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A123 Bankruptcy Gives Romney New Example of Green-Energy ‘Loser’

Photographer: Jeffrey Sauger/Bloomberg

Machines are used to fabricate batteries at the A123 Systems lithium ion automotive battery manufacturing plant in Livonia, Michigan, U.S., on Monday, Sept. 13, 2010. Close

Machines are used to fabricate batteries at the A123 Systems lithium ion automotive... Read More

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Photographer: Jeffrey Sauger/Bloomberg

Machines are used to fabricate batteries at the A123 Systems lithium ion automotive battery manufacturing plant in Livonia, Michigan, U.S., on Monday, Sept. 13, 2010.

The bankruptcy filing yesterday by electric-car battery producer A123 Systems Inc. (AONE) gave Republican Mitt Romney fresh ammunition to criticize President Barack Obama’s record on the economy.

“A123’s bankruptcy is yet another failure for the president’s disastrous strategy of gambling away billions of taxpayer dollars on a strategy of government-led growth that simply does not work,” Andrea Saul, a Romney campaign spokeswoman, said in an e-mailed statement yesterday.

Romney in the first presidential debate Oct. 3 singled out electric carmakers Fisker Automotive Inc. and Tesla Motors Inc., solar-panel maker Solyndra LLC and Ener1 Inc., parent of another battery company, as “losers” among recipients of green-energy aid from Obama’s administration. A123 wasn’t cited then or in the second debate last night, in which green energy got little mention.

A123, based in Waltham, Massachusetts, received a $249.1 million grant from Obama’s economic stimulus package in 2009 to build a factory in Michigan and had used $132 million of that amount, according to the Energy Department.

Under Obama, the government has invested about $5 billion in the U.S. electric car industry through loans to automakers including Fisker and Tesla, grants to companies such as A123, and tax credits of as much as $7,500 for customers who buy plug- in cars.

‘Another Failure’

“President Obama has been very strategic and aggressive in pointing to the auto bailout as an example of what the government did right,” Julian Zelizer, a history and political affairs professor at Princeton University, said in an interview. “This is the reverse. Romney will bring this out as an example not of corruption as in Solyndra but as an example of failed investment.”

A123 supplied lithium-ion batteries for Fisker’s $103,000 luxury plug-in Karma, which was panned by Consumer Reports after it stopped running in the middle of a test drive. That led to a recall by Fisker, which has also been backed by the Obama administration, that cost A123 $55 million and helped put it on the financial brink.

A123, which started with processes developed at the Massachusetts Institute of Technology, sold its first products when Romney was that state’s governor. It received U.S. grants in 2003 and 2007 under Republican President George W. Bush’s administration, before the stimulus grant from Obama. The 2003 grant, from an Energy Department program for small businesses, was A123’s first outside funding, then-Energy Secretary Samuel Bodman said in a 2008 speech.

A123 Chief Executive Officer David Vieau met with Bush at the White House in 2007, according to an A123 press release and White House video of the event.

Bipartisan Support

A123 was one of the companies named in a letter from the Michigan congressional delegation supporting stimulus grants for battery suppliers. Signers of the May 2009 letter to Energy Secretary Steven Chu included Representative Fred Upton, a Republican who later criticized Energy Department green-energy loans, and then-Representative Thaddeus McCotter, a Republican who resigned in July.

They cited the state’s support for companies including A123 and Johnson Controls Inc. (JCI) and asked that the U.S. government follow suit.

“A123’s promising technology has a long history of bipartisan support,” Dan Leistikow, an Energy Department spokesman, wrote yesterday in a blog post on the agency’s website. Jen Stutsman, an Energy Department spokeswoman, declined to comment beyond the blog post.

A123 was given $125 million in refundable tax credits from the state of Michigan that it never collected, said Mike Shore, spokeswoman for the Michigan Economic Development Corp. The company did collect a $10 million state grant, he said.

Political Contributions

A123 officials have contributed to Democratic political candidates including Obama, according to the Center for Responsive Politics, a Washington group that tracks campaign finance.

Vieau gave $2,300 to Obama’s campaign less than a month before the 2008 election, and has contributed to other Democratic candidates and groups, including Senator John Kerry and Representative Edward Markey, both from Massachusetts, and Louisiana Senator Mary Landrieu, according to data from the center.

Gururaj “Desh” Deshpande, an A123 board member, was one of 26 people appointed in 2010 to a White House advisory board on technology innovation and entrepreneurship. Others appointed included Steve Case, a co-founder of AOL Inc., and Jerry Yang, a co-founder of Yahoo Inc. In that role, Deshpande attended a ceremony in April at which Obama signed his jobs bill into law.

Grassley, Thune

Representative Darrell Issa, the Republican chairman of the House Oversight and Government Reform Committee, yesterday called A123 “the latest cautionary tale against the administration using taxpayer dollars to sponsor pet projects and then running from responsibility when they’re not successful.”

Republican U.S. Senators Charles Grassley, an Iowa Republican who is his party’s ranking member on the Senate Judiciary Committee, and John Thune, a South Dakota Republican, last week questioned A123’s plan, announced in August, to give Wanxiang Group Corp., China’s largest auto-parts maker, a majority stake in exchange for financing.

A123 is abandoning the Wanxiang plan and agreed to sell its automotive business to Johnson Controls for $125 million, Vieau said in a statement yesterday.

The bankruptcy raises questions about whether A123 should have received the grant, Grassley and Thune said in a statement yesterday.

“The bankruptcy raises the prospect that the taxpayers will get little or no return on their investment in A123 and will lose millions of dollars,” they said.

Environmentalists React

The sale to Johnson Controls, while better than the proposed transaction with Wanxiang, is “small comfort, given the hundreds of millions of dollars wasted on this firm,” Grassley and Thune said.

Environmental groups said A123’s bankruptcy doesn’t mean the advanced-battery industry, or Obama’s support of it, is a failure.

“The fact that the advanced-battery sector is growing 25 percent a year doesn’t mean that every company will be a winner,” said Mindy Lubber, president of Ceres, a Boston-based non-profit group that works to make business more sustainable.

Michigan Lobbying

The A123 plant in Michigan was trumpeted by the company when it opened in September 2010 as the largest lithium-ion automotive battery plant in North America. Then-Governor Jennifer Granholm, a Democrat, lobbied the Obama administration for the battery-maker grants and hailed the plant as the next wave of Michigan’s economic recovery.

Michigan’s unemployment rate was 12.2 percent at the time the plant opened.

Consolidation in advanced-energy industries is to be expected, Granholm said in a statement. She quoted Energy Department statements that its investments will cut the cost of a 100-mile-range electric-car battery to $10,000 by 2015, from $33,000.

To contact the reporter on this story: Angela Greiling Keane in Washington at agreilingkea@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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