China Firm to Buy Control of U.S.-Backed Battery Maker .
A123 Systems Inc., AONE struggling, U.S. government-backed manufacturer of advanced batteries for electric vehicles, is turning to one of China's largest auto parts makers for a bailout.
The Waltham, Mass.-based company said on Wednesday that Wanxiang Group Corp., a Chinese conglomerate, agreed to acquire up to an 80% stake in return for an up to $450 million investment.
The investment would secure the future of the company, which warned earlier this year it was in danger of running out of money. A123 this year ran into financial trouble with slower than expected take up of electric vehicles in the U.S., delays by its chief customer, Fisker Automotive Inc., and manufacturing problems that led to a costly battery recall in March.
A123 was the first company to open a factory in the U.S. using funds from an Obama administration program to encourage domestic production of advanced batteries. The Wanxiang investment may allow the A123 to move forward with plans to build a second facility and draw the remainder of a $249 million Energy Department grant, A123 said. It has used about half the U.S. grant so far to pay for half the costs of a battery factory in Livonia, Mich.
The company, partially owned by General Electric Co., GE -0.38%likely would keep its U.S. headquarters and operations while giving the parts company access to battery technology and the chance to expand in China where the government has made electric-vehicle adoption a priority, A123 said.
"They do see this as helping them achieve their ambitions in the Chinese market," David Vieau, A123's chief executive, said in an interview. The company announced the investment while posting a second quarter loss of $82.9 million, or 56 cents a share, compared with a year-earlier loss of $55.4 million, or 44 cents a share.
The deal should close in the "near term," beginning with a $25 million bridge loan, he said. If the U.S. and Chinese governments approve the deal, the company will get another $50 million. With additional commitments to purchase convertible debt and exercise warrants, the agreement could lead to a $450 million investment for an 80% ownership stake.
The company says it expected to be profitable before taxes, interest and depreciation by next year.
The Chinese firm, which employs 3,000 people in the U.S., also has a joint-venture plant in China with Ener1 Inc., another U.S. battery maker that received U.S. Department of Energy funding. Mr. Vieau said it is possible that the two companies could be paired up at some point in the future if Wanxiang takes its full ownership stake.
"There are complimentary activities between the two so we will have to see how that turns out," he said.
China has thrown its weight behind the development of electric cars as well as other fuel-saving technologies. Policy makers there worry about the nation's increasing dependence on foreign-oil supplies, especially from the often-volatile Middle East. They also face rising pressure at home to address China's extensive pollution problems. Among other measures, China is expected to phase in tougher new mileage requirement in coming years, though the government hasn't released details.
China has offered several incentives to boost the development of electric and gasoline-electric hybrid cars, including subsidies. It has said it will introduce a series of incentives to support their development, including asking cities to provide owners of the vehicles preference on parking fees, battery-charging fees and road tolls. In new regulations late last year it also shifted purchase requirements for some government employees to encourage them to buy such vehicles.
Still, development has been slow. Notably, BYD Co., 1211.HK +0.42%an auto maker and electric-car company partially owned by U.S. investor Warren Buffett's investment vehicle, has stumbled as its traditional gasoline-powered car business has weakened, reducing resources it could use to build electric cars. BYD also faced doubts in May after an electric-powered BYD taxi caught fire during an accident in the southern Chinese city of Shenzhen; investigators didn't find any design flaws in the vehicle, however, according to a report earlier this month in the state-run Xinhua news agency.
The preliminary pact with Wanxiang Group, one of the largest auto components makers in China, would substantially strengthen A123's presence in China's growing electric vehicle and grid-scale energy-storage projects, it said.
The proposed agreement includes plans for Wanxiang to obtain convertible notes and warrants that if fully exercised could give it an 80% stake in A123. The deal is expected to close by year's end.
For the latest quarter, A123 reported a loss of $82.9 million, or 56 cents a share, compared with a year-earlier loss of $55.4 million, or 44 cents a share. The latest period included a net $11.3 million in write-downs for fair-value impacts and its investment in luxury electric-auto maker Fisker Automotive.