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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."
Oh perhaps the deal didnt go through just yet See here
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.
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.
The problem is that it wasn't exactly a private free enterprise. They received a $17.1m loan guarantee from the federal government, without which their plant would not have been built. Investors saw them as a bad risk, and appropriately declined to invest in them.
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Question:
How'd A123 fall so far, so fast?
Three words later...
its reliance on just two big customers
Answered
The whole point of private free enterprise ...
Except that it wasn't "private free enterprise". A123 Systems received hundreds of millions of dollars in taxpayer subsidies.
Government funding of basic scientific research makes sense. Government funding of manufacturing is idiotic. If private investors are unwilling to put up their own money to build the factory, that is a good sign that the factory is not going to be economically viable.
... 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.
Yes. Any similar batteries are just as likely to catch fire if flooded with salt water, however.
"When information is power, privacy is freedom" - Jah-Wren Ryel
it's extremely irresponsible of ANY government to invest in a company without doing the normal work that say an 'Angel Investor' would do.
The problem with your scenario is that the private investors already looked at it and declined to invest. Any company that comes to the government for capital, is almost by definition a bad investment.
... or just get out of business entirely.
Ding ding ding!
So we should never build any nuclear power plants?
All of those are built with government backed loans and are insured by the government as well.
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."
Yeah, they're actually in the "auction" part of the bankruptcy today. JCI is the opening bidder - the "stalking horse" as it's colorfully named. Unsure when the other bids etc will be made public, but there is a hearing scheduled in court on Dec. 11.
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. ;)
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.
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.
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