Battery Maker Finds China Investor

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china200

A123 Systems, an American battery maker, has been able to lift itself from the economic doldrums when it signed a quarter of a billion dollar grant from the Department of Energy. Now, it has bolstered its finances when a Chinese auto parts maker has invested to take controlling stake of the floundering firm.

The Chinese company is the Wanxiang Group and the company is expected to infuse at least another U.S. $450 million into the battery maker. This would allow the battery manufacturer to continue in its operations of creating batteries for electric and hybrid cars. In its last financial projections, the company said it had only five months left of operating capital.

According to A123’s CEO, David Vieau, his company hopes to “do well in China, where there is a government mandated expansion of the market for electric and hybrid vehicles.” In response, Wanxiang’s CEO, Weiding Lu, said through a statement that the deal would essentially “help expand the company’s capabilities both domestically and internationally.”

The earnings report of A123 Systems illustrated the decline of the company, with reported losses for the second quarter at U.S. $82.9 million or about U.S. $.56 cents per share with a 53 percent drop in revenues to just U.S. $17 million. The cash on hand was half of the U.S. $47.7 million, down from the U.S. $113.1 million it reported available in the first quarter of 2012.

Despite such issues, A123 was able to raise about U.S. $600 million from capital venture investors and its IPO last 2009. Also back in 2009, it obtained a U.S. $2.4 billion grant from the Electric Drive Battery and Component Manufacturing Initiative.

For its part, Wanxiang is amongst the biggest private companies inChina, with annual revenue reaching more then U.S. $13 billion a year from auto parts sales to the country’s largest automakers.

Despite being positive, there is a bit of political turbulence ahead for the deal, as the election approaches and the rescue of an industry favored by the Obama administration may prove to be an issue. This, together with the Solyndra debacle, President Obama may face stiff criticism for decisions regarding billions upon billions of taxpayer dollars, especially now that it is in control of Chinese businessmen.

This issue can be avoided though as there is weak U.S. demand for electric cars, which in turn hurt the battery manufacturing industries. Two other U.S. battery makers, both also funded by the Obama administration, have filed for bankruptcy this year.

The deal between A123 Systems and Wanxiang Group is as follows, an initial U.S. $25 million immediately. Then, Wanxiang would gradually infuse a total of U.S. $465 million and in return, receive 80 percent ownership in the American battery manufacturer.