Newly Purchased A123 By No Longer Eligible For Rest Of $249 Million DoE Grant

5 years ago by Jay Cole 10

If Wanxiang Bid Was Disqualified, Johnson Controls and NEC Still Interested

A123 received a $249 million dollar grant as a part of a $2 billion stimulus initiative to promote domestic battery manufacturing.  Under terms of the grant, A123 received a dollar from the DoE for every dollar it spend on building battery facilities in the US.

A123 Family Of Battery Products

Before declaring bankruptcy in October, A123 had drawn down about $133 million, leaving $116 million still on the table.

At the time of the company’s sale to Chinese auto parts giant Wanxiang this weekend, it was unclear whether the grant balance would still be available for further expansion.

It won’t.

An unidentified official, who did not wish to be named as the bankruptcy proceedings are still being wrapped up, said that the grant agreement died with A123, and all parties were made aware of this before the Chapter 11 auction began last Thursday.

Wanxiang bid $256.6 million for the A123.  During the proceedings, Wanxiang intentionally left out the more sensitive military aspects of A123’s business, and also did not request the grant money, nor did it anticipate doing so,  according to a person familiar with the deal.

The US Department of Defense contracts were sold to Navitas Systems for $2.25 million.

"...And After I Get As Much Of Your Money As I Can, We Will Immediately Go Bankrupt And Be Bought Out By The Chinese," A123's David Vieau Probably Didn't Say To U.S. Energy Secretary Steven Chu While Touring An A123 Plant In 2010

The DoE does still have the ability to uphold the conditions of the grant, which require taxpayer-funded equipment and facilities to stay in the United States.  Additionally, if the US department does not approve of A123 being sold to Wanxiang it can ask to be compensated for its investment, although to what degree (and how much) is unknown.

Pin Ni, president of Wanxiang America, said he would “respect” any decision on the matter by the DoE.  It is not anticipated that any such request for compensation will be forthcoming however, as Wanxiang has said it plans to re-start and use the US facilities paid for by the grant.

Several politicians and lawmakers have expressed concern over the buyout of A123 by a Chinese company, and the deal still has yet to be ratified by CFIUS (Committee on Foreign Investment in the United States (CFIUS).

Although the deal is expected to proceed without issue (with approval by the Delaware Bankruptcy Court coming as early as today), if for some reason Wanxiang was disqualified by CFIUS, Johnson Controls has said it would still be interested in bidding again.  Johnson Controls and NEC (of Japan) teamed together during the auction and placed a bid if $251 million.

Reuters

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10 responses to "Newly Purchased A123 By No Longer Eligible For Rest Of $249 Million DoE Grant"

  1. Open-Mind says:

    $2 billion for battery stimulus? Wow!

    Imagine the result if that had been deployed as an extra $5K tax credit on 400,000 EVs.

  2. Mark H says:

    If it means bringing down the overall cost of the battery, then I am more in favor of funding new technologies. If you have ever seen either an BEV or EREV with only the motor and drive train, it is obvious that the cost is primarily in the battery. Superior battery technology at a lower cost will determine the success of this industry.

    1. Open-Mind says:

      Problem is, if you just throw money at a few well connected companies, you usually get fat companies wasting that money while trying to meet a non-existing demand … until they go bankrupt, Case in point, A123. Meanwhile, that same money may have also squashed their competitors that didn’t get any money, but may have had even better technology.

      IMHO, prices will be better reduced by volume and competition, provided there is sufficient demand to sustain it. If you create the demand via incentives, then capitalism and competition will create the supply and the prices will come down. As the prices come down, the incentives can be removed, then the market will feed itself.

    2. David Murray says:

      I partially agree. I agree that the money would have been much better spent either on more credits to lower the end-user cost of an EV, or used to install more public charging infrastructure, or maybe a combination of both.

      I do not necessarily agree that the battery is the huge cost people say it is. I’ve heard that the battery in the Chevy Volt costs somewhere between $3,000 and $6,000. While this is definitely a large chunk of the car, that would still suggest the rest of the car costs $33,000. So if they can get the rest of the car’s cost down to $14,000 then that $6,000 battery will put it around $20,000 total which would be a fantastic deal.

  3. BlindGuy says:

    I do support giving consumers tax credits to raise the volume needed to get this extremely important piece of our future started. However, R&D and a lot of capitol is needed at the beginning to get this supply and demand train moving. I see it as a chicken & egg problem; which needs some grease on those progress wheels on both ends of the train, in order to get it moving. Electric vehicles are coming, and it will take a national effort to keep America competitive in this so very important market. As long as other nation’s governments help their companies gain market share then so should we. JMO

    1. Open-Mind says:

      I agree, and venture capital is very important. However, that venture capital should be provided by venture capitalists. Why? Since it is their money at risk, they will make intelligent decisions. If government provides the venture capital, it will go to political cronies and get squandered. Nobody cares because it’s other people’s money.

      However, if government sticks to just stimulating demand via tax credits, then there is less opportunity for corruption and incompetence. I bet if the $2 billion had been used that way, then A123 would still be a thriving US company, not a struggling Chinese company.

      1. kdawg says:

        What if there are no venture capitalists because of the low “monetary” return on investment?

        1. Open-Mind says:

          What if every single battery manufacturer goes bankrupt like A123? Both scenarios seem rather unlikely.

          And I think the ROI has already been proven.

          After GM adds $10K of battery tech to a Volt, they can sell it for $20K more than a Cruze.

          After Tesla adds $10K of batteries to a Model S, they can raise the price by $25K.

          Both sound like pretty good ventures to me. A123 didn’t go bankrupt because batteries are unprofitable They went bankrupt because they made stupid business decisions that were driven by politics.

  4. Herm says:

    “Imagine the result if that had been deployed as an extra $5K tax credit on 400,000 EVs.”

    Imagine if that extra $5k was limited to batteries made in NAFTA

  5. pjkPA says:

    So what happens to the stock holders?

    I guess the taxpayer and the stockholders are the ones paying for this battery company and the Chinese who have unfairly manipulated their currency for the last 15 years win.

    In the “Global” economy the cheaters are winning.

    We better come up with our own VAT tax to level the playing field… just giving money to people with ideas doesn’t work… they get rich and retire while the taxpayers and legit American companies get screwed.

    Leveling the playing field for American companies is all the “stimulus” this economy needs.