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Page added on October 17, 2012
A123 Bankruptcy Casts Doubts on EV Goals
The theory was that the federal government could guide an entire US electric vehicle (EV) industry into existence by orchestrating a constellation of grants, loans and loan guarantees to manufacturers and infrastructure developers, along with generous tax credits for purchasers. That vision was attractive, because EVs have the potential to be an important element of a long-term strategy to counter climate change and bolster energy security. However, yesterday’s bankruptcy of battery-maker A123 Systems, Inc. provides a costly reality check. Along with the earlier bankruptcy of another advanced battery firm, Ener1, and disappointing battery-EV sales, it raises new doubts concerning both the government’s model of industrial development and the achievability of President Obama’s goal of putting one million EVs on the road by 2015.
A123 was built around a novel lithium-ion battery technology developed at MIT. For a time they were the darling of the advanced battery sector, with a market capitalization above $2 billion following its 2009 initial public offering. That IPO came on the heels of A123’s receipt of a $249 million stimulus grant from the Department of Energy and $100 million of refundable tax credits from the state of Michigan. Subsequently, though, they experienced low sales and a costly battery recall that contributed to their signing a memorandum of understanding with China’s Wanxiang Group to sell an 80% interest in the company for around $450 million. Instead, it now appears that Johnson Controls, a diversified company that was the recipient of a $299 million DOE advanced battery grant of its own, will end up acquiring A123’s assets for around $125 million. Johnson is apparently providing “debtor-in-possession” financing for A123’s Chapter 11 process. It’s not clear whether Johnson would be able to draw down the unused portion of A123’s federal grant.
Because of the government’s close involvement with A123, and in particular its structuring of aid to A123 in a manner that left taxpayers without any call on the firm’s assets ahead of suitors like Johnson Controls or Wanxiang, this event is inherently political. I was a little surprised it didn’t come up in last night’s presidential debate. If it does become a “talking point” in the next two weeks, however, I’d prefer to see the conversation focus on the real issues it raises. The reasons for A123’s failure appear very different from those behind the much-discussed failure of loan-guarantee recipient Solyndra. While the latter ultimately called into question the judgment of officials who loaned money to Solyndra when that company’s business model was already doomed, A123 highlights the much deeper challenges involved in attempting to conjure an entire industry out of thin air.
The earlier failure of GM’s electric vehicle effort in the 1990s, the EV-1, demonstrated the chicken-and-egg nature of EV sales: Vehicle sales depended on recharging infrastructure that in turn depended on robust vehicle sales to justify infrastructure investment. But at least GM could begin then by relying on a mature lead-acid battery industry. Those batteries turned out to be inadequate to meet consumers’ expectations of range and recharging convenience, which led to the creation of another chicken-and-egg dependence for the new EV industry: carmakers needed a reliable supply of advanced batteries from producers who couldn’t invest in the capacity to make them, without knowing that vehicle sales would consume enough batteries to turn a profit. So in 2009 the administration set out to short-circuit all those inter-dependencies by simultaneously funding the key elements of these loops, including advanced battery makers. It makes me wonder if anyone involved had any direct manufacturing experience–a natural doubt considering that the entire US auto industry was restructured in 2009 by a task force without a single member who had worked in any manufacturing business, let alone the auto industry.
The main causes of A123’s failure appear to have involved basic manufacturing issues of capacity utilization and quality control. The company wasn’t selling enough batteries to cover its costs, and too many of the batteries it sold came back in an expensive recall. They weren’t the first business to experience such growing pains, but their challenges were compounded by the burden of a manufacturing line that had been sized to meet the demand of an EV market that hasn’t yet materialized. US EV sales through September amounted to just 31,000 vehicles, or less than 0.3% of total US car sales. The picture looks even worse if you subtract out sales of GM’s Volt and Toyota’s plug-in version of its Prius, the gasoline engines of which provide essentially unlimited range, circumventing the limitations of today’s batteries. I think there’s a strong argument that the government’s assistance to A123 was actually a key factor in leading them to bankruptcy, by prompting A123 to grow much faster than could have been justified to its bankers or private investors.
Perhaps it’s some consolation that A123’s technology has apparently been snapped up by a competitor, rather than going the way of Solyndra’s odd solar modules. Yet that outcome hardly justifies the casual dismissal of A123’s fate by a DOE spokesman as a common occurrence in an emerging industry. That sort of talk merely perpetuates the perception of cluelessness fostered by Energy Secretary Chu’s failure to hold anyone accountable for the Solyndra debacle. Yes, companies in emerging industries fall by the wayside, but the preferred response would be to examine what happened and apply the lessons learned to the rest of the “venture capital portfolio” with which the administration’s industrial policy has saddled the DOE. With EV sales still low and several key EV makers experiencing delays and productionproblems, a thorough public review of the entire EV strategy is in order.
12 Comments on "A123 Bankruptcy Casts Doubts on EV Goals"
DC on Wed, 17th Oct 2012 9:08 pm
A123’s was never intended to actually succeed at its stated goal. Rather, it was to produce shoddy, designed to fail Li-on batteries as a side-show, a distraction. Intended to lull the gullible into thinking ‘something’ was being done about the toxic liquid fuels ‘problem’.
Well mission, accomplished. Law-makers give corporate welfare to these ‘advanced’ battery firms, egged on by, strangely enough, the auto-oil cartel. You see, they dont mind one bit if the gov’t prints money to finance efforts they themselves are actively working behind the scenes to sabotage. Then they can point at the resulting ‘failure’ and say ‘See, we told you so, best stick with our proven gas-powered shyte boxes’. And they dont even need to do much to torpedo such efforts. After all, billions of dollars continue to flow every single year to the auto-oil complex to keep gas-powered car dependency alive and kicking.
Trying to make EV’s ‘work’ in our current infrastructure is trying to make the round EV fit into the square gas-powered hole. No wonder its not working, it cant, and was never meant to ‘work’.
I mean I find it funny this writer points out the so-called GM ‘VOLT’ (gas) disappointing sales and a123 problems are somehow a really big deal. Then what was bankruptcy of the entire GM Corporation??!. They couldnt succeed at the primary goal of producing low-quality, shoddy GAS powered garbage bins without 100s of billions of dollars of taxpayer money. The money that Canadian and US govts have given to GM alone over the decades totally dwarf whatever funds that EV or battery makers have received. There is simply no comparison. To expect them succeed at a product (EVs) they hate and have no intention of making(properly) I think sums the situation a lot better.
As for ‘advanced’ batteries, if thats all they wanted, they could have been using the Panasonic EV-95 battery pack a decade ago, except Chevron bought that patent and suppressed it. Its the same old story over and over again, perfectly viable technologies disappear and are replaced with fragile, expensive finicky ones, the are not even market ready, or likely ever will be.
So yes I agree, a public review of the EV strategy IS in order, but then again, so is one of the gas-powered private car-strategy as well. Review both and you cant help come to the conclusion both are unmitigated disasters, if only for slightly different reasons.
http://en.wikipedia.org/wiki/Patent_encumbrance_of_large_automotive_NiMH_batteries
CJ on Wed, 17th Oct 2012 9:48 pm
Well said DC, I think that pretty much sums it up.
BillT on Thu, 18th Oct 2012 1:03 am
The Empire is spending over $1 Trillion per year on ‘Security & Defense; and then diverts attention to that huge waste by granting a few ‘alternative’ companies a few hundred million or maybe .0001% of the money wasted to plunder 3rd world countries and control the sheeple. If that Trillion was spent to develop alternates like fusion(if it is possible), we would have it in a few years.
But then, if EVs were practical, affordable, and demanded by the masses, they would already be rolling off the lines and down the street near you. For profit Capitalism and the banksters run the world today and are destroying it.
Arthur on Thu, 18th Oct 2012 10:44 am
Dump the car, dump the insurance, dump the weekly visits to the gas station, dump the yearly obligatory checkup, which is like holding your wallet to the garage owner and saying: ‘grab’!
Use the bicycle for everything under 5 km, use the bus or some 2000€/$ motor cycle, scooter or what have you. Realize that with a car most of the time you drive around a 1300 kg five seater occupied only by you. A sort of a mobile theater showing pictures nobody wants to watch.
BillT on Thu, 18th Oct 2012 11:51 am
Alas, most of us work at least one day a week to own a car.
Down payment & Taxes
License (tax)
Insurance
Inspections (tax)
Repairs
Cleaning’
Tolls (taxes)
Fines/ tickets (taxes)
and Payments…3-7 years.
In a few years, repeat cycle.
Don’t forget that you had to pay a tax on all of the money you earned to pay all of those expenses.
Yes, if you work 50 years and own a car all of those, you have worked at least 10 years to own a car. Was it worth it?
Solarity on Thu, 18th Oct 2012 2:41 pm
Both Romney and B.O. have plans to rebuild US manufacturing. One wants to encourage industrialists to do so–the traditional way that has proven successful. The other wants government bureaucrats to direct the rebuild. So the auto industry gets restructured by people who have no experience in that industry nor in manufacturing! Let’s not have any more trickle-down government.
Arthur on Thu, 18th Oct 2012 2:49 pm
Indeed Bill, I did a check on the Dutch situation and it turns out that car costs are 20% of the gross income. Make that 25-30% of the net income. Morale: live next to your work without a car and work 3-4 days a week, rather than waste your time commuting 5 days a week with a car. The bottom line is the same.
BillT on Thu, 18th Oct 2012 3:13 pm
Arthur, I was using my own situation as a middle class income American with a medium priced auto most of my life. I tried to drive used vehicles and do repairs myself, but I know more than 20% of my net went to my car, which was seldom used for pleasure and mostly for need. I worked in construction and that meant I always traveled to work 5-6 days per week.
Here in the Philippines, many of the construction workers live on site or in a nearby site provided for them by the contractor. No-one commutes out of the city every day. They may go home on Sunday, their day off, but I doubt it. Only on long weekend holidays.
Arthur on Thu, 18th Oct 2012 3:14 pm
Average car cost in Holland 600 euro per month. Average commuting distance 34 km or 680 km per month. Average income 34k euro per year gross, or 24k net or 2000 euro per month net. It really is more like 30% of your net income.
Kenz300 on Thu, 18th Oct 2012 4:16 pm
People and governments need to provide alternatives to the automobile. More safe walking and bicycle paths that connect work, schools and home need to be built. More mass transit needs to be available for commuters. We need more options.
Stephen Kish on Thu, 18th Oct 2012 8:01 pm
Cheap beats cool: http://seekingalpha.com/article/931421-energy-imagination-and-politics-a-toxic-cocktail-for-your-portfolio
Whoknows on Fri, 19th Oct 2012 1:50 am
I gave up on the automobile. However most in Australia (where I live) tend to be highly dependent on the automobile. This even includes low income students and workers. It’s outright amazing.
The majority commute long distances to work and despite the suburban ideology being quit powerful in Australia, most obviously hate it. The road systems are outright extensive, and yet most expect an expansion that you’d see on the Jetsons-esque. The wide arterials and highways destroy the landscape with nobody wanting to establish businesses or homes around these wastelands. Kangaroos may travel about, and quite often end up road kill.
Interestingly, the housing market around the wasteland of Melbourne, Sydney, etc, are quite poor. Lower income, heavily indebted, and virtually dependent on the automobile for all trips. The inner areas in Australian metros are very expensive and also features a similar debt ponzi scheme as general Australian suburbia.
My solution to this problem was to purchase a rather modest apartment near education institutions/ work. The mortgage of the unit only takes up 20% of my income. I don’t require a car even though I live in a small city. The costs to run a car is easily $10,000/ annum and it’s clear that this kind of arrangement isn’t going to last. I often wonder how food and essentials will be transported once oil prices become extremely volatile and spot shortages arise.