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A123 Systems (NASDAQ:AONE) filed for Chapter 11 bankruptcy on October 16. The manufacturer of electric car batteries was unable to make a $2.8 million interest payment to bondholders, who are listed as the company’s largest unsecured creditors. Johnson Controls (NYSE:JCI), an auto-parts manufacturer, is providing $72.5 million to the company in order to finance the bankruptcy process.
A123 was awarded a $249 million grant under the Electric Drive Vehicle Battery and Component Manufacturing Initiative, a part of the 2009 American Recovery and Reinvestment Act. The company promised to create 38,000 jobs in return for the funding. The government has extended more than $1.2 billion to battery makers in the past three years as part of an effort to spur growth in the battery and related electric vehicle market.
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Earlier in 2012, Chinese auto-parts maker Wanxiang Group proposed a $465 million investment in the company. The deal sparked controversy among some U.S. politicians worried about the possibility of a foreign company gaining control of technology for which the government had provided funding. According to the Boston Business Journal, A123 CEO David Vieau says the Wanxiang deal will not go through.
“We believe the asset purchase agreement with Johnson Controls, coupled with a Chapter 11 filing, is in the best interests of A123 and its stakeholders at this time,” said Vieau in a statement. In its bankruptcy petition, the company listed $459.8 million in assets and $376 million in debt. Bondholders are owed $143.8 million plus interest.
A123 has been suffering from overcapacity in a weak electric vehicle market, as well as at least $55 million in costs associated with recalling defective batteries. This bankruptcy follows in the footsteps of Ener1 Inc., a battery maker that also received a government grant and filed for Chapter 11 earlier in the year. The failure of green-tech companies that have gone under — most notably Solyndra – has been a talking point in the current presidential election. This recent bankruptcy will focus the spotlight on companies like Tesla (NASDAQ:TSLA), a manufacturer of electric vehicles that has received loans and grants from the government.
President Barack Obama’s goal of 1 million electric vehicles on the road by 2015 has racked up a bill of $5 billion so far, according to Bloomberg Businessweek. Brett Smith, co-director of manufacturing, engineering and technology at the Center for Automotive Research says that the business model isn’t there yet. “It isn’t there yet for volume. It isn’t there yet for reaching the mass consumer. And it probably isn’t going to be there for a while,” he said.
Among the companies supported, Nissan received a $1.4 billion loan to build the Leaf and related battery technology in the United States.
Despite — or because of — all the electric vehicle confusion, traditional American car manufacturers are in the game. General Motors’ (NYSE:GM) Chevrolet Volt is reportedly selling at a loss of up to $49,000 per unit sold. Ford (NYSE:F) is offering a C-Max Energi vehicle that is attracting attention at a lower price point than many other electric models.
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