A123 Systems gets DOE cash as it files for bankruptcy

The A123 Systems bankruptcy saga notched another chapter as even after the election Republicans are still going after the DOE loan program, pointing out that the company got a million dollars in DOE loan money on the day it filed for bankruptcy. It hasn’t helped that A123 Systems got court approval to pay out $4.2 million in bonuses to 10 employees in exchange for those employees staying on during the asset auction. A123 Systems makes batteries for electric vehicles and well, that market has turned out to be much smaller than many anticipated.

The auction is set for December 6th and there’s been a lot of anger over efforts from Wanxiang Group to take over 80 percent of the company. Republicans have been crying foul, saying that US taxpayers are financing domestic R&D only to have it bought on the cheap by the Chinese (they may not have phrased it exactly like that, though that is precisely what irks many).  The other big bidder at the auction will be Johnson Controls and given the scale of financial commitment that Wanxiang has indicated it’ll give A123 Systems (around $450 million by most estimates), it might actually be the best thing for the company if a Chinese buyer with deep pockets comes in. As for keeping those jobs in the U.S., well that’s a different question.

What the battery industry can learn from the solar industry

As recent woes in the battery industry from the likes of A123 Systems have shown, it’s difficult to innovate and scale new battery technology. The solar industry has faced similar challenges, and could offer some lessons.

The cleantech asset firesale: Hanergy buys MiaSole

I’ve written before about the cleantech asset fire sale and how I expect that we’re at the beginning of the trend of aggressive Asian conglomerates picking up European and American R&D on the cheap. Well, the next deal was reported this morning as China based Hanergy will pick up MiaSole for a song ($30 million). MiaSole sunk almost half a billion into thin film solar panel research and manufacturing but just couldn’t compete. It’s sobering to think about how much of a research investment was made and how little money that accumulated research now fetches on the global market.

Hanergy joins other big Asian players that are scooping up cleantech assets, including LDK Solar (Sunways), Hanwa (Q-Cells), and Wanxiang Group (A123 Systems). No doubt these deals don’t sit well with the American taxpayer, who paid for the R&D at many of these companies through DOE grants or loan guarantees. But we’re living in a time where the Chinese government offers unflinching credit and support to its cleantech companies, resulting in protection of their own IP while giving them opportunities to go after foreign IP. Throw in cheaper labor and flexible factories that are skilled at manufacturing at scale, and you have a very aggressive competitor.

The cleantech asset firesale: Whose fault is it?

There’s been an unsurprising amount of anger and political games from Republicans over the recent announcement that Wanxiang Group would invest $465 million in ailing American battery maker A123 Systems, effectively taking control of the company. Probably the most succinct political statement came from the Romney campaign to The Wall Street Journal when a spokesman said, “It is unfortunate Obama borrowed from the Chinese to give taxpayer money to prop up green energy companies that the Chinese are now buying.”

A123 Systems received a $249 million grant from the DOE and is in line to receive another $100 million in tax credits from the state of Michigan where it has a production plant. The fact that the sum of American taxpayers’s R&D investment will end up in the hands of an aggressive Chinese conglomerate does not sit well with many people.

But these types of deals shouldn’t surprise anyone, and we can expect more of them. China has always been more gung ho on cleantech and renewable energy than America due to its sincere desire to end its dependence on foreign energy imports. China has put up $216 billion in subsidies for cleantech over the past few years and even in the past quarter, Chinese cleantech investment surged 92 percent to $18.3 billion.

The China Development Bank provides extensive credit lines to solar companies, in particular, to keep the companies going through difficult times. There just isn’t the similar commitment to cleantech in the U.S. compared to say the American automotive industry whose bailout cost taxpayers at least $25 billion.

So with financing tight in the U.S. for new energy players, A123 Systems had no choice but to look for its savior in a place that does support cleantech. And while no one wants to admit it, A123 was fortunate to have found a lifeline as without it, the company was headed for bankruptcy and layoffs at its U.S. plants.

The other reason these deals make perfect sense is that Asian companies have tremendous experience with taking a technology and scaling it with inexpensive labor and a highly flexible factory systems. Seoul based Hanwa is looking to make a play for German solar cell and module maker Q-Cells. In 2008, Q-Cells was the largest solar cell maker in the world, and the company has invested year to year in improving its cell efficiency as well as supporting next generation CIGS technology. It’s currently insolvent.

There’s a real opportunity for a company like Hanwa to scoop up the assets and position itself in the solar PV market. Leading Chinese solar panel maker LDK acquired German based Sunways a few months ago with a play to get better access to the German market.

So I’d say we’re at the beginning of this consolidation trend and the real unfortunate news is just that there aren’t enough Asian buyers to meet the amount of European and American cleantech companies that are failing (still waiting for Solyndra’s buyer, now aren’t we).

And this isn’t healthy consolidation. Healthy consolidation occurs when a larger company purchases a smaller company to increase efficiencies of scale. What’s going on here is that physical and intellectual assets are being bought cheaply, wiping out investments and devaluing those assets themselves.

When thinking about cleantech investment and solar in particular, the real question in my mind has to do with how long we’ll wait before the market has thinned out, manufacturing power is left in the hands of a few players, and prices start to stabilize. And then will there be enough organic global demand to support batteries and solar panels which are still not cost competitive with their fossil fuel foes.

Everyone believes we’ll hit that point where they are cost competitive, but for the time being it’s mostly Asian companies and Asian governments that want to take the risk and invest the capital to position themselves for that future energy economy. Can we blame them for that?

Question of the week

How much more acquisition movement will we see from Asian players in cleantech?