UPDATE 4-U.S. battery maker A123 may be rescued by Chinese group

Wed Aug 8, 2012 8:43pm EDT

* A123 got U.S. green technology financial help
    * Chinese firm Wanxiang to take 80 pct stake in A123
    * A123 reported 2nd-qtr loss of $82.9 mln


    By Paul Lienert and Ayesha Rascoe
    Aug 8 (Reuters) - U.S. battery maker A123 Systems,
which got a quarter-billion dollar green technology grant from
the Obama administration, said on Wednesday that a Chinese auto
parts maker is looking to take a controlling stake in the
faltering company.
    China's Wanxiang Group Corp plans to invest up to $450
million, A123 said, and give the manufacturer the cash injection
it needs to keep making batteries for electric and hybrid cars.
A123 said last month it had about five months of cash left.
    But a foreign rescue of an industry favored by President
Barack Obama has the potential to ignite a political firestorm
in this election year.
    Already under attack from Republicans for backing green
company flops like solar panel maker Solyndra, he could face
criticism for bankrolling technology that ends up in Chinese
hands.
    "This is a very troubling transaction that should be
strictly scrutinized by the U.S. government," said Michael
Wessel, a member of the bipartisan U.S.-China Economic and
Security Review Commission, which advises lawmakers on trade
policy.
    "This is a critical sector and one that American policy
makers have focused on in terms of future economic opportunity
and job creation."
    A123 received the $249 million federal grant in 2009 under
an Obama administration initiative to encourage the development
of green technology. 
    In 2010, Energy Secretary Steven Chu visited A123's Romulus,
Michigan, plant where he applauded the company for being "a
perfect example of what's possible when the private sector,
government and academia work together".
    But the advanced car battery industry has been hurt in part
by too much capacity and weak U.S. demand for electric cars.
    At least two U.S. battery makers, one of which also received
government backing, have failed this year.
    Republicans and presidential candidate Mitt Romney have
blasted Obama for giving grants to help clean energy technology
get off the ground. And the failure of two government-backed
solar panel makers in the last two years has put the
administration on the defensive.
    "This is just another example of Barack Obama's failure to
follow through on his economic promises and the millions of
taxpayer dollars he has wasted," said Republican National
Committee spokeswoman Kirsten Kukowski.
    
    U.S. GOVERNMENT MAY INTERVENE 
    The White House swiftly defended its policy after the A123
announcement. 
    The investment from China in A123 does nothing to damage a
government program meant to promote domestic production of
high-tech batteries, said a White House spokesperson.
    The government will not allow U.S. grant money to fund any
facilities abroad, the spokesperson added.
    A123 has received about half of its promised government
backing so far. 
    The Obama administration has said the country must win a
clean energy race with China through advances in areas such as
battery technology and solar power.
    But Solyndra LLC, which filed for bankruptcy protection in
September 2011, left taxpayers on the hook for $535 million in
loans. The company filed a Chapter 11 reorganization plan in
July. 
    Abound Solar filed for Chapter 7 liquidation in July.
 
    The U.S. solar panel industry has blamed the failure of
Solyndra and other companies on China flooding the world market
with cheap panels.
    U.S. government officials may choose to weigh in on the
planned investment in the battery-maker, said A123 Chief
Executive David Vieau.
    Vieau said on Wednesday that his company hopes to do well in
China where there is a government-mandated expansion of the
market for electric and hybrid vehicles.
    Wanxiang CEO Weiding Lu said in a statement that the deal
would "help expand the company's (A123's) capabilities both
domestically and internationally." 
    
    DETERIORATING EARNINGS REPORT
    A123's earnings report on Wednesday underlined the company's
downward spiral. It reported a second-quarter loss of $82.9
million, or 56 cents per share and a 53 percent fall in revenue
to $17 million.
    Its cash pile was more than halved to $47.7 million at the
end of the quarter, down from $113.1 million at the end of the
first quarter.
    A123 raised nearly $600 million from venture investors and
an initial public offering in 2009. That same year, it was
awarded a grant under the Obama administration's $2.4 billion
Electric Drive Battery and Component Manufacturing Initiative.
    Wanxiang, one of the largest non-government-owned companies
in China, has annual revenue of more than $13 billion and
supplies auto parts to many of China's largest automakers.
    A123 has battery contracts with Germany's BMW,
China's SAIC and U.S. startup Fisker Automotive, and
is slated to provide batteries for General Motors' 
upcoming Chevrolet Spark EV.
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