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."

Comments

Re:Michigan

[willie3204]

Oh perhaps the deal didnt go through just yet See here

Just another cautionary tale

[Revotron]

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.

Re:Just another cautionary tale

[mspohr]

The government has been tossing taxpayer money to the oil industry, big agriculture, banks and everyone else who could buy themselves a politician or two since the beginning of time.
This particular failure sounds like a combination of bad management plus the fact that developing and scaling new technology is hard.

Re:Just another cautionary tale

[mspohr]

Just a few clarifications to your post.
Loan guarantees are not grants.
A123 received a $250 million loan guarantee, not $90 billion.
Government has a vital role to play in keeping the economy moving. This is done through tax incentives, loans, stimulus programs and grants.
The problem is that the wrong corporations capture these incentives. Obsolete industries and industries which are doing fine without incentives tend to capture most of them... (i.e. General Electric receives enough government incentives that they pay no taxes but they are a perfectly viable business to stand on their own.)

Re:Just another cautionary tale

[Fast Thick Pants]

For perspective, the tax breaks given to oil companies amounts to about $2.4 billion/year (in the form tax breaks which are similar to the same tax breaks that every other industry gets for investing in expansion). Loan guarantees like the one A123 got totalled $90 billion in the "stimulus" bill passed in 2009.

Where's this $90 billion number from? $88 billion over ten years was the total for titles II, IV, V, and VIII of the ARRA bill. Loan guarantees are only part of this.

Wikipedia puts the total green-energy loan guarantees at $6 billion. There might be some other loan guarantees hiding in other categories, but your total is suspect, and comparing an annual number to a ten-year number is deceptive regardless.

Re:Just another cautionary tale

[bill_mcgonigle]

Government has a vital role to play in keeping the economy moving. This is done through tax incentives, loans, stimulus programs and grants.

That's their claim, but it's hogwash. Every dollar 'given' as stimulus has been taken from other people, either directly through taxes, or by devaluation of capital through inflation.

That capital is thus no longer available to its original (proper) owners, and so cannot be invested by them. The only remaining question is whether the government is more careful with how it invests other people's money than they are themselves.

To illustrate the point, may I present: A123 Systems.

Re:Just another cautionary tale

[Sarten-X]

Loan guarantees like the one A123 got totalled $90 billion in the "stimulus" bill passed in 2009.

Not quite. A123's loan guarantee (totaling only $17 million, with an "m") came from the Department Of Energy, not directly through the stimulus bill. The DoE has extended about $34 billion in loan guarantees (of which only a small amount is actually expected to be paid out). A thorough analysis of the program is quite an interesting read.

The best source I can find for the quoted $90 billion is the total cost ($88 billion) for "purchases of goods and services" which included a number of other programs as well as funding the DoE loan guarantees. Note that the entirety of A123's loan, had the guarantee been paid, is about 1% of the rounding error.

Government sticking its thumb on the scales of the economy is always a bad idea--whether it be bailing out banks or perpetual ethanol subsidies + ethanol mandates + import tariffs.

That's the whole point of government, though. As I've said before, humans suck. We're terribly biased and selfish. Left to our own devices, we'll kill each other over trivial matters, because we really don't care about anything beyond our local community. That's just how our brains have evolved. Sure, philosophically we can consider the notion of loving everybody and being nice, but that's not our instinct. We have to work for it.

That's where government comes in. Government is an abstraction that gives us an excuse to make policies based in philosophy, rather than just what we want at the time. If a politician thinks a big farming industry is really good in the long run, they'll support a subsidy, even if that means higher taxes right now. Since the policies are just abstract ideas to the politicians, rather than actual food disappearing from their dinner table, the politicians' human brains can make a less-biased decision based on the information they're given.

Of course, now it's that information that can be tainted by need and greed. Each politician thinks they're doing what's best, and voting for what will most help their constituents. This is why it's important to communicate with your representatives about issues you're knowledgeable about, and double-check your facts. Of course, since all humans are biased to believe that their opinions are objectively right, the burden's on you to provide enough proof to make a convincing argument.

Re:Just another cautionary tale

[aaarrrgggh]

Wow. You are missing the whole concept of Risk and Return on Investment.

Simple example is a SBA loan for a small company to buy a building for their operations (or other capital investment). The bank would normally require 30% down payment to mitigate risks; the SBA loan basically provides a 40% guarantee so the business only needs to put down 10%. The SBA provides that guarantee to help small businesses grow in ways that would otherwise be impractical at best. In return, the small business (hopefully) can grow, hiring people and stimulating the economy. Risk for the SBA loan is first taken by the business, then the government, and then the lender. SBA loans have interest rates about 0.75% above what a well qualified homeowner could get, rather than the 7-10% that might otherwise be required.

The bank is going to need that 7-10% interest to absorb the risk of a 90% loan, which simply takes money away from the small business and their growth opportunities.

Bullshit.

[Anonymous Coward]

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.

Re:Bullshit.

[SydShamino]

He was a robot. MIT patented a Turing PR bot. That patent is going to auction next week actually, but I'm not going to tell you the details...

Re:Fisker Karma fires?

[GameboyRMH]

Yes. Any similar batteries are just as likely to catch fire if flooded with salt water, however.

EXCUSE ME?

[Anonymous Coward]

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."

I think I know what the bottleneck was

[LoRdTAW]

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.