* 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.