Slashdot Mirror
A Twisted Clean-Tech Tale: How A123 Wound Up In Bankruptcy
curtwoodward writes "Advanced battery maker A123 Systems was supposed to be one of the marquee names of the U.S. cleantech manufacturing scene — it won hundreds of millions in federal grants, had operations around the globe, and supplied the luxury Fisker electric car. In 2009, as the economy sputtered, A123 registered the country's biggest IPO. Today, it's in bankruptcy court, with possible buyers submitting bids for its parts and pieces. How'd A123 fall so far, so fast? As losses mounted, its reliance on just two big customers came back to haunt the company — and a series of screwups at a Michigan plant delivered the final blow."
This plant is right down the street from me. It will be sad to see it go out with such a whimper. Also didn't JCI buy a portion of their business??
The answer to all your problems
Nothing good has ever come from the commander-in-chief tossing government money back to his buddies (and campaign donors) in industry. My statement applies to this president just as much as it does to those before him.
The whole point of private free enterprise is that risks can be taken, with the hope of a big payout. Well, guess what, sometimes it doesn't pan out. That's the system, it is how it is meant to work.
http://finance.yahoo.com/q?s=aoneq&ql=1
any acquisition news means big jump.
New Economic Perspectives
A123's 'success' was built on DOE funded research dollars that went to MIT. This money was used to develop key patents that were then 'auctioned off' to A123. A123 just happened to be a company set up by the head researcher whose name appears on the MIT patents. Of course, he was only a minority shareholder as it was the cigar-smokers who get to be the majority shareholders. None of these cronies know anything about actually running a company, but they can certainly sell shares, which is what they did. I tried to find out how to get in on these patent auctions and the process is so guarded that an outsider can't even find out how it goes down. When I tried to inquire about it, I was immediately sent to an MIT public relations officer who would only give me long sermons about all these studies that have demonstrated that since Congress passed the laws to create patents and grant exclusive licenses on technologies developed with public monies it's been nothing but unicorns and rainbows. I finally had to hang up on the guy when he wouldn't even respond to any question I tried to ask him. He just kept spewing his propaganda like a fucking robot.
Is this the supplier of the batteries in the Fisker Karma cars that burned in the Sandy flood?
Question:
How'd A123 fall so far, so fast?
Three words later...
its reliance on just two big customers
Answered
... so-called "green/cleantech" I can say unreservedly it was about 99% hype and 1% reality. They dropped at least $2B in their attempt to diversify their portfolio into greentech and acquired a number of companies - including the one I worked for - to buy their credibility in the solar panel marketplace.
As it turned out, said marketplace - and greentech in general - was and is a bust. Rich yuppies are basically the only ones that can afford to purchase, install, and maintain solar panels even with massive State and Federal government subsidies both in the U.S., Europe, and elsewhere. Given the very poor efficiency of solar panels and their very long term ROI, those yuppies are the only ones with more money than good sense.
For all Al Gore's, the UN, and pro-globalists' hand-wringing over AGW (and I'm not here to get into THAT debate), the reality is that most people and therefore most businesses aren't particularly concerned about climate change. When the economy tanked in the 2008-ish time frame, the corporation I worked for - the world's largest semiconductor equipment company - said they had, in their 30+ years in business, NEVER see demand drop off a cliff the way it did. Consumer demand for electronic gadgets quite literally disappeared and did so almost overnight. It was a stunning hit to the solar plexus of that industry. Needless to say, a year on I was laid off.
Greentech far from saved them - and, thankfully, at least it was mostly THEIR OWN dollars they spent on greentech investments -- and it turns out the vast majority of the dollars they dumped into those investments turned out to be giant loss. It was nearly all hype and very little reality.
On a mundane level I don't have a huge problem with the Federal government taking big bets on cutting-edge technology that private industry typically can't afford. Note: NASA, the Military in general (from whom we have GPS among many other military-to-private sector innovations to thank for), and of course DARPA from whom we may not have this little thing called the Internet.
Even if there was no real skepticism around climate change I don't believe it would matter. The money the UN wants from the major nations to "fix" climate change would end up being a giant slush fund for lavish UN diplomat expenses. I'd bet big money not a dime would go to any good or positive net effect to supposedly fix or even seriously address climate change issues beyond expensive committees filing expensive 500-page reports and jet-setting between Dubai and New York and London and Tokyo to confab with like-minded global elitists. Climate change isn't something that will be fixed on a macro scale. That, among many other reasons (i.e., the general massive corruption and ultimate pointlessness of the UN), is why so many nations are resisting funding this cluster. Many people are struggling to merely survive in this world - in fact, the vast majority of the global population is in that bind - and concern over how many hydrocarbons they're pumping into the environment is of zero to less-than-zero concern.
How'd A123 fall so far, so fast?
Let's see: They have a ton of debt, a recall that cost them $55 million, and their biggest customer is Fisker who has a cool but expensive product that is selling slowly, and new customers are coming online slowly. Basically crushing debt, a big screw up and insufficient revenues. Pretty much the fastest way I know of to get to a bankruptcy filing. If a buyer gets them post bankruptcy they probably will have a pretty good business without the debt obligations.
The truth is that any company that requires huge government grants and loans in order to be competitive was bankrupt from the start. This green energy crap is just the latest way for politicians to shovel money out of taxpayers pockets and into their friends bank accounts. For example, if our government really thought ethanol was such a great idea they would not be placing huge tariffs on South American ethanol and subsidizing US ethanol. That one policy is the largest contributor to the inflation of our food prices.
Republicans and Democrats are exactly the same except for one minor difference: which lobbyist group has bought them.
A $60M reduction in orders isn't what puts you out of business when you are a company with $900M in debt. You're doomed either way.
How'd A123 fall so far, so fast?
Greed.
"Long term ROI" is not equal to "No ROI"
But if your attention span were long enough to capture more than the last cheeseburger you stuffed in your face or the glenn beck novel you wiped your hands on, you probably would know that.
in general, a government doing some tipping is better then an economy left completely to its own devices
Totally false.
A123 being propped up by the government meant that other companies developing battery technology were less likely to work on similar problems because they had to get real money, which would have been also less easy to come by with A123 funded in that space.
Private investors are way more careful to invest in things that might work. They are obviously smarter at this because they are using real money, with real consequences for loss. Neither is true of government funds. The government stinks on ice at picking out winners in the market and in the end most of the money they give out is essentially a laundering operation to campaign donors.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
From the story it looks like it could be tied to bad management, failing to do the due diligence and ensuring that the product was correct before you sold and shipped millions then trying to keep it under wraps? Seriously stand up and admit your wrong so you can fix them and survive to live another day.
Good leaders run toward problems, bad leaders hide from them.
For all Al Gore's, the UN, and pro-globalists' hand-wringing over AGW (and I'm not here to get into THAT debate), the reality is that most people and therefore most businesses aren't particularly concerned about climate change
Lets be a bit more honest here: you don't have to be a "pro-globalist" to be worried about Climate Change. The science is the same regardless of the politics (even if political pre-conceptions make people want to ignore it). And I think it's not reasonable to say that if most people were concerned the businesses would be as well. They all have a vested interest in the status quo and hence will nearly always be behind the direction the people (or scientific results) are going. It's only in the ideal free market fantasy that this isn't true.
Climate change isn't something that will be fixed on a macro scale.
This is a pretty close-minded attitude, and this sort of thinking is most likely the main thing that may indeed prevent it from being fixed this way (or at all). Just because some greentech doesn't work, that doesn't mean none of it will. Hydroelectric power requires massive funds that are almost always public sector, and it's enormously successful (and profitable in many cases if you consider the net benefits). It's just conveniently ignored by those who decry "wasted" greentech money.
While the laws of physics are deterministic (at least at this scale), the laws of human behavior are not. Plenty of macro-scale activities have profound effects on our micro-scale behavior.
Many people are struggling to merely survive in this world - in fact, the vast majority of the global population is in that bind - and concern over how many hydrocarbons they're pumping into the environment is of zero to less-than-zero concern.
This is a very good point. But if Climate Change is real, the vast majority of the future global population's lives depend on us solving it. So we should be expending enormous resources to convince them that they should be concerned (or better yet, help lift them out of desperation).
Government has a vital role to play in keeping the economy moving. This is done through tax incentives, loans, stimulus programs and grants.
Yeah, by ripping off people by creating an A123 Systems, Solyndra, you NAME it, they keep the economy going! You know, the guys who just chew up money, give it to their buddies, and run off having raped everyone with a corporate scam. And by keeping the economy going, I mean inflating and taxing the US economy into asphyxiation to where PEOPLE HAVE NO MONEY TO BUY because they are paying for this corporate welfare garbage. Except that they aren't because the debt is GROWING AT ABOUT FOUR BILLION DOLLARS PER DAY.
FREE markets which are markets free from government meddling (this includes corporate welfare and tax breaks for the big businesses) allow the economy to work AS IT SHOULD. Consumer demand drives supply chains. Consumer demand is WHAT PEOPLE WANT. When people get what they want, you have a healthy economy.
You can put financial regulations and environmental protections in place against businesses all day long, but as soon as you try to force the market to do something, it will adapt. For instance, there is an anti-tobacco subsidy where the government pays you to not plant tobacco. You plant one acre to prove that you can plant tobacco, and the government gives you FREE MONEY to not plant tobacco on the rest of the land. It doesn't take but five seconds of thought to understand how not only does this increase the growth of tobacco but drains the coffers at the same time. This is one of the simplest examples. You end up with your controls both fostering corruption (great way to pay yourself or your buddies) and creating inefficiencies in the economy which will be bypassed as there is still demand for whatever the government was trying to kill and which will be abused because there is an artificial free supply of government-issued "incentive."
Last I checked, long-term ROI on solar panels exceeded their life expectancy, so effectively long-term ROI for solar panels is equal to zero or negative ROI. Which, if your attention span were long enough to capture more than the organic bullshit you stuffed in your face or the Al Gore novel you wiped your hands on, you probably could have done the math to figure that out.
These news articles are usually (and this was no exception) short on the root of their woes in manufacturing. Is there any more info on that?
When someone says greentech or cleantech or whatever cute word they like to use you know they're talking finance and/or PR and not technology or reality. The reality is that we're constantly inventing slightly better PV panels, batteries and fuel cells. I think it's obvious at this point that some of these products will eventually become competitive.
I think what's going to happen from a US point of view is that there is going to be a lot of money in buying these products in China and distributing them and installing them and turning them into easy to sell services in the US. It's easy (well... relatively speaking) to outsource production to Chinese factories, but it's currently not allowed to take Chinese workers onto US soil to do local work like construction work and maintenance so that has to be done in the US by US workers.
Thanks for your wisecracking. As a matter of fact, even the big, established corporations (from Boeing to Daimler) are challenged to "get products right". Even their financial resources are actually quite limited. They have dozens of R&D projects ongoing and each of these might easily eat 100 millions a year. Their senior management makes mistakes which cost dozens of billions, then comes a financial crash and finally, a "80% done" R&D project must be "completed in three months". Despite the fact that every competent person on the project knows at least 12 more months are required.
So what happens IN REALITY ? Rolls-Royce designs, builds and delivers and engine for the A380, which nearly kills 300 people. Because they could not be fucked to perform proper long-term testing. Daimler builds a highly efficient Diesel engine which dies at 100000km on average. The "fix" is to go with Bosch instead of Delphi (for the injection system) and shell out 500 million Euros. Some say it was 1000 million Euros. At that time Daimler again had the money to do that. When they started selling this motor, they didn't have the money for proper testing.
Boeing - they had a wildly optimistic plan about their 787. They were only 3.5 years late and they already have some new problems which can only burn down the plane. Just some fuel dripping...
Boy, these corporations are under enormous financial strain whenever they do non-trivial R&D, the stock market is full of cynical ignoramuses and the companies themselves are infested with naive, green-behind-ears M.B.A. toddllers who don't have the slightest clue of what can go wrong in engineering and development.
I think I get where you're going with the "environmental regulations" argument though that can somewhat be argued the same way. If there is a way around a regulation, you'd better be sure the market will find it!
Look at it this way. We have a population of ~270 million "entities of self interest." They're all chipping away at whatever they can get a piece of. If the government is spending half the GDP on the weapons of war, well, where do you think all the jobs are going to be? Yeah. So everyone's getting a job with a government contractor making UAVs, analytics software for intercepted comms, etc. which have no use in the consumer market. Of course, since the tech is there, someone will make money now selling the equipment which ends up turning the police agencies para-military. Instead of this, couldn't have we just NOT gone into so much debt with these military contractors and let the economy do its thing? The guys running the NSA spy/data centers could have been employed by NVIDIA to design an even better GPU since the capital would have been free for your average Joe to buy more of their video cards. From there, your Lockheed guy might as well have been at a startup designing a new AI that could make use of all that power and actually contribute something progressive to mankind like autonomously surveying the canyons of Mars for mineral deposits or an asteroid for mining potential.
To add to the loan/subsidy issue, I will bring up student debt. A generation ago, no one had substantial student debt. If you wanted to work your way through university in the states, you actually could. Now with the government cramming Stafford and Parent Plus loans down everyone's throats, you're typically stuck with either taking the loan or going to work in the food service and paid nothing. When the students get this "free money" (money printed for free by the bankers and given to their friends so that they can charge you 9% interest) and have NO idea how much, say, $20k/semester actually means, they'll just take the loan! When the student isn't qualified for a loan, there is a "Parent Plus" loan which must be taken out in the parent's name despite the student of course being completely independent from his parents. (My dad was dead and I was not a taxable dependent as I was actually working while in school, and Georgia Tech still crammed this down my mom's throat in '08.) When this kind of thuggery happens, yeah, schools can charge WHATEVER THEY WANT, and those fees will be paid.
That's what happened in my case when I was in school.
And yep, I work for a government leech doing UAV stuff now. But it gets the student loans paid, so I can't complain. ;)
But if Climate Change is real, the vast majority of the future global population's lives depend on us solving it. So we should be expending enormous resources to convince them that they should be concerned (or better yet, help lift them out of desperation).
I'm willing to say what no one seems to want to say out loud, even though they are all thinking it. Present sky is falling AGW claims and predictions of doom put the "cataclysms" and "high" sea levels out at least 100 years and more reasonable etsimates of 500 years. That's approximately 15 generations and 450 years after I'm dead.
I DON'T GIVE A FUCK WHAT HAPPENS IN 450 YEARS! I DON'T GIVE A FUCK WHAT HAPPENS TO THE 15TH GENERATION OF MY SPAWN!
For me, my children, my grandchildren, my great grandchildren and even their children, very little if anything is going to change. It won't feel significantly warmer and sea levels will only have risen a couple of inches, at most. I'm completely unwilling and uninterested in any form of self imposed taxation, inconvenience or suffering for the benefit of anyone 100 to 450 years after my death. FUCK EM!
There I said it.
"The science is the same regardless of the politics"
No, the TRUTH is the same regardless of the politics. Science != truth. It has been and always will be polluted with human assumptions, prejudices, self-interest, and deceit. Believing that the science you choose to accept == truth even though it is discredited time after time by whistle-blowers and it's reporting agencies continue to hide raw data isn't representative of truth. The truth has nothing to hide, but those climate change con men are hiding everything. Believing man-made climate change at the rates of Al Gore and the IPCC is qualification for a mental illness, or a most-gullible person of the millennium award.
You don't deserve and award or commendation for your elite thinking and all-caring heart. You deserve to be shamed for being so foolish and for proliferating such an obvious lie.
I do think a major problem with "modern" management is that they don't engage their experts (engineers, physicists, biologists or any other subject matter expert on payroll) in a serious and long-term dialogue. And of course they can't base their decisions on that dialogue that never happened.
Instead their make their decisions based on "what other people do", "how eloquently people argued", "which of the secret buzzwords were used". Management could learn a tremendous amount about their business if they listened to their own experts and asked *relevant* questions. Instead they indulge in all sorts of "soft skills" crapola and punish people for telling the truth.
The difference is, it was during Obama's administration that A123 got 250$ million in federal funding. Gee, what a shock, yet another Michigan company losing nearly $1 billion, all while eating from the trough of taxpayer dollars.
There is one critical difference between the examples you give and A123.
You referred to special breaks given to an industry as a whole. In theory anybody could set up a oil / agribusiness, etc. and enjoy those breaks. Dirty but open.
A123, on the other hand, was given preferential treatment that only they got. If I open a battery business tomorrow I may not enjoy the same break. Dirty and closed. That to me represents a greater danger because now awards are offered to who you are instead of what you are doing.
These have more than paid off for themselves. Entire countries could effectively go "energy independent" on nuclear, if you cut out all the CIA-funded/aided "green party" propaganda. France proved that more or less. But hell, even they now succumb to the CIA shit.
They can even Heat Their Houses with electricity in France !
So, these subsidies were one of the best investments by government ever. A main part of that subsidization was done by Hyman Rickover, an engineer and (finally) rear Admiral of the US Navy. He essentially led the design of the reactor type we now commonly use for electricity generation. He kicked all the Social Science fuckers who thought they could "cut corners" on the submarines into their butts when he discovered that on his personal inspections. Many, many people hated him because he killed more than one career of a "nice chap" Cocktail Party Officer.
BUT, his record is stellar - not a single USN ship spilling nuclear material. And they operated more than 100 reactors at a time and still operate lots of them. Rickover is the equivalent of the "security Nazi" so many people bitch and moan about in corporate IT. Except that he was born a jew, so maybe "Nazi" is not entirely the right word. Rickover proved that Subject Matter Expert In Charge delivers nearly perfect results.
And again, these government subsidies were excellently spent - just in the wars France, Germany and Japan never fought for the oil they never needed. But hell, it challenges Anglosaxon oil interests and Anglosaxon hegemonic interests in nukes, so it is bad, bad, bad. We could power the entire world economy on German Thorium reactors if you fucking stupid American Deep Government members had not sabotaged it.
but it's currently not allowed to take Chinese workers onto US soil to do local work like construction work and maintenance so that has to be done in the US by US workers.
The desire to avoid employing US workers is very strong, even in construction. The Chinese are fabricating entire bridges and shipping them to the US for final installation. We outsource our cultural monuments to China today.
There is precious little beyond civil servants that can't be outsourced, which is why government workers are doing so much better than everyone else. Our income disparity balloons while we feather our regulatory nest, evacuate our capital to Asia and hone our hate for the 'rich' to a fine point.
Mod up the "Mod parent up" guy, wowza.
I know A123 is still doing business, we got an RFQ from them the other day.
About a year ago we were working with them on their new battery technology. The challenge was to weld the battery electrolyte fill port in a moisture and oxygen free environment. We have a glove box but the big problem was to leak test the cell before it left the environment and that was the hard part. The glove box environment is 90% argon and 10% helium which is used as a trace gas for helium mass spectrometer leak testing. The part goes into a vacuum oven antechamber and held under vacuum (and baked if necessary, usually to get rid of vapors from glues and moisture) until its safe to open the door in the glove box chamber. Once you hermetically seal a part you need the trace gas to already be inside the part and that is why there is a 10% helium mix. The sealed parts are put into a bell-jar on the leak detector and the leak rate is measured in atm-cc/sec, around 5x10^-5 is when liquid water begins to leak. Below that is where you want to be in the 10^-8/10^-9 range or better. The problem is If your environment is already contaminated with helium how do you test a part for leaking helium? There are other methods we use for parts but that requires the part to be removed from the glove box. If the battery is not sealed 100% it will be ruined if any moisture or oxygen gets into the battery. If we catch the leak inside the box then we can repair it.
I believe that was the major bottleneck in the process, welding shut the battery electrolyte fill port and checking the seal without introducing the battery to air. They could have two glove boxes with a vacuum antechamber joining them, one filled with the trace gas mixed in, the other without trace gas but helium is a pain in the ass to pump out. you would have to do a gas purge and then vacuum it out and possibly another purge then leak check the part.
We did the development on the job and I don't know what happened after we gave them our solutions.
..and 100 other problems of that kind. Developing and manufacturing an automotive battery requires the financial power and organization, refinement skills of something like Panasonic, Bosch, Samsung, GE, 3M etc. Turning a principle into a mass-produced, highly reliable and durable product requires skills you don't typically find in university folks. From an engineering point of view, their work is often incredibly shoddy for lots of reasons. The basic reason is that universities are there to research new principles, not products.
The major German auto companies consider batteries a new core technology which is as critical as Diesel or Otto engines have been to this point. So they are NOT interested in simply buying batteries from a supplier. They want to control battery technology from research, design to manufacturing and field maintenance. Which makes some sense if you think about "contribution" in how the HP Way defined it. You cannot contribute much to a car's technology if the engine is perfect (like electric motors are) and the battery expertise comes from a supplier.
Of course that works against major R&D economics and against the highly interesting idea of "quick swap" (instead of "slow recharge") batteries. But that is the current strategy of German car industry and they are amongst the leaders; they have money and can get more from investors, if required.
We all like to glorify HP as one of the "roots of Silicon Valley" and as an example employer. The truth is that they were a key component of the Military Industrial Complex. They paid my uni education and I am thankful for that. But they are not just a nice company. They were/are busy supporting Loral, Hughes Radar, IBM federal systems, Northrop, Lockheed and everybody else to build even better radars, jammers, radios, data links and whatnot to kill the yellow and brown man.
The truth is that We Are The MIC. Or at least Part Of The MIC. Dave Packard was even a vice secretary of war and Bill Hewlett was a key aide to electronic warfare efforts in the pentagon during WW2.
The IT industry was very much born out of warfare.
It's hilarious when liberals are dumbfounded that their policies fail over-and-over again...
but it's currently not allowed to take Chinese workers onto US soil to do local work like construction work and maintenance so...
...we use Mexicans of varying immigration status.
Rich yuppies are basically the only ones that can afford to purchase, install, and maintain [...]
... cars, (home) telephones, radios, televisions, computers, cell phones, and a whole host of other technologies.
BTW, the same is true of Silicon Valley. During the Cold Ware a lot of money was funneled in to "fight" the Soviets:
http://www.youtube.com/watch?v=ZTC_RxWN_xo
Solyndra is in California, General Motors is headquartered in Detroit, but has 156 facilities on six continents, Chrysler Group LLC is headquartered in Auburn Hills, Michigan, and has 23 plants in 3 countries; so you'll have to be more specific. The Auto companies at least paid the government back.
Apocalypse Cancelled, Sorry, No Ticket Refunds
Well, if you defined still owing $42 billion dollars to the taxpayer, I guess you could say they've paid the government back.
http://townhall.com/tipsheet/katiepavlich/2012/07/27/government_motors_still_owes_taxpayers_42_billion
http://www.politifact.com/truth-o-meter/article/2011/may/26/are-auto-companies-paid-up-american-taxpayers/
Only a fraction of that, $6.7 billion, was in the form of loans. Most of the government's GM investment was converted to an ownership stake in the New GM, the company that emerged from bankruptcy: $2.1 billion in preferred stock; and 60.8 percent of the company's common equity. The jury is still out on how much return the government will get on that investment.
Whitacre could accurately claim that GM has retired its $6.7 billion in loans from the U.S. government. But with the government still owning 60 percent of the company and the prospects slim for getting all its money back, we thought that was highly misleading. And so we rated Whitacre's statement Half True.
I'll be worried about climate change AFTER we get the bread basket areas of Alaska and Siberia back.
Senator Roark: Power don't come from a badge or a gun. Power comes from lying. Lying big, and gettin' the whole damn world to play along with you. Once you got everybody agreeing with what they know in their hearts ain't true, you've got 'em by the balls.
oldhack: "Security is a waste of money until shit hits the fan. 5 minutes later, it becomes waste of money again. "
The primary reason A123 is failing is the management was trying to make a salable company, not produce good product. The whole push was for numbers, not quality. The technology is sound, the management is not. Now they are trying to collect their "Golden Parachutes".
If by "paid the government back" you mean "stuck taxpayers with equity worth far less than what they paid for it", then you're correct.
Historically, Michigan is a one of the very few donor states in the union (i.e. pays more in federal taxes than it receives). So, unless you are from one of the other few, STFU.
because they decided to name their company "A123"...
Just sayin'