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Bankruptcy for A123

Wed, 10/17/2012 - 18:02 -- Ruth Williams

A123 Systems has filed for bankruptcy following a turbulent year. The Massachusetts-based lithium-ion battery manufacturer that employs 2 500 has been struggling to keep its head above water following disappointing sales of electric vehicles and a costly recall back in March 2012.

Johnson Controls Incorporated will buy the automotive business assets from A123 in a deal worth US$125 million. This will provide the finance for the company during bankruptcy. The factory in Michigan is to remain open for the time being.

This latest news puts halt to the discussions for a rescue buy-out by Wanxiang Group Corporation in August. The US$465 million deal would have meant the Chinese corporation held an 80% share in A123 and four of the nine board seats. However certain conditions, including A123's liquidity falling below operational levels, were not met so only $22.5 million of the loan amount has been funded. These complications prompted the deal with Johnson Controls. The talks had sparked political debate because A123 had received a substantial amount of public funding from the Obama administration to boost the advanced battery industry in the USA and there was unrest about the company then falling to non-American ownership.  

A123 Systems has filed for Chapter 11 bankruptcy protection on 16 October 2012 due to its mounting financial problems. There will be a bankruptcy auction for assets. Johnson Controls has provided A123 with US$72.5 million in debtor-in-possession financing to fund the bankruptcy case.

The Michigan-based battery maker has suffered because the EV market has failed to take off as quickly as hoped, only accounting for 3% of US car sales last year. For the first half of 2012 it reported losses of US$ 208 million, this vulnerable position led to the talks with Wanxiang Corp.

The mounting financial problems came despite a cash injection of US$249 million in the form of federal grants from the Obama administration in 2009. 

The bankruptcy will add fuel to the US presidential debate as another example of an unsuccessful ‘green’ investment by the Obama administration. Following EnerDel, A123 is the second of the 30 battery and electric drive companies that received government funding to go bankrupt. Excess of US$1.2 billion has been provided for battery makers, including A123 and Johnson Controls, over the past three years to boost the hybrid and electric vehicle market. Of the money A123 received in federal grants, US$132 million has been spent on building a factory in Michigan.

A123 has suffered losses of US$857 million since the company began and was at risk of being delisted from the stock market because of consistently low stock value.

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