A123 Systems Files Chapter 11, Johnson Controls to Buy Assets
It looks like it's pretty much all over for A123 Systems. The advanced battery company announced today that it would file for Chapter 11 bankruptcy in order to reorganize its debts. Johnson Controls, which also makes large-format lithium ion batteries for the auto industry, will purchase facilities and other assets for $125 million. A123 was earlier mulling an offer to sell itself to Chinese auto part maker Wanxiang Group.
A123 was one of a host of battery, battery materials, and electric drivetrain companies to receive government money as part of the Recovery Act. The goal was to set up a full manufacturing supply chain to for U.S.-made advanced batteries. Those batteries were intended to go into U.S.-made electric vehicles. A123 received $249 million in government grants. It also has shareholders, who will likely lose their investment in the re-org.
Overall, Recovery Act funding for the advanced battery industry totalled $2 billion. A123 Systems stood out - and was most vulnerable to market forces - because it was a tech-driven, pure-play battery company. Unlike Dow Kokam, or Johnson Controls, it has no deep pocketed parent or additional technologies and markets to sell into. (A123 will license back techology for batteries used for stationary storage).
And the market A123 sells into is the hyper-oversupplied market for electric car batteries. As we've mentioned recently in this blog, electric cars are selling very, very slowly. A recent article in MIT's Technology Review says battery production capacity in 2013 will greatly outpace demand with 3,900 MW hours of capacity to serve 330 MW of demand, based on estimates from Menahem Anderman at the consulting firm Advanced Automotive Batteries. Needless to say, many production lines are sitting idle at the moment.
When A123 was still a young firm, it was selling batteries for power tools to Black & Decker. Indeed, when it went public its S1 filing was based on that partnership. The company certainly had its sights set on what was to be a huge automotive market.
But one has to wonder, what would have happened if A123 hadn't received the "free" money? What if it hadn't been swept into the government's big plans to create a new advanced manufacturing industry from nothing?
A123 Systems makes advanced lithium ion batteries. Credit: A123 Systems