Chinese ownership has its perks for A123

Correction: Karma, the former Fisker, is A123’s only high-voltage customer in North America.  Forcier wrote me to say that outside of North America:  “We have high voltage programs with many OEMs including SGM, SAIC, Chery, GAC, Haima and several bus companies.”

It’s about time I wrote another ChinaEV blog and given my penchant for revisiting companies I have written about before, I thought battery maker A123 Systems Inc. would be a good topic.  I met with A123 CEO Jason Forcier last month during Auto China in Shanghai.  The battery maker has been through some big changes since we last spoke, including a bankruptcy filing. But A123 looks to be on a good path now.

Forcier says A123 is on a tear nowadays. 48V is its sweet spot.

As you likely know, A123 was in January of 2013 acquired by Wanxiang, one of the largest (if not the largest) auto components maker in China.  That gave it financial security, but that is not the most valuable benefit of being owned by Wanxiang, as it turns out. Read on to learn more.

The battery maker reorganized in February of 2013, says Forcier. “The company has been on a tear since then,” he says. Its 2018 revenue will be close to $500 million, he told me, compared to less than $100 million in 2012.  As you might expect given the opportunities in China, A123 is investing heavily in its China footprint, to the tune of $200-250 million a year. That is primarily to support the China market but China is also the base of A123’s battery cell production and it aims to export cells to Europe from China.

Though we hear mostly about the BEV or PHEV markets in China, which require fairly large batteries, China is the largest 48V battery market in the world, says Forcier, and half of A123’s 48V battery business globally is in China.  48V batteries are used in mild hybrids – vehicles with start-stop systems – and improve fuel efficiency quite a bit.  China is mandating fuel economy of 5.0 liters per 100 K by 2020.  “That will be really hard to meet without a battery on board,” says Forcier.

The market for electrified vehicles with larger batteries is primarily policy-driven in China. That has meant government purchase subsidies, but those are now expected to be phased out by 2021. Replacing subsidies will be a program resembling California’s Zero-Emission Vehicle policy, which compels automakers to produce and sell a certain number of BEVs/PHEVs.  Even with that change, however, China will still remain a huge 48V market because meeting the fuel economy standards will require a mix of engine types.   Of course, A123 still serves the larger battery market as well but its main (only) customer is Karma Automotive, which is also owned by Wanxiang.

Forcier has some interesting observations on Chinese automakers’ battery technology. They are investing in it, he says, but they are not on the same level as global OEs such as GM or VW. And,  “BMW knows way more about batteries than Chinese OEs,” he says. It surprised me a bit that things haven’t changed that much since I started blogging about China and EVs. Sure, the local manufacturers have made great strides in electrification compared to five or six years ago. But, they are still focused on cost, says Forcier. Most aren’t making the R&D investments that the foreign automakers are in battery systems. Instead, they are sourcing entire battery systems out to suppliers, says Forcier. Same old story.

To be sure, he says, some Chinese automakers, such as SAIC, are engineering the systems themselves, and own the technology. But they are still playing catch up. “Over time, the idea is they leapfrog the rest of the industry,” says Forcier. “I am not sure I see that happening.”

Speaking of SAIC, I asked Forcier what became of A123’s joint venture with SAIC called Advanced Traction Battery Systems.  “It is doing very well,” he says. “Still producing and growing.”  For background of that JV see my blog of March 28, 2012. ATBS is now a captive battery supplier to SAIC.

The benefits of Chinese ownership

The SAIC JV was going to be A123’s approach to the China market, says Forcier.  But, “our thinking changed.”  I’m sure it did since A123 was acquired by Wanxiang.  And that’s a good thing. The Chinese government in 2016 released a list of approved battery suppliers i.e. those that will receive subsidies.  One criteria, it seems was that the company have significant manufacturing capacity in China. No foreign firms made the cut.  A123, by virtue of being owned by a Chinese company and manufacturing in China, does qualify. “We have the best of both worlds,” says Forcier. “We are certified in China, have global technology, automotive knowhow, and a quality mindset.”

That has really paid off with General Motors, which is one of A123’s best customers, says Forcier. It also doesn’t hurt that A123 has a tech center in Michigan, where GM has a battery plant and its global headquarters.   A123 also works with many other global OEs who do business in China.  “We booked a lot of business in the last 18 months,” he says.

With a lot of business, Chinese certification, and a Chinese owner who is not lacking for cash, Forcier seems pretty satisfied with A123’s situation. The Chinese certification is really A123’s ace in the hole, it seems. “We get calls from our competitors all the time because they are locked out” of the China market, he says.