Timeline: A123 Systems' Downward Spiral to Bankruptcy
As Bloomberg reported today, stimulus-funded electric vehicle battery maker A123 Systems filed bankruptcy in federal court after failing to make a debt payment that was due. Milwaukee Business Times has reported that Johnson Controls will purchase the “automotive business assets” of A123 for $125 million, and that A123 will receive from Johnson $72.5 million in “debtor in possession” financing to continue operating during the sale process.
Regular readers won’t be surprised, as the company’s gradual sink to its current depths – despite receiving hundreds of millions of dollars from taxpayers – has been covered by NLPC since late last year. A review:
December 2011: A123 announced it would lay off 125 employees at its two refurbished plants in Michigan, attributing the cutbacks to diminished production by its top customer, Fisker Automotive. NLPC documented how A123 was also an investor in Fisker, which has had its own difficulties and had its own Recovery Act loan guarantee from the Department of Energy cut off. A123 CEO David Vieau and other executives were shown to be donors to President Obama’s and other Democrats’ campaigns, and Vieau was also featured in a 30-second spot in late 2009 to promote energy and climate legislation desired by the president and his fellow Democrats. Vieau was rewarded with a Rose Garden press conference that promoted A123.
January 2012: NLPC reported on EV battery manufacturer Ener1, similar to A123 in that it received $118 million in stimulus funds while almost entirely dependent on a single unproven, often-failed electric car company in which it was invested, Think Cars. Ener1 declared bankruptcy in January.
February: DOE cut off Fisker after paying out $193 million from a $529 million loan guarantee, leading to the car company’s own layoffs and stoppage of work at a plant it planned to refurbish in Delaware to produce electric cars. The development caused NLPC to speculate whether Fisker’s troubles would take down A123, but we would soon learn that it was more likely that A123 was a significant reason for Fisker’s problems. Securities analyst Theodore O’Neill said the end of government funding for Fisker would create a “doomsday” for A123.
Later in the month NLPC reported that top A123 executives, despite earlier layoffs of factory workers and the company’s continued poor performance, saw their own pay and parachutes (in the case of a sale of the company) get big boosts.
March: A123 announced to investors it would suffer a loss of $257.7 million for last year, compared to the $152.6 million in losses for 2010. A loss of $85 million was taken in the 4th quarter in part because of a $11.6 million write-down of its stake in Fisker, in addition to reduced orders of its batteries. One Wall Street analyst said the situation reminded him of Ener1, as just prior to its bankruptcy filing, Ener1 wrote off its investment in Think Cars and stated the electric car business would not present an opportunity for profitability any time soon.
April: A123 became the target of an investor class-action lawsuit and its stock price dropped below $1. The lawsuit followed a second recall of A123’s batteries due to defective products, which the plaintiffs claimed the company failed to disclose. Both recalls affected production of Fisker’s $107,000 model the Karma, the second of which suffered a high-profile breakdown while Consumer Reports was trying to test it for a review. “The company’s statements were materially false and misleading at all relevant times,” the lawsuit’s complaint said.
Later in the month, in perhaps the worst example of the agency’s blundering judgment, the Department of Energy gave A123 a vote of confidence by extending a deadline until 2014 to spend down its $249 million stimulus grant. Within days of that decision an A123 battery caused an explosion at a General Motors research facility in Michigan, sending one employee to the hospital. Also, another A123 company – electric truck-maker Smith Electric Vehicles – was revealed as another victim of its defective batteries. The Detroit Free Press reported that lackluster sales of electric vehicles would likely lead to a consolidation of the battery industry which was “overstimulated” by the Obama administration.
Fox Business featured NLPC on “The Willis Report” for a discussion about whether A123 is “the next Solyndra.”
May: A123 reported a $125 million 1st quarter loss and its stock price dipped to 88 cents, near its 52-week low, but the executives that were just awarded big raises and parachutes months earlier looked like they wanted to cash in and sell the company. Despite telling the Securities and Exchange Commission its ability for the company to continue is a “going concern,” Vieau and fellow executives announced they had retained an outside adviser for “evaluation of strategic alternatives.” In other words, they were looking for a buyer.
June: NLPC noted how every time A123 suffers bad news or a stock price hit, Vieau miraculously produces great news via press release that temporarily bumps shares higher. The recent example at the time came when A123 announced a “technological breakthrough” called Nanophosphate EXT that officials claimed would reduce or eliminate the need for cooling systems for overheating batteries, and lower the cost of electric vehicle batteries by $600. Wall Street was unjustifiably non-skeptical, as A123 saw its stock price temporarily shoot up from $1.04 to $1.58. NLPC detailed previous examples of A123’s good news/bad news rollercoaster ride.
July: The company announced it would access $39 million via a stock sale to institutional investors and the release of other cash after meeting requirements related to its existing reserves. The dilution drove the stock price all the way down to its all-time low (to date) of 69 cents. NLPC stated that A123 is “in the throes of a death watch,” while Elon Musk, CEO of electric automaker Tesla, said “There are few industries with more BS than the battery industry. It’s quite remarkable.”
August: In another phantom positive ‘development,’ A123 released its latest financial bad news, but also disclosed that it also had a potential buyer – from China. Despite another $82.9 million in second-quarter losses, good news also magically materialized as Wanxiang Group Corp. was announced as a new investor. The Chinese were allegedly going to provide hundreds of millions in loans and investment in exchange for an ownership stake of up to 80 percent, but many stipulations were attached including approval from both U.S. and China’s governments. A123 also would be required to keep its state and federal grants and incentives, and its research and development teams.
Another condition for the deal was for A123 to maintain its listing on NASDAQ, and sure enough, only two weeks after the China deal was announced the stock exchange warned the battery maker it would be delisted if its stock price didn’t rise above $1 for ten consecutive business days.
In other words, the Chinese deal was unlikely to be consummated.
September: NLPC reviews how despite all the taxpayer money spent and 100-plus years of research under scientists’ collective belt, there has been no significant technological advancement with regard to batteries’ cost, range, and efficiency, in terms for American usefulness for today’s electric vehicles. They are still extremely expensive ($12,000-$15,000 for the Ford Focus Electric battery, for example); don’t travel more than 100 miles, and usually much less; and still require several hours to fully recharge.
Add on top of that A123’s breakdowns, explosions and all-around failures, today’s news was inevitable.
Yesterday: Sens. Charles Grassley and John Thune sent a missive on Judiciary Committee letterhead asking Vieau for explanations about its grant from DOE, its pending sale to the Chinese, how taxpayer funds were handled, and how its government contracts and security interests would be handled in light of the proposed deal.
As the Wall Street Journal reports today, with tonight’s second presidential debate, “Mitt Romney just got more fodder to attack President Barack Obama’s green-energy programs….”
“This is important not just because of what you guys are doing at your plant, but all across America,” President Obama said in September 2010 at a highly promoted event for the opening of A123’s new Michigan plants. “Because this is about the birth of an entire new industry in America—an industry that’s going to be central to the next generation of cars.”
Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.