A news service for the people of Michigan from the Mackinac Center for Public Policy

A123 Logs Its Own List of Failures

Like Solyndra, hundreds of millions in government subsidies didn't stop company from going bankrupt

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In 2010, President Barack Obama highlighted A123 Systems during a White House press conference saying, "This is what's possible in a green energy economy." 

The president's words have been prophetic, but not in the way he envisioned. A123 Systems has become a study in government-subsidized failure.

Solyndra, a California solar panel company that received $535 million in federal aid and then went bankrupt, has been the poster child for green-energy failures. However, A123 Systems, which has its headquarters in Massachusetts but extensive automotive operations in Michigan, has its own list of issues. And, like Solyndra, the Obama administration trumpeted A123s Michigan battery plant in Livonia as the future of the green economy.

Most recently, the Detroit Free Press reported that A123 Systems received $946,830 from the U.S. Department of Energy as part of its $249.1 million grant on the same day it filed for Chapter 11 bankruptcy. A123 Systems is one of 19 green energy companies that received federal money and went bankrupt.

According to the company's SEC filings, A123 Systems has also suffered defective battery cells that cost the company $66.8 million; had investors file a lawsuit claiming the company withheld information about flaws; has run up a deficit of $856.9 million as of June 30 while still trying to get a plan to give its top executives up to $4.2 million in bonuses approved in its bankruptcy plan.

A123 Systems has spent $115 million of the $249.1 million federal grant and also has spent $8.8 million it received from the Michigan Economic Development Corp. for reimbursements of costs via a Center of Energy and Excellence Grant. The company also used a MEDC tax credit to offset $2.6 million owed for the Michigan Business Tax.

“It (A123 Systems) is not as much money as Solyndra, but it stinks just as bad, maybe worse,” said Paul Chesser, an associate fellow with the National Legal and Policy Center, who has reported extensively on A123 Systems. Chesser also is an adjunct scholar with the Mackinac Center for Public Policy. The NLPC is located in Virginia and promotes ethics in public life and believes in limited-government.

“It is just the aggregation of the whole thing. It’s a company that had no track record, which had no credibility. They were in it for the public money. They were cronies to the Democrats,” Chesser said. "Their batteries have failed over and over again. From the beginning, they've not had one profitable quarter. Their stock plummeted. There is nothing that warranted the company getting the stimulus money. From A to Z, A123 has been a head scratcher. Why did Michigan give them the money? It illustrates the Department of Energy's inconsistency in making these decisions."

However, one alternative energy analyst said the government is not the only one to blame for the green energy busts.

Patrick Michaels, director of the Center for the Study of Science at the Cato Institute, called A123 Systems a "rotten vertical conglomerate backed up by taxpayers."

He said a mindset of "crony socialism" is running green energy programs. He points to the 2008-2011 Wall Street Journal surveys of chief executive officers that highlight the top five priorities of CEOs.

In each of those annual surveys, CEOs cited a need for some sort of government subsidy as a top priority, Michaels said.

"You can't just blame the government for this," Michaels said. "You have to understand these large corporations are begging for favors to produce cars that no one wants."

Mike Shore, spokesman for the MEDC, and A123 Systems Spokesman Dan Borgasano didn't respond to requests for comment.

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See also:

Michian Home to Half of the Largest Bankrupt Green Energy Companies

A123 Files For Bankruptcy - Yet another failure of central planning

Bankrupt Solar Company Stimulus Money Missing From Federal Records

Stimulus-Backed Battery Company Employees With No Work To Do - Playing Cards, Watching Movies, Reading Magaziness

It's Not Easy Subsidizing Green

Rosy Solar Jobs Projections Fail To Live Up To the Hype

Sun Not Shining on State Solar Subsidies

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Star International Academy is the highest ranked high school in Michigan on the Mackinac Center for Public Policy's Contest and Performance report card for both 2014 and 2012. The study and a database of every school in the state can be found at www.Mackinac.org/CAP.

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