.

Meanwhile, A123 is receiving a bridge loan of up to $75 million from Wanxiang, at a stiff 10-percent interest rate.

Getting approval for the deal could be challenging. A123 has received both a $249 million stimulus-program grant from the U.S. Department of Energy and $238 million from the state of Michigan.

Given the focus during the presidential election season on DoE grants and low-interest loans to green energy companies, the A123 investment may come at an awkward time.

The Obama administration could be faced with a challenge: Should it approve funding to keep a U.S. company in operation even if it ends up owned by a Chinese company? Or should it cut its losses?

A123 Systems [NSDQ:AONE] is based in Waltham, Massachusetts, but it now has about 800 employees in two Michigan plants, in Livonia and Romulus.

A123 Systems Employees Perform Quality Check on a Lithium-Ion Battery Pack [source: A123 Systems]

A123 Systems Employees Perform Quality Check on a Lithium-Ion Battery Pack [source: A123 Systems]

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A123's troubles began last year, when Fisker--its largest automotive customer--cuts its orders for A123 cells due to substantial delays in launching its Karma range-extended electric luxury sedan.

The company had to lay off some employees as a result.

Then, in March, A123 was forced to recall lithium-ion cells made in the Livonia plant due to a manufacturing flaw. That meant it had to cover the costs of a new battery pack for every 2012 Karma built to that point--several hundred cars at least.

The coup de grace may have come in April, when A123 cells were deemed the cause of an explosion at GM's main battery laboratory in Warren, Michigan, that injured one person and closed the entire lab building.

A123 Systems Prismatic Cell

A123 Systems Prismatic Cell

Despite some good news--the DoE lengthened the time in which A123 could use its grant funds, and the company announced a new, more durable cell chemistry--analysts say the writing was on the wall for some time.

A123 supplies lithium-ion cells for hybrid and electric vehicle batteries to several manufacturers, including Fisker Automotive--for its Karma range-extended electric luxury sedan--and BMW for its ActiveHybrid line of 3-Series, 5-Series, and 7-Series sedans.

Its cells will also be used in the limited-production Chevrolet Spark EV, which will be sold in small numbers as a compliance car to meet California zero-emission vehicle mandates.


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Comments (9)
  1. Boy, building a company is difficult work.

  2. Has the Romney campaign ad been written already? "Obama flushes $500 million of your hard-earned money into the toilet, er, the arms of the Chinese."

  3. While we are still bickering over the political baggage of green technology, the Chinese is flexing its finanical strength in buying up all the latest technology. China knows that in order to secure it energy future, it can't depend on oil. There aren't enough oil in the world to power both China and US...

  4. Well, if that's someone's opinion, one can feel free to invest accordingly. Sounds like you want to buy oil company stocks if you believe oil prices will increase. And buy battery companies if you think they're a good investment. If you just leave it up to the market, supply will match demand, and vice versa. That's economics 101. If you think oil prices will increase because of future shortages, you can also start drilling for oil and make a lot of money if you find the oil. Or just buy the stocks of oil drilling companies. If oil is to become scarce, that's an easy way to become very, very, rich, if that theory is accurate.

  5. Oil is more than an investment issue. It is also geopolitical and military issue.

  6. Leave it up to "the market"? Econ 101? Seriously? Once you throw a little fractional reserve lending, politics and sociology into your education, you eventually realize that "the market" is directed and controlled. Despite the rhetoric, we do not live under a pull economy as inferred by "leave it up to the market." And there isn't much left to chance when it comes to the kind of power involved in maintaining the currency/energy status quo.

  7. "supply will match demand"

    Sure but it could be:
    US supply meets chinese demand
    instead of the other way around, or instead of
    mideastern supply meets US demand

  8. Payoff of the loan should be a prerequisite to such a sale.

  9. So US governments have invested almost $500M. I think it would be very foolish to "cut the losses" and give it to the Chinese. A123 has had some bad luck, but still has great promise as a viable company. The government should pump in at least another $100M so A123 can pay back their 10% loan and get back on their feet. I really doubt they require another $400M, that is just "nice to have".

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