China's largest supplier of automotive components may invest $450 million in struggling American battery supplier A123 Systems. The non-binding agreement comes on the heels of A123 Systems announcing a net loss of $82.9 million in the second quarter of this year. In the first quarter of 2012, A123 Systems reported a net loss of $125 million.
A123 Systems got into trouble when it was forced to recall batteries used in the Fisker Karma electric car. That forced the company to halt production at a battery facility in Michigan, and to spend more than $51.6 million replacing defective batteries. Earlier this year, A123 Systems thus reported that it expected "significant net losses and negative operating cash flows over the next several quarters."
The memorandum of understanding could see China's Wanxiang Group Corp. invest as much as $450 million in A123 Systems. First, the Chinese company would offer bridge funding to help the American company overcome its debt. If certain conditions were met, Wanxiang would eventually invest more and more money in A123 -- acquiring 80 percent of its common stock and thus becoming the majority stakeholder in A123 Systems. Moreover, the companies assert that the deal would give A123 Systems access to the growing electric-car and energy-storage markets in China.
"We believe this proposed agreement would strengthen A123's financial situation, enable us to continue building on the manufacturing and systems engineering capabilities we have established in Michigan and Massachusetts and help enhance our competitive position in the global marketplace," the company said in a statement.
A123 also provides batteries for military and utility applications, and has been tapped by General Motors to provide the battery packs for the upcoming Chevrolet Spark electric car. The company secured a $249 million grant from the U.S. Department of Energy in 2009, and a year later opened what it calls "the largest lithium ion automotive battery production facility in North America" in Livonia, Michigan.
Sources: A123 Systems, The Detroit News