Bob Lutz Takes Washington To Task Over A123’s Failure

5 years ago by Jay Cole 13

Bob Lutz Shows Off The Original Concept Chevrolet Volt

Bob Lutz, former VP/Vice Chairman of Global Product Development at GM, and by most accounts the ‘father’ of the Chevrolet Volt, took some of his spare time to write about his feelings on the recent Wanxiang (a Chinese company) takeover of A123 in an article for Forbes.

According to Mr. Lutz:

“A Chinese auto parts company, Wanxiang, has come to the rescue of cash-strapped A123 Systems, an American high-tech lithium-ion battery maker and centerpiece of the Obama administration’s “green jobs” revolution…The recipient of a $249 million “green technology” grant from our federal government, A123, believing their own (and everyone else’s) hype about the millions of electric vehicles that would soon be filling the nation’s highways (it will happen, but not soon) set about proving an old adage: stupidity and waste increase with the amount of money available.”

Production capacity was set at a level that was way overly optimistic, and the headquarters complex, with its magnificent office suites and marbled lobbies, was something only a company with tons of money would dream of. But I’m sure the risk seemed low: After all, the “green revolution” was upon us.”

Here Is Bob Lutz..doing what he does

Which lead to Bob’s conclusion that A123 was “…another example of a government-directed “green jobs” initiative which, while environmentally praiseworthy (especially if you believe in manmade global warming) was economically idiotic.” 

“But, thanks to a Chinese white knight, all is well. Superior battery chemistry, which was to be a U.S. competitive advantage, is now theirs. But why are we surprised?  …the Chinese are intelligent, industrious, products of a superior, disciplined education system. They are, despite the occasional misleading “Commie” rhetoric, old-fashioned capitalists, producers, investors, traders, designers and engineers. They are a lot like we used to be.”

The former VP of GM asserts that the US has to be self-accountable, work hard, focus on exports, and put an “emphasis on value-added production rather than import-driving consumption,” and if we don’t come around to this philosophy the “A123 example will be repeated many times…(and) the industry will  “go Chinese” company by company, institution by institution, industry after industry”

Now we love at InsideEVs love Bob Lutz.  Bob takes no prisoners, gives some really good quotes, shoots from the hip…and famously wears tons of pink ties.  For the record, we don’t disagree with anything Mr. Lutz is saying, however, if there was ever ‘a pot calling the kettle black’ scenario when it comes to blaming someone for A123’s current situation, this might be it.

Lutz And His Latest EREV Project With VIA Motors, The VTRUX

It is no secret that the best selling plug-in ‘green car’ in the US to date, is the Chevrolet Volt.  General Motors has also just passed a milestone of sorts with 30,000 copies produced.  Added to that total is another almost 8,000 Volt-like Amperas that have been built for export as well over the past two years.

However, before the car was actually in production, GM had touted anywhere from 60,000 to 120,000 could be produced each year.  This is where A123, the industry, and the government themselves first ‘got optimistic‘ about the production hype and drank the kool-aid.

Back in 2007-2008, A123 found themselves in a a friendly 2-way battery supplier contest over the Volt’s production contract with LG Chem, a more experienced entity out of South Korea.   GM’s biggest concern with A123 is if they could fill this seemingly endless demand that existed for the Volt, and as such, were pressing A123 hard to prove they could build to this huge demand.  A123 complied the best it could, and used the government’s grant to build factories in Michigan.

In the end, and even though according to Lutz’s own statement saying A123 had “superior battery chemistry, which was to be a U.S. competitive advantage”, GM still chose to import cells from overseas, because LG Chem was a more established player and could likely produce a little cheaper and quicker.  Lutz’s position that A123 offers a superior product is echoed by the fact that VIA motors, of which Bob is now on the board of directors for, chose A123 for their extended range VTRUX truck.

“A123 placed a bid for the Volt’s batteries and lost to South Korea’s LG Chem Ltd. partly because it didn’t have proven manufacturing.”  -Andy Chu, vice president of marketing for A123.

A123 Was Chosen As Supplier For VIA Motor's EREV Truck

From the outside looking in, it appears like GM took a small US startup company, put unrealistic dreams in their head, forced them to expand capacity to a level well higher than their short term order book would otherwise have merited as a qualifier to win their battery contract, then used A123 as faux-competition to either gain knowledge and/or force a more desired foreign supplier (LG Chem) to work harder, produce quicker and cheaper for them.

Now today, Bob says the reason for their demise over the past several years is the gross over capacity of the company’s facilities, and the administration’s role in fostering a green revolution that no one wanted.

If Bob Lutz, whose power at the time inside GM was second only to the CEO himself, used even a portion of his bravado he is showing today, to stand up and choose A123 as the innovative and “superior” US company he now purports them to be, and had used A123 to produce his Volt’s 16 kWh (now 16.5) lithium battery, A123 would surely not have run into the financial ruin that they find themselves today, they would not be owned by the Chinese, and it would have been something Americans could have been proud of.

First to blame in this situation has to be A123’s own poor management, oversight of quality control and overall judgment.   No question.  But second in line, if we are forced to rank those most responsible for A123’s downfall in order, has to GM and Bob Lutz.  They are certainly more directly responsible for the fate of A123, than any indirect Washington/administration ‘green’ stimulus action.  A program that we would suggest has still cultivated what plug-in environment we have today.

At anytimeover the past 12 months GM (or any other US company for that matter) could have stepped in for a song, and taken A123 over (or even became a strategic partner) if they really believed in them, but they didn’t; a company called Wanxiang, that also happens to be Chinese, did.  End of story.

 


A123 has risen 30% in the first two days of trading since the deal and closed Thursday at 61 cents.  (Real time quote can be found here.

Mr. Lutz is a contributor for Forbes,and you can read his comments about A123 in their entirety here.

(The author currently has a call option position in A123)

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13 responses to "Bob Lutz Takes Washington To Task Over A123’s Failure"

  1. Stanley says:

    This seems to be a case of shooting ourselves in the foot on a wide scale. American companies and people like Lutz keep talking down the EV and green energy market, yet the Chinese are doing their best to become the dominant player in that market. Shouldn’t that tell them to get off their collective behinds and use some of that “American exceptionalism” before we become China’s servants?

  2. Mark H says:

    This is an exceptional article. Great inside insight. With everyone racing to produce an EV, (Bob Lutz with Via Motors as well), it is important that the US manage to land at least one major player in the battery wars. So is there a silver lining? That would be that the battery technology is surely in its infancy. Again, great inside article on A123.

    1. Jay Cole says:

      Thanks Mark,

      The original version got into all the minutae of the thing, but ended up being 2,000+ words, which is aboui 1,200 too many for internet.

      My own personal belief about the government stimulus action is that it has been successful in kickstarting the plug-in industry…albeit slower than both the Bush and Obama administrations would have liked. The wheels have been set in motion, many plug-in cars are now on the roads (and in development) that would not have been otherwise.

      I think most knew that the projection of 1,000,000 plug-ins on the road for 2015 was overly ambitious the day it was uttered by the White House..but 2017 sounds about right, and that is not too shabby considering we essentially had nothing before 2011.

      Past the existing cars themselves, the development/advancement of electric storage solutions (lithum batteries) is happening at an almost a breakneck speed behind the scenes, as everyone scrambles to be first to produce the proverbial ‘silver bullet’ that will let them offer plug-ins at the magical, best-seller’s mark of 20K…whether that be an for an extended range or full electric car.

      In the end, I am not sure any one company (US or Chinese) can corner the technology itself of lithium batteries, it likely will end up strictly as a commodity resource. Which means the cheapest producer will end up with the bulk of the business.

      1. Bonaire says:

        I was standing in a 4th floor parking garage today at a big center of a big bank (to remain nameless but their initials are the same as mine). Anyway – watching cars parking – I realized that out of the 1000+ cars I could see in the lot and around in the parking garage, mine was the only plug in there. This is a place with numerous 20-30 somethings, progressives, money spenders. A few Prius were in the lot but many others ranged from BMW to SUVs to imports.

        The fuse is lit, plug ins are trickling out there but as with the recent California refinery fire, people have to realize their gas prices are not guaranteed. Plug ins such as Volts, PiPs, Leafs and more are growing in mind-share and will grow in market share as well. Looking very forward to it.

        BTW – my electricity rate this year is actually 5.5% lower than last year at my house due to the NatGas use in the electric industry. It’s still “high” by most standards at 15.4 cents/kWh versus 16.4 cents last year (7-mo versus 12-mo) but it’s very interesting to see July/August prices more than a penny cheaper than last year. Gas is up, electricity is down. That’s a big “duh!” right there in terms of what a good car choice should be. Volts will start to sell at 2000/month soon.

        1. Dave R says:

          Good observation. The biggest issue with the current crop of hybrids and plug-ins is that they simply aren’t “cool” enough to replace those BMWs/Audis/SUVs that so many find appealing.

          If you want to sell to the 20-30 something money spending progressives – you gotta give it iPhone appeal and make it hip.

          Tesla has the most appealing product here with the Model S, but it’s way too expensive and too big. Put the S into a mid-size sedan package and cut 20k off the price and it would sell in huge volume.

          But what about the other plug-ins on the market?

          Volt – It’s made by GM (too many young people remember the GM clunkers their parents drove), too expensive by about 5-10%. Really needs 45 mpg when the battery is empty since people will inevitably compare it to the Prius. Also needs to start around $35k and get a bit more room in the back seat. I think the Gen 1.5 or 2.0 Volt could really be good if GM doesn’t screw it up.
          LEAF – Too funky looking – ~75 mile range is still about 30 miles short of what people feel comfortable with for 95% of driving (especially when you consider capacity degradation over time).
          i-MiEV – Way too weird looking, feels cheap, even less range than the LEAF.
          Prius Plug-in – 11 mi EV range at very limited power/speed? Looks like a Prius. Only Prius fanboys can really love it.
          Active-E – too expensive, lease only, and from what I hear, unreliable.
          Focus EV – Looks the same as the car costing half as much.
          Fit EV – See above. but at least one of the best driving EVs in a hipper package.
          C-MAX Energi – This one is getting close – but looks like a mom-mobile and the plug-in sacrifices a good amount of trunk space compared to the hybrid. This thing is really tall – why couldn’t they get the batteries under the floor? IMO kills the Prius plug-in on paper, though.

          I think it’s going to take 2nd gen plug-ins or extremely high gas prices to really move volume. And then I look at the hybrid market – still less than 3% market share after 10 years on the market and only 1 manufacturer moves any real volume – Toyota.

          1. Bonaire says:

            next week when I visit the company, I’m going to get there early but park the Volt near the entryway where almost everyone passes by. Just to kind of get the visual out there. Red volts are quite nice to look at. I also need to ask their facility manager if there are any plug-in spots around (whether 120V or otherwise). Companies like this have gobs of money. Gobs! and pay these 20-somethings $40-80K a year to attend meetings and push paper. So, they could at least participate in helping some of their employees get off oil by setting up plugin-stations. I’m just a pawn (ie. consultant) to them so being a short-timer, non-employee I don’t have much sway at all.

      2. Dave R says:

        Jay – I’ll second the motion that this was a great article. Personally, I would have loved to have read the 2,000+ word version.

        More like this!

  3. Mark H says:

    When electricity was first installed into peoples homes, there were some that refused to try it due to the invisible electric “fumes” spewing from the outlets. A little of that is happening now with the uncertainty of the EV. I think GM made a huge difference by offering the 8 year warranty. I personally would not have made the jump without it. But larger than this is still the mental breakdown of having to pay for the EV upfront and recoup the savings over 6+ years. Or at least this is the perception, when in fact the “monthly” payment after fuel savings will be almost identical if you drive 250-300 miles per week.

    I feel that it will be some time before the price of the EV drops substantially for the first wave will go to improving range and life cycle thus leaving the price the same. All of which will aide the BEV the most. And after that the $7500 tax credit will probably start to run out.

    For now, people should take the battery warranty seriously and know that if they purchase an EV with an 8 year/100,000 mile/80% warranty they have nothing to fear until 2020. This is the message. By 2020, I bet the “world wide” development of battery technology is going to produce something as mind boggling as today’s PC processors are in comparison to an XT processor of old…. To my gas friends reading, I spent $6 last month on fuel, how about you?

  4. Nelson says:

    I’ve read there are some conditions to the A123 non-binding Memorandum of Understanding with Wanxiang Group which may hinder the full 80% investment. As usual the devil is in the details. IMO, GE should have bought A123 two weeks ago. What’s the saying “You snooze, you lose.”

    NPNS!
    Volt#671

  5. Bonaire says:

    Now, with Akerson saying Envia is the new “big big deal” (ie. the recent articles of 100-200 mile EVs using Envia) – will GM lead to some kind of similar demise of Envia 🙂

    Hey Envia – if GM says they will need 50K units, don’t build a 1 million sq ft plant to do it until you get a big check in your hands. A123 sucker-punched themselves first in building out the plant prior to getting the deal and using Federal funds to do it. GM also spun everyone up with the 45,000-60,000 Volts a year sales estimate debacle. This should have been a teaming and not a bidding war. Glad they didn’t use A123 now with the welding machine debacle – however, would the welding machine debacle have happened at all if more units were being built for Volts and more manpower was behind QA due to higher demand? We’ll never know.

    MOD EDIT: Fixed mismatch. Working on that edit feature Bonaire. We can get it to work, but requires an id/membership signup at the moment. A hoop we really don’t want to force people to hump thru, (=

    1. Jay Cole says:

      Agree, likely the welding machine thing never would have happened if they were building for GM, or even later for Fisker.

      It ended up just being calibration error in manufacturing for the welder…a random error, not something that would be a recurring event, or something that would likely have happened a year or so earlier if they were building out product for GM.

      That being said, it still should probably have been caught by quality control (or caught earlier than it did), so something else perhaps could have happened. We’ll know over time now if A123 is susceptible to QC issues or it was just fluke bad luck that sometimes happens.

  6. Shawn Marshall says:

    Dear Statik,
    You have always loved Bob Lutz.
    There never would have been a Volt without Lutz.
    Remember he spoke of Volts at “comfortably” under 30k.
    That may have led to some ‘enthusiatic’ projections.
    The A123 experience is a lesson in the pitfalls inherent to ‘planned’ economies.
    It’s just so easy to spend other peoples’ money.
    That’s also why in the little city of Roanoke VA we have an art museum that resembles a wrecked UFO (within sight of an English Tudor styled Hotel).
    We must learn to let the magic hand of the market allocate resources to demand.
    Gentle interventions in R&D are appropriate via non-political grants but hundreds of millions for A123s and Solyndras & etc. are bound to result in poor decisions and corpo-governmental back scratching.
    They have no right to spend our money that way.
    Thanks for the good article.

  7. Bill Howland says:

    I’m Glad Jay Cole admitted he will have a big windfall if A123 is successful. Bob Lutz as mentioned is trying to have it both ways here. I own a Volt, and am happy with the LG Chem battery.. A123 I’m somewhat skeptical.