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Battery builder A123 Systems that won $249 million federal grant files for bankruptcy

Motoramic

Battery builder A123 Systems that won $249 million federal grant files for bankruptcyNo company has embodied Washington's hope for an American-built electric vehicle business like A123 Systems. The Massachusetts-based company was supposed to become the leading home-grown supplier of lithium-ion batteries for automakers in the United States and around the world -- fueled in part by a $249 million grant from the Obama administration. Today, A123 Systems filed for bankruptcy, saying much of its assets would be sold after losing $857 million over the past several years. Here's why it failed.

That photo above comes from an April 2010 speech in the Rose Garden of the White House, where President Barack Obama hailed A123 with Chief Executive David Vieux on his left, for its plans to create 2,000 jobs by 2012. A123 also won $125 million in grants and tax credits from Michigan state officials for building plants there. I was in the audience covering the event, and walked out of the White House while talking to two new A123 employees -- both grateful engineers who had lost jobs in the recession and spent months e-mailing resumes with few responses.

When A123 opened its plant in Michigan later that year, Obama called again to congratulate Vieux: "This is about the birth of an entire new industry in America -- an industry that's going to be central to the next generation of cars," Obama said according to a transcript released by the White House. "When folks lift up their hoods on the cars of the future, I want them to see engines and batteries that are stamped: Made in America."

But A123 was never able to turn the promise of its creation by MIT students and faculty into real-world products. It lost out on supplying batteries for the Chevrolet Volt to South Korea's LG Chem, with General Motors executives at the time citing the more established firm as a safer bet. A123 did eventually win a GM contract for batteries in the upcoming Chevrolet Spark EV, but that wasn't expected to be a high-volume model.

A123's biggest bet lay with Fisker Automotive, and when the Fisker Karma suffered a series of launch delays and sales far below expectations, A123's finances began to take a hit. The company also had to spend $66 million on a recall of its Karma battery packs in 2011 due to a charging defect. While it tried to find other uses for its batteries outside the auto industry, none came close to generating the kind of revenue a major automotive supply contract might.

Since that Rose Garden speech, American have proven far less excited about electric vehicles than what the Obama administration expected. President Obama's goal of having one million plug-in hybrids or electric vehicles on the road by 2015 looks like it will come up short by some 600,000 vehicles, according to Pike Research. So far this year, Americans have bought about 31,000 all-electric vehicles or plug-in hybrids -- and all of their batteries were made by suppliers outside the United States.

While demand has fallen far short, battery supply has boomed. The Obama administration was far from alone in thinking that battery makers were a source of future jobs; A123 and Vieux had been guests of President George W. Bush when he touted his energy plans. Governments around the world, especially China and Japan, have poured billions of dollars into battery research and manufacturing. That money has yet to produce a breakthrough that would make EVs as usable as liquid-fuel vehicles, but it has created a mini-glut of battery makers, driving down prices. A123 attempted to lower its costs with deals in China and Korea, but neither paid off in time.

A123 says in its bankruptcy filing that its assets will be bought for $125 million by supplier Johnson Controls; it had said earlier this year that the government had paid about $130 million of the $249 million grant. Its failure will only strengthen arguments from Republican presidential candidate Mitt Romney that the Obama administration wasted millions of dollars in its pursuit of green jobs. Obama was right on the broader point: Batteries will be essential to future vehicles around the world. But that change won't happen as quickly as he expected, and every nation that builds cars in volume will have its own favored firms vying for the same opportunity. Voters will have to decide whether the chase was worth the charge.