U.S. battery maker A123 may be rescued by Chinese group

Aug 08, 2012, 8:43 PM EDT

* A123 got U.S. green technology financial help * Chinese firm Wanxiang to take 80 pct stake in A123 * A123 reported 2nd-qtr loss of $82.9 mln By Paul Lienert and Ayesha Rascoe Aug 8 (Reuters) - U.S. battery maker A123 Systems,which got a quarter-billion dollar green technology grant fromthe Obama administration, said on Wednesday that a Chinese autoparts maker is looking to take a controlling stake in thefaltering company. China's Wanxiang Group Corp plans to invest up to $450million, A123 said, and give the manufacturer the cash injectionit needs to keep making batteries for electric and hybrid cars.A123 said last month it had about five months of cash left. But a foreign rescue of an industry favored by PresidentBarack Obama has the potential to ignite a political firestormin this election year. Already under attack from Republicans for backing greencompany flops like solar panel maker Solyndra, he could facecriticism for bankrolling technology that ends up in Chinesehands. "This is a very troubling transaction that should bestrictly scrutinized by the U.S. government," said MichaelWessel, a member of the bipartisan U.S.-China Economic andSecurity Review Commission, which advises lawmakers on tradepolicy. "This is a critical sector and one that American policymakers have focused on in terms of future economic opportunityand job creation." A123 received the $249 million federal grant in 2009 underan Obama administration initiative to encourage the developmentof green technology. In 2010, Energy Secretary Steven Chu visited A123's Romulus,Michigan, plant where he applauded the company for being "aperfect example of what's possible when the private sector,government and academia work together". But the advanced car battery industry has been hurt in partby too much capacity and weak U.S. demand for electric cars. At least two U.S. battery makers, one of which also receivedgovernment backing, have failed this year. Republicans and presidential candidate Mitt Romney haveblasted Obama for giving grants to help clean energy technologyget off the ground. And the failure of two government-backedsolar panel makers in the last two years has put theadministration on the defensive. "This is just another example of Barack Obama's failure tofollow through on his economic promises and the millions oftaxpayer dollars he has wasted," said Republican NationalCommittee spokeswoman Kirsten Kukowski. U.S. GOVERNMENT MAY INTERVENE The White House swiftly defended its policy after the A123announcement. The investment from China in A123 does nothing to damage agovernment program meant to promote domestic production ofhigh-tech batteries, said a White House spokesperson. The government will not allow U.S. grant money to fund anyfacilities abroad, the spokesperson added. A123 has received about half of its promised governmentbacking so far. The Obama administration has said the country must win aclean energy race with China through advances in areas such asbattery technology and solar power. But Solyndra LLC, which filed for bankruptcy protection inSeptember 2011, left taxpayers on the hook for $535 million inloans. The company filed a Chapter 11 reorganization plan inJuly. Abound Solar filed for Chapter 7 liquidation in July. The U.S. solar panel industry has blamed the failure ofSolyndra and other companies on China flooding the world marketwith cheap panels. U.S. government officials may choose to weigh in on theplanned investment in the battery-maker, said A123 ChiefExecutive David Vieau. Vieau said on Wednesday that his company hopes to do well inChina where there is a government-mandated expansion of themarket for electric and hybrid vehicles. Wanxiang CEO Weiding Lu said in a statement that the dealwould "help expand the company's (A123's) capabilities bothdomestically and internationally." DETERIORATING EARNINGS REPORT A123's earnings report on Wednesday underlined the company'sdownward spiral. It reported a second-quarter loss of $82.9million, or 56 cents per share and a 53 percent fall in revenueto $17 million. Its cash pile was more than halved to $47.7 million at theend of the quarter, down from $113.1 million at the end of thefirst quarter. A123 raised nearly $600 million from venture investors andan initial public offering in 2009. That same year, it wasawarded a grant under the Obama administration's $2.4 billionElectric Drive Battery and Component Manufacturing Initiative. Wanxiang, one of the largest non-government-owned companiesin China, has annual revenue of more than $13 billion andsupplies auto parts to many of China's largest automakers. A123 has battery contracts with Germany's BMW,China's SAIC and U.S. startup Fisker Automotive, andis slated to provide batteries for General Motors' upcoming Chevrolet Spark EV.