A123 Systems, a financially struggling maker of lithium iron phosphate batteries, is in talks with the Chinese auto parts maker Wanxiang Group about a deal in which the Chinese firm would invest up to $450 million in A123 in exchange for an 80% ownership stake.
The deal is likely to be opposed by some U.S. lawmakers, one of whom notes that A123 built an advanced-technology battery plant in Michigan with the help of $249 million in grants from the U.S. government.
“It appears the Department of Energy and the Obama Administration have failed to secure sensitive taxpayer-funded intellectual property from being transferred to a foreign adversary,” says Rep. Clifford B. Stearns (R-Fla.). Stearns was also a critic of the government’s investment in the now-bankrupt solar-cell maker Solyndra.
A123’s intellectual property includes what it calls a “game changing” battery that overcomes limitations of competing lead-acid and lithium nickel manganese cobalt oxide batteries. The company says the battery would be ideal for microhybrid passenger cars, a new type of gasoline-powered vehicle with engines that turn off at stoplights.
A123 didn’t address technology export concerns when it announced the proposed investment. Instead it emphasized that the deal would remove uncertainty regarding its financial situation. “A substantial capital investment from Wanxiang would not only provide financial stability to A123 as we continue to grow, but it would also align us with a large, successful global brand in the automotive and cleantech industries,” says CEO David P. Vieau.
Lagging sales of electric vehicles containing its batteries have crimped A123’s finances for some time. A $52 million recall of defective batteries also hurt the firm. In May, the firm filed a document with the Securities & Exchange Commission in which it raised “substantial doubt on the company’s ability to continue as a going concern.”
Zhuo Zhang, an analyst at business research firm Lux Research, says A123 and its intellectual property could give Wanxiang an edge over competitors in China’s growing electric-vehicle and electrical grid storage markets. And a deal would also give Wanxiang the prestige of owning a prominent U.S. battery maker.