China’s Wanxiang is helping U.S. by buying A123; U.S. needs more nuanced take on China investment
As expected, some U.S. congressmen have been raising a ruckus regarding Wanxiang’s proposed purchase of U.S. electric vehicle battery maker A123. http://articles.chicagotribune.com/2012-08-19/business/ct-biz-0819-a123-chinese–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 www.a123systems.com 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. http://www.a123systems.com/12824480-de55-4032-9351-6f7955a5a36e/media-room-2012-press-releases-detail.htmhttp://www.doe.gov/articles/energy-secretary-steven-chu-attend-grand-opening-recovery-act-funded-a123-systems-battery 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 www.wanxiang.com 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. http://www.prnewswire.com/news-releases/ener1-agrees-to-joint-venture-with-wanxiang-largest-auto-parts-supplier-to-the-chinese-car-industry-95048544.html 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.