A123 Systems Files For Ch. 11 Bankruptcy
Expect tonight’s debate to include at least a few soundbites from GOP candidate Mitt Romney over today’s filing by A123 Systems for Chapter 11 bankruptcy protection.
A123 Systems had won a $249 million federal grant to develop lithium ion batteries for motor vehicles, including Fisker and BMW. Batteries produced by the company had been implicated in a Fisker Karma recall, which cost the company $67 million. The company had been warning investors via SEC filings that it was facing a bad business situation.
Now, the company is looking to sell its automotive operations to Johnson Controls for $125 million after failing to close a deal with a Chinese supplier for $465 million (in part due to concerns that technologies developed by the American company would be subsumed by the Chinese company).
A123 had promised to create 38,000 U.S. jobs, including 5,900 at its own plants, in return for the government funding under the 2009 American Recovery and Reinvestment Act’s Electric Drive Vehicle Battery and Component Manufacturing Initiative.
Johnson Controls, which supplies lithium-ion batteries to a number of vehicle manufacturers, also received a $299 million grant under the same program.
In the first presidential debate, Romney attacked Obama’s promotion of green technologies, saying the administration, in doling out billions to clean-energy companies, only picked losers.
The highest-profile recipient of federal funds, Solyndra, will square off in court on Wednesday against the Internal Revenue Service and the Department of Energy as it argues for its bankruptcy plan.
At the same time, A123 Systems had gotten a boost from Massachusetts, where the company is based. It received federal grants starting in 2001, and had sought various rebates, exemptions, credits, and financing from 2003-2007 when Mr. Romney was governor of the state.
A123 didn’t get its start during the Obama Administration (it was founded in 2001- that is during Bush Administration - by a couple of MIT graduates), but the funding under the stimulus was one of the largest infusions of money to the company.
So, what did that grant actually go for? Well, it went to build a pair of factories to build batteries in Michigan with $129 million of the $249 million. Additional incentives were provided by the state to locate the facilities there. The remaining portion of the federal grant hasn’t been spent to date.
Part of the company’s problems stem from the fact that demand hasn’t been what had been expected and the aforementioned battery recall.
Note too that the assets still outweigh the liabilities in the filing, and there’s an already built factory that could be used by Johnson Systems to build factories so the money isn’t a complete loss.
In sum, the story isn’t nearly as cut and dry as opponents to green tech would have you believe.