A Chinese company’s preliminary agreement to invest in A123 Systems Inc. has ignited concerns that China could take control of the struggling Waltham battery maker’s advanced technology and spurred new criticisms by Republicans that the Obama administration squandered billions in stimulus money with investments in risky firms.
A123, which has warned investors that it is running out of cash, won a $249.1 million federal matching grant in 2009 to expand its facilities as part of the administration’s efforts to revive the economy and boost the nation’s clean energy sector. Under a tentative deal announced Wednesday, Chinese conglomerate Wanxiang Group agreed to invest up to $450 million in A123 and could eventually gain control of 80 percent of the company’s stock.
Republicans quickly raised concerns about the potential loss to China of sensitive technology developed with the support of US taxpayers, with one congressman saying the A123 deal could involve “serious national security issues.” They also compared A123 to the California solar panel maker Solyndra, which went bankrupt after receiving a $535 million federally-guaranteed loan.
“This is just another example of Barack Obama’s failure to follow through on his economic promises and the millions of taxpayer dollars he has wasted,” said Kirsten Kukowski, a spokeswoman for the Republican National Committee. “It’s unfortunate Obama borrowed from the Chinese to give taxpayer money to prop up green energy companies that the Chinese are now buying already.”
White House officials responded that the Obama administration’s investment in the battery industry has helped the country produce more efficient cars at home, reducing its reliance on foreign oil and creating jobs. A123, for instance, says it now has 1,300 jobs nationwide, more than triple the number it had in 2008. It employs 380 in Massachusetts.
A123’s agreement with Wanxiang comes as many US clean energy companies struggle to compete against Chinese rivals, which are bolstered by cheap labor and their government’s massive subsidies. US companies also complain that the Chinese government has done little to stop firms there from stealing their technology.
A Devens-based company, American Superconductor, which makes critical parts used in wind turbines and does business as AMSC, is embroiled in a high-profile court fight with a Chinese company it claims stole its technology.
‘There is concern that we are essentially compromising our ability to compete.’
Clayton Dube, executive director of the University of Southern California’s US-China Institute, said the A123 deal is particularly sensitive because it involves alternative energy, one of the technologies that the United States is counting on for growth.
“There is concern that we are essentially compromising our ability to compete,” he said “On deals involving telecommunications or green technologies, flags will always go up somewhere automatically.”
A123, founded in 2001, is considered one the nation’s leading advance battery makers. In addition to federal aid, it has received significant support from Massachusetts and Michigan, where it built a factory. The state of Michigan provided the company with $12 million in grants, a $4 million loan, and promises of up to $100 million in tax credits.
The Massachusetts Clean Energy Center provided the company with a $5 million forgivable loan in 2010. Michigan officials could not be reached for comment. A spokeswoman for the Massachusetts center, Krista Selmi, said the state is “closely monitoring the situation and in frequent communication with A123 to ensure that the Commonwealth’s investment is protected.”
A123 executives insisted Thursday that Wanxiang was committed to helping grow the company’s existing operations in the United States, rather than just shipping its technology to China. They also said the deal would provide much-needed cash to maintain its operations here and help it tap into China and other foreign markets.
“This proposed strategic investment from Wanxiang would significantly improve A123’s financial situation,” said A123 Systems marketing manager Dan Borgasano.
Pin Ni, president of Wanxiang’s US subsidiary, said the company would do whatever is best for A123, but declined to comment further.
Any deal with Wanxiang could also face scrutiny from the Committee on Foreign Investment in the United States, an interagency panel in the executive branch that reviews foreign transactions to make sure they don’t pose national security risks.
Chinese telecommunications equipment maker Huawei Technologies was forced to abandon bids to buy stakes in at least two US companies, including Marlborough-based 3Com, over the last few years because of security concerns. 3Com, a telecommunications equipment maker, was later bought by Silicon Valley technology giant Hewlett-Packard.
The A123 transaction could put the Obama administration in a bind. If it denies the transaction, it is possible A123 Systems may not be able to find an alternate source of capital and go out of business. One analyst, Theodore O’Neill, predicted the company could run out of cash by October if it doesn’t raise more money or slash its expenses.
But if it approves the deal, critics say the White House risks allowing a Chinese company to gain control of potentially important energy technology underwritten by US taxpayers.
US Representative Cliff Stearns, a Republican from Florida who serves on the House Energy and Commerce Committee, said the A123 deal shows the Obama administration is not doing enough to protect US technology. Earlier this year, he said, a Russian citizen gained control of the assets of Ener1 of New York, another troubled battery makersupported by the US taxpayers.
“Once again it appears the Department of Energy and the Obama administration have failed to secure sensitive taxpayer-funded intellectual property from being transferred to a foreign adversary, which raises serious national security issues,” Stearns said. “We need to make sure the federal government isn’t an unwitting accomplice to the theft of our own national secrets by providing them with multimillion-dollar government grants and loans.”Todd Wallack can be reached at email@example.com. Follow him on Twitter @twallack.