Opposition Grows to Sale of A123 Systems to China

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A123 logoThe Chinese government, unsurprisingly, has approved a potential sale of stimulus-funded ($279 million-plus) A123 Systems to one of its own automobile parts manufacturers, should the Wanxiang Group’s bid be the highest this week for the bankrupt electric vehicle battery maker.

That was the easy part.

So far Republican Sens. Charles Grassley (Iowa) and John Thune (S.D.) have repeatedly raised questions and concerns about the possible transfer of A123’s business, jobs and technology from the U.S. – where taxpayers have thrown in approximately $132 million only to see many times that amount in losses since its 2009 initial public offering – to China. They’re no longer the only voices speaking out against the transaction.

Last week the Strategic Materials Advisory Council, a coalition of former U.S. Government and military leaders and industry experts, announced its opposition to a transfer of A123 to Wanxiang’s control. The group sent a letter to Treasury Secretary Timothy Geithner that cited concerns about contracts the battery maker has with the Defense Department and the possible transfer of technology to a military rival.

“For over thirty years, China has pursued an overt economic strategy of acquiring both natural resources and promising technologies,” the SMAC wrote. “This strategy creates Chinese dominance of entire supply chains for selected materials and related technologies. Allowing Wanxiang to acquire A123 Systems would continue this trend and make the U.S. dependent on an unreliable foreign source for yet another critical defense component.”

The group likened the potential A123-China deal to a the previous sale of Indianapolis-based company Magnequench, in which the technology for sophisticated magnets used in munitions and advanced computer systems – developed and built in the U.S. – were “lost to China.”

“A similar outcome is likely if the A123 sale to Wanxiang is allowed,” SMAC wrote to Geithner.

According to the SMAC, the efforts the government typically employs to protect its technology would not work in the case of an A123 sale to Wanxiang, because “any transfer of intellectual property could be reverse-engineered.”

Geithner already received a similar plea from Grassley and Thune because he oversees the Committee on Foreign Investment in the United States, which would have to approve a sale of A123’s technology and assets to Wanxiang. The senators’ missive followed an earlier inquiry to the Department of Energy about its oversight plans for A123, which failed to draw a response.

“Considering A123’s grid energy storage activities and active military contracts,” Thune said last month, “the Obama administration must thoroughly scrutinize any transaction that would lead to A123 being owned by a foreign company.”

Besides the two Republican senators and SMAC, Michigan Sens. Carl Levin and Debbie Stabenow (both Democrats) and several Congressmen from both parties co-signed a letter with similar pleadings to Geithner over concern about an A123-Wanxiang sale. Besides the obvious jobs at stake among their constituencies, the lawmakers worried about selling to the unknown.

“There is very little publicly available information about the internal structure, governance, and ownership of Wanxiang,” the Congressmen wrote. “The extent and nature of Wanxiang’s ties to the Chinese government are also unclear, including whether Wanxiang currently provides products or services to the government of China, the Chinese military, or Chinese law enforcement agencies.”

Wanxiang is reportedly the largest auto parts manufacturer in China, so you can be certain it serves its government, and even if it didn’t, well, it’s still Communist China.

The anxiety over a potential sale to Wanxiang – which was earlier the privileged bidder before A123 declared bankruptcy in mid-November – is so great that all the parties who wrote to Geithner don’t believe it’s safe to even segregate A123’s various assets and interests and just sell them non-classified technologies. Wanxiang has expressed eagerness in acquiring A123, putting up $50 million in loans for the transition and the acquisition process, and that alone ought to cause apprehension.

Last week the Department of Justice also weighed in with filings at the bankruptcy court, according to Reuters, stating that its approval is needed for any buyer of A123.

“…the terms of the sale must include its right to demand compensation for the sale of assets such as equipment or property that were financed with the clean energy grant,” Reuters reported.

The irony is that there are so many parties interested in A123’s technology and assets, including Wisconsin-based Johnson Controls, NEC Corp. and others, and still company CEO David Vieau and his cohorts mismanaged it into bankruptcy. Allowing A123 to go to Wanxiang would just add insult to taxpayer injury.

Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.