Stimulus-funded electric car battery maker bailed out by Chinese company

| August 16 2012
Hannah Thoreson

Citing weak demand for electric cars in the United States, A123 Systems, a manufacturer of high-capacity lithium ion batteries, is seeking a bailout from a Chinese company.  A123 has very little cash on hand, as its sales have fallen 50% from a year ago.  It would be bankrupt within a matter of weeks without the new investment from Wanxiang Group.

From Reuters:

As part of the 2009 American Recovery and Reinvestment Act’s Electric Drive Vehicle Battery and Component Manufacturing Initiative, A123 was awarded a grant of $249.1 million.

A123 promised to create 38,000 U.S. jobs, including 5,900 at its own plants. A123 said on Thursday it has more than 1,200 workers. Since it got the grant money, A123 added nearly 1,000 workers.

Of course, like the failed solar companies, A123 Systems believes there is too much manufacturing capacity on the market to produce its batteries at a profit.  Alternatively, this statement can be interpreted to read that there is not enough demand for their product to necessitate as many manufacturers as exist.  But since when has the Obama Administration let that kind of market-based logic get in the way of its various green energy projects?

In fact, at one point, Obama touted A123 Systems as a success story.  “They have announced plans to build their first high-volume factory in Brownstown.  So truth be told, A123 was looking to build that factory in Asia.  But because it received that grant, it chose the state of Michigan for its largest and most innovative plant yet.  And that plant will be one of thirty new plants to go fully operational in the next six years manufacturing electric vehicle batteries and components right here in the United States of America.  So this is what’s possible in a clean energy economy!”

Yes.  Bankruptcy, crony capitalism, and corruption.  Turns out that A123’s CEO is, as with many failed green energy companies, an Obama campaign donor.  That $2,500 for the Obama Victory Fund may have been David Vieau’s best move as CEO of A123 Systems:  it produced a 1000-fold return on investment!

Crony capitalism is often described as a system where the losses are socialized and the profits are privatized.  That is exactly what is happening here.  Wanxiang will now own 80% of A123 Systems after this rescue, despite the fact that U.S. taxpayers poured a quarter of a billion dollars into the company in a futile, protectionist attempt to prevent jobs from going to Asia.  Wanxiang Group will get four of the nine seats on A123’s board of directors.  Will the Department of Energy?  Don’t bet money on it — after all, Energy Secretary Stephen Chu did, and now the company is only worth 47 cents per share.

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