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.
Livonia, Michigan Cell Manufacturing Facility
(The author of this piece currently has a call option position in A123)