China Invests in U.S. Batteries

In the fall of 2009, robust lithium ion battery company A123 Systems, Inc. (NASDAQ: AONE) made its public debut with an IPO price of $13.50.

In the months that followed, the company traded above $20. In April 2010, it fell below its IPO price. And in August, it continued its fall after its third quarter revenue guidance missed expectations.

Its batteries are designed for electric vehicles, and it services a number of customers including Fisker Automotive Inc. But this year electric vehicle sales in the U.S. were down, and customers had delays and manufacturing issues, according to the Wall Street Journal.

Today, the company has lost over 97% since its IPO. It trades below a dollar, and it recently warned that it wasn’t far from running out of funds.

The company was close to losing everything before China swooped in.

We saw it with CNOOC and Nexen last week – Chinese companies investing in North American operations to further their interests and assets.

And in this case, it may be exactly what A123 needs to stay afloat.

Wanxiang Group Corp., a Chinese auto parts manufacturer, has offered the battery company an investment of up to $450 million in exchange for an 80% stake.

China has been focusing its attention more on electric and hybrid vehicles, particularly as tensions in the Middle East and Africa have limited its oil supplies.

China was once a major importer of Iranian and South Sudanese oil. But the U.S. has imposed sanctions on Iran, and South Sudanese exports have been halted for the past seven months. Its supply is squeezed tight.

And so the nation is ramping up an emphasis on any technology that will increase its own oil supply or decrease usage – and this includes electric cars. The government even plans to impose tighter fuel economy regulations soon.

This couldn’t be better for A123. The company had received a $249 million grant from the Department of Energy intended to encourage domestic battery manufacturing.

It used half the grant to fund a Michigan factory, but circumstances have left it unable to put the remainder to use as it struggles just to keep its head above water.

The deal with Wanxiang, once it closes, should enable the company to build a second factory with the other half of the grant.

It will include a $25 million bridge loan followed by an additional $50 million pending approval by the U.S. and Chinese governments.

The rest of the estimated $450 million will be included in the purchase of convertible debt and exercise warrants.

A123 lost $55.4 million in the second quarter of last year. This year that jumped to a loss of $82.9 million.

From the Washington Post:

“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.

If the deal closes, A123 will remain headquartered in Waltham, Massachusetts, but it will be able to expand into China, and Wiaxiang will have access to its battery technology.

A123 was up 6.38% to $0.50 at Wednesday’s close.

That’s all for now,

Brianna Panzica

@brianna_panzica on Twitter

Energy & Capital’s modern energy guru, Brianna digs deep into the industry with accurate and insightful updates into the biggest energy companies and events. She stays up to date with the latest market moves and industry finds, bringing readers a unique view of current energy trends.