Chinese investment in battery maker A123 sparks controversy

@CNNMoney August 9, 2012: 4:11 PM ET
A Chinese firm is set to take majority stake in U.S. battery maker A123 Systems, the latest U.S. cleantech firm to get a big investment from a foreign company.

A Chinese firm is set to take majority stake in U.S. battery maker A123 Systems, the latest U.S. cleantech firm to get a big investment from a foreign company.

NEW YORK (CNNMoney) -- U.S. battery maker A123 Systems said Wednesday it is receiving up to $450 million from a Chinese firm, the latest controversial foreign investment in an American company in the electric car space.

If completed, the deal would give China's Wanxiang Group Corporation an 80% percent stake in a company that many held up as America's answer to Asian dominance of the battery market.

The deal is also drawing fire from some lawmakers. A123 has contracts with the Pentagon, and some are leery of such a large foreign presence in a sensitive company.

A123 had a high-flying debut on the U.S. stock market in 2009, but has since struggled as the recession and relatively lower oil prices slowed demand for electric vehicles.

The company's stock, once valued at over $20 a share, has collapsed to around 50 cents.

"Today's announcement is the first step toward solidifying a strategic agreement that we believe would remove the uncertainty regarding A123's financial situation," David Vieau, the company's CEO, said in a statement.

A123 (AONE) sprang out of research labs at the Massachusetts Institute of Technology in 2001 and was founded with $100,000 in seed money from the U.S. government.

More recently it received a $250 million federal stimulus grant to open factories in Michigan, which now complement its manufacturing facilities in Asia.

The Michigan factories and jobs do not appear in danger from the Chinese deal. In fact, the deal may end up saving them.

In addition to vehicle batteries, the company also makes energy storage devices for the electric grid and other commercial applications.

It also has over $20 million in contracts with the U.S. military, which could prove a hurdle to getting the deal OK'd by U.S. and Chinese governments, which is required by law.

The military uses electric power in everything from soldiers' gear to weapons systems on vehicles and aircraft. It is increasingly turning to electric power to reduce its dependence on vulnerable oil supply lines.

Already some lawmakers spoke out against the deal.

"Once again it appears the Department of Energy and the Obama Administration have failed to secure sensitive taxpayer funded intellectual property from being transferred to a foreign adversary," Florida Republican Congressman Cliff Stearns said in a statement.

The White House did not directly address Stearns' worry, but said the government money A123 received cannot be used to send U.S. jobs or facilities abroad.

Earlier this year another American battery maker, Ener1, was bought out of bankruptcy by a Russian investor.

Ener1 also held U.S. military contracts and received government grants, and its purchase by a Russian was also criticized by some lawmakers and commentators.

Both Ener1 and A123 are seen as having some of the best American battery technology in a field largely dominated by Asian firms.

With the anticipated growth of electric cars, there's a saying in the industry that United States may trade its dependence on foreign oil for a dependence on Asian batteries.  To top of page

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