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China’s Wanxiang is helping U.S. by buying A123; U.S. needs more nuanced take on China investment

September 2, 2012

As expected, some U.S. congressmen have been raising a ruckus regarding Wanxiang’s proposed purchase of U.S. electric vehicle battery maker A123.–20120819_1_a123-million-investment-wanxiang The sale would risk giving China cutting-edge technology that would endanger America’s security, several congressmen have claimed.  That is to be expected, especially in an election year.  But it would be nice if many in the U.S. took a more nuanced look at China investment in U.S. companies and consider what we stand to gain.

I think the congressmen are more upset that a Chinese company will be taking over a company that has so far survived with an infusion of cash from the U.S. Department of Energy than with losing technology vital to U.S. security.  A battery isn’t that vital.  But it rubs those congressmen the wrong way that the U.S. is paying for China to have access to technology.

Well, it is sort of true that the DOE paid for China to have access to the technology, because  A123  has received $175 million from the Department of Energy, with another $120 million yet to be drawn down.  The company would have gone under months ago without the funding.   But another way to look at it is that Wanxiang is saving A123’s ass, and the DOE investment. And that the U.S. will now have access to technology that might have been otherwise lost if A123 went out of business.  So maybe those congressmen be thanking Wanxiang instead of bashing it.

Consider the facts:  In late August A123 received notice from the Nasdaq stock exchange that its stock would be de-listed because its price had gotten too low.  The erstwhile battery maker has only a few months operating cash left, according to its executives.   While A123 still has $120 million it has yet to draw down from the DOE loan that likely wouldn’t be enough to save the company.  And if A123 is held up to the same standards as other companies that have been denied portions of their DOE loan, it won’t have access to that money anyway.  If it goes under, A123’s 1,200 employees will lose their jobs.

And, Wanxiang   has already gained access to battery technology at another U.S. company that received a DOE loan, and  likely helped save that company, too.   EnerDel (the former Ener1) received US $118.5 million from the DOE in 2009.   It and Wanxiang formed a joint venture in early 2011 that will be based at Wanxiang’s Hangzhou manufacturing site. An executive at Ener1 at the time told me that Ener1 was putting its “entire intellectual property portfolio” into the JV.    Where were the upset congressmen then?

Ener1 filed for bankruptcy in late January of this year.   It emerged from bankruptcy in late March as a privately-held company.  EnerDel, as it is now known, says its joint venture with Wanxiang is going forward.  Frankly, I’m not sure what Wanxiang will get out of the EnerDel JV that it won’t get from A123.   But I’m sure that Wanxiang played a role in EnerDel’s survival.   And in keeping that DOE investment from being a total bust.

I think that the A123 Wanxiang deal will go through, eventually.  If Wanxiang were a European company, would congressmen be making all this noise, I doubt it.  It is time for a more nuanced understanding of Chinese investment by our politicians.  But I don’t expect that to happen any time soon.

9 Comments leave one →
  1. Gord F permalink
    September 2, 2012 6:28 pm

    A very thought provoking article. Wanxiang is sort of a white knight, and is saving A123’s bacon and the DOE investment in a fashion, The Chinese investment in A123 will be saving 1200 A123 jobs in the US at least in the short term – jobs that would have disappeared otherwise. The question I ask is whether Wanxiang intends on keeping A123 engineering jobs and manufacturing in the US for the long term. Keeping jobs and infrastructure in the US for the long term should at least be a criteria for approval of the Wanxiang investment (otherwise the DOE is funding technology that ends up leaving the country). Is this investment subject to CFIUS foreign investment review? Also, I note that Wanxiang provided critical investment in Smith Electric Vehicles as well as A123 and EnerDel. The situation is much the same. SEV received ARRA funding, but probably owes its survival and the jobs of workers in Kansas City to Wanxiang investors.

    • Gord F permalink
      September 2, 2012 6:54 pm

      A further note here. Consider the similar scenario but different outcome in the case of the recent demise of hybrid electric and all-electric truck developer Azure Dynamics in Oak Park, MI, Woburn, MA and Burnaby, BC. Azure Dynamics received very small US government assistance through DOE and NREL projects (but no investment under the ARRA recovery act) as well as Canadian government investment. In hopes of survival, Azure was actively looking for a potential Chinese investor in the few months leading up to March 2012 when it filed for bankruptcy protection. About 100 jobs in Oak Park and Woburn were lost because the cash ran out before a Chinese takeover or joint venture could be consummated. These jobs might have been saved if Azure was as quick to act as Smith Electric Vehicles (kudos to Bryan Hansel, CEO at SEV for moving as soon as hie did).

      My point here is that we have to ask ourselves whether we are willing in the USA to invest short term in keeping the electric vehicle industry here (and the know-how and skilled jobs) until economies of scale develop, costs fall and large scale adoption finally happens. If not, we should just walk away and cede the domination of the industry now to the Chinese who are willing to invest for the long haul. Either we go big and ante up as a player, or we go home! It’s a subsidy war. Do we want to fight it and subsidize, or pick our battle somewhere else, and let China own the electric vehicle market.

      I welcome the Chinese investment but only as long as we ensure that we keep jobs and factories here for sales to the North American markets if they get access to the intellectual property for selling to the Chinese market.

      • September 2, 2012 7:30 pm

        Of course the jobs in the U.S. are the crucial question. I’d guess some will stay, others will go, and some will be created if/when China’s EV market takes off, and hopefully demand in the U.S. also starts to grow. As one condition of the WX investment is that A123 can continue to receive DOE funds, I think the jobs will have to stay here. Some of the jobs, at least.

        I don’t think Wanxiang is sure the investment in A123 will prove beneficial. But Wanxiang wants to be a leader in EV technology and it has the money to take some risks.

  2. Mail permalink
    September 2, 2012 7:22 pm

    Interesting and thought-provoking one, Alysha–love from Margaret

    Sent from my iPhone

  3. September 2, 2012 9:45 pm

    I think it’s also a pretty clear indication that Wanxiang doesn’t really have a clear tactical direction (though it has a clear strategic direction). It knows it wants battery technology, but it is willing to pounce on anything that becomes available. This is typical behavior of an up-and-coming industrial power with a lot of money but lacking in the educational and institutional infrastructure to support domestic innovation. Without the necessary infrastructure, they’ll always be buying technology rather than inventing it.

    It’s nice of them to “save” US jobs that may have disappeared in the short-term, but given Wanxiang’s apparent apparent scatter-shot approach to technology acquisition, I doubt these jobs will be around (in the US) for the long-term. Furthermore, Wanxiang’s purchase is only hastening the inevitable. The US invents; China manufactures. If the companies had survived, their production would have eventually migrated to China or elsewhere in search of cheaper wages anyway.

  4. Lawrence permalink
    September 4, 2012 5:11 pm

    Wanxiang America established in 1994, is no flash in the pan enterprise. With concerns like the one’s expressed here it might be worthwhile to look at Wanxiang’s non-EV related track record in the U.S..

    • September 4, 2012 5:15 pm

      Exactly my meaning! But U.S. lawmakers (or anyone else, it seems) aren’t doing that.

  5. Lawrence permalink
    September 10, 2012 2:52 pm

    My comment about checking Wanxiang’s track record of investment, was primarily in response to Mr. Anderson’s suggestion that the company is using a “scatter-shot” approach to technology acquisition. But sorry, I must have clicked on the wrong “Reply” button.

    • Lawrence permalink
      January 14, 2013 2:15 am

      No Alysha, you are right, and in hindsight I was wrong in assuming that Mr. Anderson based his observations on anything other than a close look at Wanxiang’s history of doing business in the U.S..

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