A123 Systems Goes Bankrupt

A123 Systems, a maker of lithium iron phosphate batteries for electric vehicles, has filed for bankruptcy in Delaware federal court and arranged to sell its automotive battery business to technology firm Johnson Controls for $125 million.

A123 CEO David P. Vieau says bankruptcy and the deal with Johnson are “in the best interest of A123 and its stakeholders at this time.” The firm has flirted with bankruptcy for the past year as the large market it had envisioned for electric vehicles never materialized.

Johnson will get A123’s battery technology, originally developed at MIT. Also included in the sale are recently built battery facilities in Livonia and Romulus, Mich., that benefited from a $249 million grant from the Department of Energy and $125 million in incentives from the state of Michigan. Johnson manufactures lithium-ion batteries for hybrid and electric vehicles at a Holland, Mich., plant financed in part with a $299 million DOE grant.

A123 filed for bankruptcy after failing to make a payment on a $75 million loan from Wanxiang Group, a Chinese auto parts maker that had been negotiating since August to buy 80% of A123 for $450 million. Vieau says negotiations failed because of “significant challenges.”

Among those challenges were Republican critics who opposed the sale of A123’s taxpayer-financed intellectual property to a foreign buyer. The firm’s bankruptcy drew additional criticism from the campaign of Republican presidential contender Mitt Romney as another failure of President Barack Obama’s “strategy of government-led growth.”

A blog post by DOE spokesman Dan Leistikow notes that A123 Systems received a $6 million grant from the Bush Administration in 2007. Leistikow adds that the pending sale to Johnson “means that A123’s manufacturing facilities and technology will continue to be a vital part of America’s advanced battery industry.”

Battery prices will have to come down for electric vehicles to be competitive, says Steven Minnihan, a senior analyst at consulting firm Lux Research. However, that won’t happen for at least another five to 10 years, he cautions, when advanced zinc-air and lithium-air batteries come on the market.