Former green-energy darling A123 Systems filed for bankruptcy today. Though A123 has been struggling in several areas for the past few months, the speed of the filing has caught many observers by surprise. Just yesterday, A123 warned that it would have to default on several loan issues and that bankruptcy was a possibility, but less than a day later, that possibility became a reality.
Tier 1 supplier Johnson Controls has agreed to purchase A123’s automotive-related assets for $125 million. Those assets include facilities in Livonia and Romulus, Michigan, its manufacturing facilities in China and its stake in the joint venture Shanghai Advanced Traction Battery Systems Co. Johnson Controls will provide A123 with $72.5 million in debtor-in-possession financing to allow the company to navigate through its restructuring.
Aside from its automotive businesses, for which the company was best-known among auto enthusiasts, A123 also had operations in the commercial, government, and power grid spaces. The disposition of those aspects of A123’s business have not yet been determined.
With tonight’s second presidential debate, expect A123 to suddenly become a political football. Why? The Department of Energy loaned the company $249.1 million in 2009 in order to build its Livonia plant, and the majority of that will now be lost. With Mitt Romney criticizing the Obama administration for picking “losers” like Fisker, Tesla, and Solyndra during the first debate, you can be sure that he’ll latch on to A123’s failure. In fact, expect to see the photo at the top of this post all over the media, particularly on conservative-oriented websites.
A big part of A123’s downfall can be traced to the defective lithium-ion batteries that it supplied to Fisker for the Karma plug-in hybrid. Replacing defective Karma batteries was expected to cost A123 $66.8 million, including a $15 million inventory charge – amounts that the struggling company could ill afford to pay. A123 has lost an aggregate $857 million over the past few years.
The Karma battery problems, which damaged the public image of both Fisker and A123, aren’t the biggest problem that A123 had. That would be the fact that electric cars have much less appeal with buyers than the rosy projections that were touted just two or three years ago. President Obama stated a goal of having a million EVs on the road by 2015; to date, the number is more like 50,000, or one-twentieth of the goal. Long charging times, high upfront costs, and limited range are all conspiring to kill the electric car for a second time.
Having another high-profile green-energy company collapse will not be helpful for the president’s re-election efforts, but more than that, it will make it very difficult for the government to justify any further green-energy grants or loan guarantees. With EVs and green energy in the future forced to depend on pure economic principles for their survival/prosperity, expect green-energy development to slow down over the next few years. Solar? Wind? Not for a long time.
Johnson Controls is probably getting a pretty good deal in its out-of-bankruptcy purchase of A123’s automotive assets. A123 has a contract with Chevrolet to supply the batteries for the [low-volume] Spark EV. A123 also has a deal with Eaton Corp. to provide the batteries for retrofitted F-550 heavy duty PHEVs, as pictured above.