Bob Lutz Takes Washington To Task Over A123’s Failure
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.”
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.
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.
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)