Struggling battery maker A123 Systems said Wednesday it has reached a preliminary agreement with a Chinese conglomerate to invest as much as $450 million in the Waltham company, becoming the latest Massachusetts energy technology firm to turn to China for funding.
If consummated, the deal with Wanxiang Group would provide A123 with a much needed infusion of cash and salvage hundreds of jobs in Massachusetts. But it could also cost A123 its independence, potentially giving Wanxiang up to 80 percent of A123’s stock and control of the company, said A123 chief executive David Vieau.
A123, which has received hundreds of millions of dollars in government support, follows other Massachusetts companies that have found major investors in China, which has aggressively pursued clean energy technology to feed its voracious appetite for power. In February, Wanxiang struck a $1.25 billion deal with GreatPoint Energy of Cambridge to build a facility in China to convert coal to a clean burning gas.
Last September, another Massachusetts battery maker, Boston-Power Inc. of Westborough, raised $125 million in private equity led by GSR Ventures, a Chinese venture capital firm. And Wednesday, Boston Power announced a deal to supply parts for a new electric vehicle being made by Beijing Automotive Industry Holding Co., which is controlled by the Chinese government.
China has vastly expanded its investments in US companies as its economy matures, wages rise, and living standards improve. As they lose their cheap labor advantage to other emerging nations, Chinese companies are buying stakes in high-tech manufacturing, clean energy, and other advanced technologies to help them compete around the world, said Thilo Hanemann, research director for the Rhodium Group, an economic research firm in New York.
‘Our ambition is to change the automotive world by advancing battery technology, and that is going to be propelled forward.’
Rhodium projects that Chinese companies could pour a record $8 billion into all types of US firms, up from $5.4 billion last year and $562 million in 2007. “Their growth model is changing fundamentally,” said Hanemann.
As a result, some analysts fear the United States is losing the economic race with China, particularly in new energy technologies. Despite millions in government aid, several prominent US clean energy companies, including solar panel makers Solyndra in California and Evergreen Solar in Massachusetts, already have gone bankrupt, partly because of growing competition from China.
Many other clean energy firms, including A123, have struggled to stay afloat, leading them to seek help from Chinese partners.
“We are selling off America piece by piece,” said Peter Navarro, an economist at the University of California Irvine who just completed a documentary, “Death by China,” which warns viewers about the threat from China and is slated to debut later this month. “They are not just stealing our jobs. They are stealing our ability to function as an economy.”
But Vieau, A123’s chief executive said Wanxiang has a track record of helping US firms grow, rather than stripping them of key technology. The deal, he said, could potentially give A123 a partner to help crack the fast-growing Chinese auto and energy markets.
A123 acknowledged it sorely needs help. The company, which has 2,500 workers worldwide and 380 in Massachusetts, has been hurt by tepid demand for electric cars and defects in its own batteries, which prompted costly recalls.
The company has been scrambling raise additional money. It had just $47.7 million in cash at the end of June, down from $113 million in the first quarter, suggesting it could run out of cash in the next few months unless it slashes expenses. A123 reported an $82.9 million loss for the second quarter on Wednesday.
Under the proposed terms of the deal, Wanxiang would initially provide A123 with $75 million in loans and then purchase $200 million in debt securities, with the option to convert the notes to stock if the company met certain conditions. The proposal would also give Wanxiang the option to invest up to $175 million more in the company.
If Wanxiang invests the full $450 million, it could wind up with the rights to 80 percent of A123’s stock. Vieau cautioned that the deal with Wanxiang has not been finalized.
“We looked at a lot of alternatives, and we chose this,” Vieau said. “Our ambition is to change the automotive world by advancing battery technology, and that is going to be propelled forward.”
Theodore O’Neill, an independent financial analyst who follows the clean energy industry, said it is still likely that A123 could eventually be forced into bankruptcy. He noted it is unclear whether the deal will be consummated before A123 runs out of cash, which he expects could happen in October. Portions of the deal may need approval from the US and Chinese governments.
Even if the deal goes through, it is also unclear whether A123 can survive in the long term: Electric cars have yet to catch on, and A123 has not found a customer large enough to support the business. O’Neill, who is based in Connecticut, estimated A123 needs $400 million just to make it through the next 18 months.
“It looks very much like a Hail Mary pass — only I don’t think it will get caught,” O’Neill said. “There’s nothing wrong with [A123’s] product. There’s just no demand for it.”