WALTHAM, MASS. (Aug. 17, 11 a.m. ET) — Embattled lithium-ion battery manufacturer A123 Systems Inc. has completed the initial phase of a financial deal with Chinese supplier Wanxiang Group Corp.
The companies have signed a definitive agreement, following an Aug. 8 memorandum of understanding, which provides A123 with an initial credit extension of $25 million. A123, which has three Michigan facilities, expects to receive the money this week.
Dan Borgasano, marketing manager for the Waltham, Mass.-based company, said the money will be used for general corporate purposes.
Under the definitive agreement, A123 will receive another $50 million upon approval by the U.S. Committee on Foreign Investment and the Chinese government
The total deal will provide A123 with $465 million in exchange for Wanxiang becoming its majority stakeholder. Wanxiang would hold an 80 percent stake in the battery-maker, which has plants in Livonia and Romulus, Mich. and an engineering center in Ann Arbor, Mich.
The deal has raised red flags in Congress.
U.S. Sens. John Thune, R-S.D., and Chuck Grassley, R-Iowa, sent a letter Tuesday to U.S. Department of Energy Secretary Steven Chu questioning the deal, Reuters reported.
DOE awarded A123 a $249 million grant in 2009 under a program to expand U.S. automotive battery manufacturing. A123 has tapped nearly $130 million of the funds to date, Borgasano said.
“Billions of U.S. taxpayer dollars have flowed to foreign companies through the Recovery Act, and we are concerned that the recent announcement could lead to even more taxpayer dollars going overseas,” Thune and Grassley wrote in the letter, according to Reuters.
A123 CEO David Vieau noted last week that the deal may cause “some raised eyebrows” from the U.S. government, but said it would save jobs — including more than 900 in Michigan.
“It's a global industry and components are global,” Vieau said. “This is giving us a better balance sheet and in this business a strong balance sheet is a prerequisite.”
A123 reported a second-quarter loss of $83 million and expects not to break even until sometime in 2013.
In July, A123 said it had only five months of cash remaining.
Its troubles stem from failure of its lithium-ion batteries — a Fisker Karma plug-in hybrid fitted with an A123 battery failed during an April test by Consumer Reports. Replacing the defective batteries is expected to cost A123 $66.8 million, including a $15 million inventory charge. The announcement devastated A123's stock price, which has fallen by as much as 71 percent this year.
The problem was linked to incorrect calibration of an automated welding machine in Livonia. The flaw could cause an electrical short, leading to battery failure, the company said.
Lithium-ion cells typically are built around a core thermoplastic film.