Skip to comments.Can Taxpayer-Subsidized Battery Maker A123 Survive?
Posted on 03/06/2012 11:41:14 AM PST by jazusamo
The taxpayer-funded ($279 million) battery supplier that gave big raises and parachutes to its executives shortly after it cut Green jobs at its Michigan factories, reported last week it would suffer big losses again for 2011.
A123 also received grants and tax credits from Michigan that could total more than $135 million.
The company said it would realize a loss of $257.7 million for last year, compared to the $152.6 million in losses for 2010. A123, which received a $249.1 million grant from the Department of Energy to refurbish plants in Livonia and Romulus, Mich. (plus another $30 million sub-grant for another energy storage project), has never been profitable.
A123 is an investor in Fisker, which had its own $529 million DOE loan suspended because it failed to reach milestones in the delivery of its $102,000 Karma electric car last year. A123 took a loss of $85 million in the 4th quarter in part because of a $11.6 million write-down of its stake in Fisker, in addition to the reduced orders of its batteries.
At least one Wall Street analyst said the scenario reminded him of bankrupt DOE grant recipientEner1, another battery company that wasdependent on electric car companyThink Global, itself a repeat bust. Just prior to its bankruptcy filing in January, Ener1 wrote off its investment in Think and stated the electric car business would not present an opportunity for profitability any time soon, according to The Streets Eric Rosenbaum.
A123 is now talking about a strategy in which no customer represents more than 15 percent of its sales, moving away from the over-reliance on Fisker, he wrote. Yet Ener1 wasn't able to diversify away from Think after that disaster became too obvious to ignore.
Rosenbaum also noted a revelatory moment for former Ener1 CEO Charles Gassenheimer in his final quarterly earnings conference call, when he told analysts governments have to provide more subsidies for electric cars or the business does not work in the short-term. Indeed, as Nissan CEO Carlos Ghosn said recently, he will manufacture the electric Leaf wherever government provides incentives the entirety of the EV business depends on them.
Rosenbaum wasnt the only Wall Streeter that turned more pessimistic about A123s prospects. The Benzinga Web site reported that Bank of America cut the rating on its stock to underperform with a $1.50 target price (A123 was down to $1.61 at yesterdays closing, from $2.65 only a month ago). BofA said, From a fundamental perspective, we are concerned that (1) the electric vehicle business may develop too slowly with too intense competition, and (2) A123s focus on ancillary services is one of the smaller applications in the grid storage world and perhaps not best suited for lithium-ion batteries.
This followed the opinion expressed three weeks ago by respected analyst Theodore ONeill of Wunderlich Securities, who said A123 faced a doomsday scenario after Fiskers woes were announced. As Forbes pondered whether Fisker/A123 would produce two Solyndras for the price of one, ONeill reduced his rating on A123 to Sell from Hold, with a new target of 50 cents, down from $3. Now, according to Rosenbaum, ONeill says its all over for A123.
Not everyone is pessimistic about the company though, as Robert Brown at Craig-Hallum Capital points to A123 customers GM and BMW for future electric car models. And A123 itself, in what looks like an effort to burnish its image in light of the negative developments this year, announced a flurry of new customers:
VIA Motors , for its extended-range electric trucks.
Northern Powergrid for the U.K.'s Largest Smart Grid Project (apparently one of the ancillary services customers BofA was talking about).
The announcement of a battery design for military vehicle applications.
Indias Tata Motors for hybrid electric transit buses and other commercial vehicles.
Chinas SAIC Motors to meet increasing demand for lithium ion battery technology.
SAIC is the Chinese state-run vehicle company that General Motors recently joined in partnership with to produce their own version of the Volt. GM likely had to share its EV technology with the Chinese in order to gain access to the country's $19,300-per-vehicle incentives. Will A123 have to give up any of its intellectual property?
The China and India announcements came on Thursday and Friday last week, after A123 released its dismal numbers for 2011. Taking into account that the companys compensation committee boosted the salaries of three top executives (one who was just hired in May) by an average of 36.6 percent, despite its massive losses and plummeting stock price, the moves have the look of desperation. In addition, at least two other executives including CEO David Vieau received new stock considerations and severance considerations should the company transfer ownership. Meanwhile, A123 laid off 125 workers at its Michigan plants in November.
Of course, the whole enterprise is surrounded by crony socialism. Investors in both A123 and Fisker arewealthy supporters of Democrats, as NLPC has documented. Vieau gave then-Senator Barack Obama $2,300 three weeks before he was elected president in 2008, and has given $5,000 to the Democratic Senatorial Campaign Committee during the last two years, according to the Center for Responsive Politics. Vieau and another A123 co-founder, Gilbert Riley, Jr., have given Massachusetts Sen. John Kerry $8,000 for his Senate campaigns in recent years. Vieau also gave $3,900 to Rep. Ed Markey, D-Mass., who was the chief co-sponsor of the Waxman-Markey climate legislation a couple of years ago. Vieau was also featured in a 30-second spot in late 2009 to promote energy and climate legislation promoted by President Obama and his fellow Democrats.
From the looks of things, President Obama and Energy Secretary Steven Chu have another pending disaster on their hands, and HouseOversight and Government Reform Committee Chairman Darrell Issa should start preparing another investigation.
Paul Chesser is an associate fellow for the National Legal and Policy Center.
These companies only exist off the taxpayer teat, and they exist for a political purpose. How much of this money is being funneled back into Democrat politics?
You nailed it, that’s exactly what it’s about.
These companies only exist through federal handouts, and they only exist for a political purpose whether that is PRopaganda or kickbacks to Obama’s re-election campaign. This government has given away billions and BILLIONS of taxdollars to the politically well-connected in the most blatant ways possible.
A123’s product, at the cell level, is excellent and innovative. That’s what we want in a company. It isn’t correct to say that they exist only for a political purpose.
The other stuff came much later.
It is quite correct, though, to say that they're only managing to survive, largely due to government largesse, because they do serve a political purpose.
A123 makes excellent Lithium-Ion batteries that power most Lithium power tools. Good discharge rate, tolerant of over discharge and overcharge, and doesn’t explode when punctured, unlike the similar Lithium Polymer battery.
A123s only fault was in gearing up manufacturing capacity to meet the anticipated demand from the electric automobile industry that never materialized.
Anytime they get federal funds they seem to get lazy and their executives get huge bonuses. Wasn’t it Solyndra where they were buying all kinds of frivolous crap?
Yet another article that earns the “FailedGreen” keyword here at FR. The list is growing quite nicely now. I explain on my homepage that this applies to green Technologies and Companies that have failed due to reality checks or economics.
I invite others to use the keyword, too, where it applies.
This is a really great article for the category because it mentions several other Failed Greens, too.
Thanks, I’ll remember that “failedgreen” keyword, it’s most appropriate.
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