Skip to comments.Taxpayers’ Green ‘Investment’ in Battery Company Withers
Posted on 04/04/2012 10:55:35 AM PDT by jazusamo
A123 Systems the taxpayer-funded electric vehicle battery manufacturer that famously shipped duds toFisker Automotive, which caused one of its luxurious Karma EVs toshut down just before aConsumer Reports test is now the defendant in an investor class action lawsuit and its stock has tanked to below $1.
Massachusetts-based A123received more than $279 million in grants from the Department of Energy, most of it used to refurbish two plants in Livonia and Romulus, Mich., for the production of EV batteries. The company laid off 125 factory workers in November, lost $257.7 million in 2011 (including an $11.6 million write-down of its stake in Fisker), and announced it would spend $55 million to fix the defective batteries it delivered to Fisker and other customers. Meanwhile A123s top executives received big raises and inflated parachutes should the company change ownership.
The lawsuit, filed in a Massachusetts U.S. District Court by New York-based firmPomerantz, Haudek, Grossman and Gross (which is also suing First Solar), appears to be primarily tied to inadequate disclosures related to the defective batteries. The complaint cites the costs that A123 will incur to fix its batteries over the next several quarters, which represents approximately one quarter of the companys projected annual revenue for 2012. The lawyers also noted the decline in stock price (AONE) by more than 12 percent (21 cents per share) on the news, closing at $1.49 on March 26 and $1.22 on March 28 after a Deutsche Bank analyst issued a bleak forecast.
Since then its only gotten worse, closing at 87 cents yesterday. It stood at $2.28 when the executives got their pay boost on February 8. At one time it had traded at over $20 and was near $10 a year ago, but the company has never made money, suffering net losses of $85.8 million in 2009 and $152.6 million in 2010.
The class action complaint accuses A123 executives, including President David Vieau, of a failure to disclose severe manufacturing deficiencies that led to the delivery of the faulty batteries, which will require it to incur substantial costs, causing investors to suffer significant losses and damages. A123 is charged with:
1. Deceiving the investing public.
2. Artificially inflating and maintaining its market price.
3. Causing the plaintiff and others in the class action suit to purchase A123 stock at artificially inflated prices.
The companys statements were materially false and misleading at all relevant times, the complaint said.
The failure that was consummated by the Consumer Reports public relations debacle was actually the second such incident between A123 and Fisker. In December Fisker recalled 239 Karmas a taxpayer-subsidized EV toy for rich people, priced at a minimum of $102,000 due to faulty hose clamps associated with the batteries.
Many, including myself, thought the problems of Fisker were perhaps the biggest contributor to A123s woes. Now it looks increasingly like each is showing equal capacity for mistakes, crony socialism and cash burn.
NLPC has documented extensively the relationships, campaign contributions and lobbying efforts of both companies with the Obama administration. A123 executives gave more than $19,000 to key Democrats ahead of their stimulus-funded DOE grant, and Vieau was also featured in a 30-second spot in late 2009 to endorse energy and climate legislation promoted by President Obama and his fellow Democrats. And major Fisker investor Kleiner Perkins Caufield Byers, a Silicon Valley venture capital firm, has donated $2.6 million to candidates and political action committees, favoring Democrats over Republicans by a very wide margin. KPCB spent $50,000 per quarter throughout 2009 and 2010 lobbying Congress on legislation that was heavy-laden with renewable energy government incentives, and Fisker lobbied Congress, the White House and the Departments of Energy and Defense spending $190,000 in 2009, $480,000 overall to seek funds through DOEs loan program, among other things.
Now it looks like even taxpayers cant bail out the crony socialists. Besides Deutsche Bank, Motley Fool analyst Travis Hoium wrote in February, The common theme from A123 Systems over the last two years has been disappointment, a trend that may continue. And Theodore ONeill of Wunderlich Securities wrote in a February research article that A123 faced a doomsday scenario.
On Monday Motley Fools Navjot Kaur explained Why Im Staying Away from A123, writing, some analysts believe the company may have to raise funds as early as the third quarter of this year to meet working capital requirements. Furthermore, the company's huge $54 million inventory may include batteries that possess defective cells. And ONeill told Associated Press yesterday, People are just looking to get out before (the stock) goes to zero.
Anyone who looks at A123, Fisker or any of the DOEs stimulus grant or loan recipients and wants to debate whether they were a worthwhile bet of government funding, is missing the point. Even if they were a smashing success, private investors should have enjoyed the benefits, not bureaucrats. Would taxpayers have received a windfall if all the green energy companies were home runs? Of course they wouldnt.
The process of picking winners and losers only invites appearance of cronyism at best and outright corruption at worst. Let private investors who can best afford to take the risks decide which corporate management and technological innovation holds the most promise. Government bureaucrats will never be able to exercise sound judgment in such matters. The many failures of "green" stimulus recipients is just further proof.
Paul Chesser is an associate fellow for the National Legal and Policy Center.
I don’t know anything about the vehicle stuff, but some folks who have used the A123 batteries for portable electronics have been very pleased with them. The stimulus cash, in my opinion, distracted them from following natural market forces and they’re now in trouble as a result. Had they followed a slower but market-driven growth path, they would have been far better off.
Friends don’t let friends take “free” gummint money!
I believe you summed it up well. I’ve read the same thing and it looks like to me the company had an exec or two that couldn’t turn down that chance to go big in the short run with DOE handing out that money.
It’s a shame because it seems the company was sound before this venture.
They're “investing” taxpayer money because they have nothing to lose.
Your post should be carved in granite over the entrance to the US Treasury Building.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.