A123 business plan changes

Are you crying again about the military spending? You might try just getting over it. You'll probably be a lot happier. This thread is not about military spending, this is about A123 and how it went bankrupt.

 

It wasn't about federal subsidies either until you brought it up.

 

Business week, Forbes, Romney, etc. all brought it up. Because of the subsidies congress acted to block sales of the company to Wanxiang group of china. This left the company open for JCI's much lower offer. If the government hadn't provided A123 with money, share holders might be getting 50 cents back a share instead of today's price of less than 8. Then again without federal money, maybe the company would be worthless.

I would not count the government money as a loss here. This is unlike Ener1 or solyndra, because there are assets remaining that will be used, and used by a US corporation and likely will provide american jobs. JCI has locked up design wins with most auto factories in the US and europe for auto start stop systems using advanced lead acid batteries. The A123 tech may shift those to lithium. The sales in the fisker cars and gm spark are a long shot. LG Chem, Panasonic, and Nissan seem to have the larger lithium technology locked up for now, but JCI has bought a number of good engineers to play catch up. JCI got screwed over in the last generation of nimh, when japanese and korean governements heavily invested in their battery companies. Lithium is a new ball game, and perhaps this little bit of a subsidy that went to A123 and now is flowing to JCI levels the playing field a little. JCI-saft lithium is also in the transit connect and some bmw and mercedes hybrids.

 

Who cares? They didn't bring it up here, which is what usnavystgc was crying about.

 

Oh sorry. Pertinant to the discussion is there were US subsidies, which caused the government to block the sale to Chinese interests. This is what forced the change of plans to keep the assets in american hands.

Each of these government investments should be looked at as a case by case basis.

usnavystgc, I would not say this is a bad use of government funds. It was trying to incubate a domestic battery market. A123 really had and soon JCI will have one of the most promising technologies. The strings attached to the funds are a legitamate gripe at the way government is run. It encouraged A123 to burn its cash at a rate much higher than it would have. If we sat around like in the 2000s, then the japanese would again have a monopoly on lithium as they have now on nimh. That hurts american competitiveness. It could have been done much better though. Now this A123 subsidy will flow to JCI, and you may ask why the government should be giving a $18B market cap company, more subsidies when they are making large profits. That is a good question, but there is lots of corporate welfare out there. This is some of the least damaging.

 

If I can appear to come to usnavystgc's defense, perhaps he "gets it" now . . . . that the issue of renewable tech companies are inextricably linked to lots of similar tax/governmental issues ... whether they be profitable in the here & now - or not. Good projects all need funding via tax money ... and many appear to be financial losers (weather it's military, GM, or renewables). Hindsight is 20/20 - & even the remnants of solyndra (as austingreen mentions) have netted technological improvements.

 

So the story is that A123 ran out of cash before being production line ready? Did A123 have tooling problems, QA problems with the battery itself, or both?

 

No, they were/are production line ready, the feds just put manufacturing capability rqmts on them beyond the demand. I guess if you look at QC, maybe they weren't prod. line ready.

 

They initially had process problems on the battery production. This along with qa problems with the batteries being produced, caused a major cost. They fixed these problems after batteries were shipped in cars to customers. Both A123 and fisker should have caught the problems before the cars reached reviewers and customers. Batteries were replaced in a recall.

With the competitive nature of the batteries, the only way to raise equity was from the chinese, and they wanted majority equity. A123 has good products, good technology, and good facilities but it looks like it has poor management. The best results will be if JCI an use it's good management to take advantage of A123 strengths.

Its not unual for a parts supplier to run into problems when putting a new product into production. The bigger mistake was not stopping production, fixing the problem, then turning the line back on. The way they handled it made it look like a bad management team. Tesla on the other hand has had parts problems on the S, but handled it well. They were easily about to get more capital. Tesla seems to have a really good management team.

Even with the problems though, a123 would have had enough cash from its IPO to recover, but it built and hired too fast, causing too high of a burn rate (negative cash flow). This excessive growth was a string attached to the government money. The DOE needs to learn from this.

 

This whole thing is so frustrating to me. I know some say its a good investment but I say "Is it really?" Is it wise to force a company to produce more than there is a demand for? Is it wise to give money to someone (as in grant)? (free money is not worth anything to the recipient, after all, its free). Is it wise to give money to a poor management team? To me, this is all a loss. Even with the threat of some other country having a "monopoly" on batt. production. That scenario sounds better to me. It won't be paid for by my tax dollars and they will still have to compete on the world market. This is just my tax dollars, given by a gov't that places unrealistic demands on a fledgeling company, managed by incompetent business people who either don't care or are too stupid to manage "free" money. All in the name of let's not let some other country monopolize this market???? I just don't see the value in it and I probably never will.

I predict the next company to hit the bankruptcy scene will be LG Chem. I'm all about wise investments but, this is a failure. And... I predict some other country monopolizing battery production despite all these investments.

 

In the case of A123, the case could definitely be made for American competitiveness. A123 has world leading technology, but couldn't really develop it to compete with the foreign funded giants. The Japanese gave much larger amounts of money to Panasonic and Sanyo, which are now merged and have a monopoly on automotive nimh, and a strong product for automotive li batteries. Korea likewise gives large amounts of money to LG and Samsung. Ford has sold lower numbers of hybrids in the past because they could not get batteries. This is one area where it is appropriate, and A123 did spend there own money. The Grant's strings attached did make A123 spend its investor equity too fast and that was a problem. If there had not been a grant A123 might have partnered with JCI to build batteries together, instead of selling out their automotive division in bankrupcy.

But these battery grants went way to far, the government gave them to everyone. This includes Ener1, that looks purely political and includes democrats and republicans making the bad grant. LG and Nissan also got government money, and neither has not yet moved the jobs here, most are still in korea and Japan.

Let's face it the $130 Million that A123 got was very small, what you should be mad at is the larger grants that were not needed. Cash for clunkers was a huge expense. Why are korean and Japanese companies getting battery money when it is for us competitiveness. Shouldn't it be given out after they produce the jobs?

LG Chem isn't about to go bankrupt, nor is JCI. These are huge companies that want to invest in lithium for the future. LG chem may just lose money for awhile.

 

All I know is, paying money for people to come to work to play cards and monopoly is not profitable.

 

That is compact power, a wholly owned US subsidiary of Korea's LG chem. LG would not have won the gm contract if they did not promise a US source. LG chem batteries are also in the ford focus ev. Right now they choose to ship the batteries from korea, and that likely is for political not manufacturing reasons. LG has deep pockets, and will need US manufacturing to win contracts eventually.

Even if compact power goes away, it won't be a bankrupcy, it will simply be a shutting of the factory. Completely agree that the US government did not need to subsidise batteries made in korea.

 

Chinese firm buys bankrupt Mass. battery maker that got recovery funds

"Wanxiang America, the U.S. arm of a Chinese auto-parts giant, won the bidding for bankrupt A123 Systems, a lithium battery manufacturer once hailed as a cornerstone of President Obama's quest for American dominance in electric vehicles and battery technology."

 

Don't like

 

I do not approve one bit. It's another example of American capitalism selling itself down the river to the nation of China. There's a perfectly good reason why they're buying A123, and American investors should be smart enough to see it.

American government-funded businesses should not be for sale to China. What's next, are we going to sell them Boeing and Lockheed?

 

The competing bid was from JCI, which is the only american firm that the acquisition made sense. Wanxiang bid much more than JCI thought the company was worth to it. JCI doesn't really need the factory, they have plenty, but wanted the intellectual property and the people, along with the constracts to sell to Fisker and GM. Fisker made a move in bankruptcy court to hurt JCI's bid, making that contract not very valuable. JCI stock is lower than it would be, but they have been buying companies all through the recession, and they weighs on the valuation. This is much more valuable to Wanxiang because unlike JCI they have no lithium expertise and the factory has value to them.

The move can still be blocked by the government. But this is sad.

 

Yes A123 was in a joint venture Shanghai advanced battery systems. I have no idea if any of these cells made it to america. The bid includes A123's equity in this joint venture, which is worthless without the intellectual property rights.