China’s Wanxiang Saves American Battery Maker A123, Takes 80% Stake In Company

5 years ago by Jay Cole 10

Upcoming Chevrolet Spark EV With A123 Pack And System On Board

Struggling US battery maker A123 has dramatically avoided the perils of bankruptcy by signing a non-binding MoU (memorandum of understanding ) with China’s Wanxiang Group Corp,  the largest auto parts maker in that country (think Magna as a US-based comparison).

A123 Prismatic Battery Modules For PHEV & EV Applications

The deal will see Wanxiang take up 80% control of the company by year’s end in exchange for an investment of up to $450 million dollars.

This is good news if you are interested in the upcoming Chevrolet Spark EV, and were concerned about A123’s ability to deliver lithium packs for that car when it gois into production in 2013.

Fisker Automotive can also breath a sigh of relief that their battery maker for the Karma and upcoming Atlantic is not going anywhere.

For current shareholders, it is unclear how this dilution will affect the value of the stock.  At time of press, A123 shares were trading up 6% (real time quote here).

A123 Systems , who received $249 million ATVML loan (for advancement of green technology) from the Obama administration in 2009, had found itself extremely short on cash and still facing the costs of a $60 million recall/warranty issue on lithium battery packs supplied earlier to the likes of Fisker Automotive and others.

With only $47.7 million as of 30 June 2012 in cash (and equivalents) reported for this past quarter ended, excluding a recent private investment deal, and stock offering worth another $36.8 million, the company’s odds of survival had been fading fast.

The Wanxiang investment package includes a bridge loan and the purchase of A123 senior secured convertible notes and warrants.

A123 Family Of Battery Products

The MoU between the two companies will see A123 receive an initial loan of $25 million immediately, plus another $50 million when it closes.  The Chinese conglomerate will then purchase $200 million in senior secured convertible notes and invest up to $175 million through exercising of warrants that it would receive from the initial bridge loan and convertible notes.

A123 CEO David Vieau said of the deal:

Today’s announcement is the first step toward solidifying a strategic agreement that we believe would remove the uncertainty regarding A123’s 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. Wanxiang has a successful track record of operating in the U.S. with significant employment and commitment to good corporate citizenship, and we expect that a strategic agreement with Wanxiang would help enhance our competitive position in the global marketplace, especially in China.”

To which, the CEO of the Wanxiang Group, Weiding Lu echoed:

“This MOU is the first step toward a longer-term agreement through which we plan to build on the foundation A123 has established in the US and help expand the company’s capabilities both domestically and internationally, which we believe would create long-term value to the customers, investors and other stakeholders of both companies.”

In addition to the upcoming supply deal with General Motors with the Spark EV, A123 has a very large end of year/2013  order book, and this deal will give the battery maker the opportunity to see if a US based (but not owned) can ultimately be successful.

A123 recently announced a ready for production, potentially disruptive new battery technology, Nanophosphate EXT, that achieves a 90% retnetion rate after 2,000 cycles at both high and low temperatures.

A123 press release

Livonia, Michigan Cell Manufacturing Facility

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

Tags:

10 responses to "China’s Wanxiang Saves American Battery Maker A123, Takes 80% Stake In Company"

  1. Jason M. Hendler says:

    Doesn’t A123 also own a slice of Fisker Automotive? or was it the other way around?

    1. Jay Cole says:

      Yes, A123 owns a piece of Fisker. Back in 2010 A123 bought into Fisker for 23 million (I believe…not going to look it up atm), and then had an opportunity/option for a second tranche earlier this year, which of course it did not have the resources to do.

  2. pjkPA says:

    Why didn’t GM help A123 and let a Chinese company do it… doesn’t sound right. ..
    now all those profits flow out of the country.
    What are you thinking GM?

    1. Bonaire says:

      To GM, A123 is a minor supplier of a future unit – Spark EV. No big whoop to re-engineer the battery pack using LG Chem and some wiring and software changes. They aren’t as embedded as Dana or JCI or some other huge supplier.

      A123 has serious potential if they can just fix their costs structure. They can make temperature-tolerant non-TMS systems for cell towers in India, grid components in the USA, EV battery systems with lower cost due to no TMS, stop-start packs, hybrid packs, etc. LiFEPO4 is an abusable chemistry so you don’t need to ‘SOC-range’ it with the top/bottom banding of the Volt. So, in the end – it truly is cost. Cost of overhead, management, buildings not running efficiently, screwups like the Fisker and other recalls, raises for management in Feb 2012 during the recall and more. Maybe the Chinese can whip these guys into shape. (ever see the Gung-Ho movie? – only, think China and serious management practices).

      Next question – what does DoE do with its remaining loan when it sees China pouring money in? I believe they can actually cancel it like Fisker’s loan. So, the provision there is warrants can react to that down to .24 cents/share. Crazy.

  3. Open-Mind says:

    Seems there’s a fine line between a save and a take-over.

    I’m still puzzled by A123’s decline. How can a company with popular superior products be so bad at making money? I smell brilliant engineers being micromanaged and mismanaged by self-serving idiots. The same recipe that almost killed Apple in the 90’s.

    1. Open-Mind says:

      Related question … in the last few years AONE stock has decline from $20 to 50 cents now. Good investment at this point?

  4. pjkPA says:

    More than the money flowing out of the country … it ‘s the technology..
    A deal for the Chinese who get all A123’s technology at bargain prices….
    We gave $200 billion to bail out the teachers union who did nothing but make bad investments.. but we can’t save a new technology company and let it go to the Chinese for peanuts!?
    Is no body watching this?

  5. Nelson says:

    I don’t know what’s worse, taking federal money and filing for bankruptcy or taking federal money and selling the company to a foreign investor. The US loan/grant operation needs to rethink how it distributes tax payer money to corporations.

    NPNS!
    Volt#671

    1. Jay Cole says:

      The program itself was not structured in a way to support only US owned businesses, right or wrong, that is a protectionism no-no these days, but rather to encourage any investment in America.

      Thats why companies like Nissan got into the action and we are seeing the monster operation in Smyrna fire up in TN in December.This issue at hand I guess is whether or not the program was a net positive or not i, or if it should have existed at all.

      The federal dollars A123 applied for and got can only be used for building factories and infrastructure in North America for the creation of US based jobs. A123 had to submit bills for prior approved activities, then they got paid out.

  6. Just because the location of your outdoor adventure includes a
    water source, don’t assume that it is drinkable water. Break downs and accidents can leave you with no heater, radio, or lights. Fleece is lightweight and wool can prevent the effect of flame.