Deal gives battery maker path to China

A123 Systems’ recent agreement with a Chinese conglomerate has spurred concerns that the Waltham battery maker could lose control of its technology and business, but some analysts say the potential $465 million deal could open a vast and rapidly growing market that might ultimately save the struggling Massachusetts firm.

Demand for advanced batteries in China is projected to nearly double by 2016 to $9.2 billion, and US companies that partner with Chinese firms will have key advantages, namely access to the government agencies and companies that their Chinese counterparts do business with, according to Lux Research Inc., a Boston company that analyzes emerging technologies.

“It’s pretty difficult for foreign companies to sell their products or batteries [directly] to Chinese” customers, said Zhuo Zhang, a Lux Research associate. “There’s no way. You really need a partner in China.”


Last week, A123 signed a binding agreement with Wanxiang Group, which could ultimately invest up to $465 million in the Waltham company. A123, which has told investors it was in danger of running out of cash within months, makes lithium-ion batteries for electric and hybrid vehicles and other applications.

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Consumer electronics currently account for most of the Chinese demand for lithium-ion batteries, but the market there will increasingly be driven by the Chinese government’s ambitious clean energy goals and regulations that are pushing consumers to buy electric bikes and electric cars, according to a report released by Lux last week. Nearly 60 percent of the 32 million bikes made in China in 2016 will use lithium-ion batteries, compared with just 3 percent last year, according to Lux.

Electric vehicle production will rise at an annual rate of about 62 percent, to just over 92,100 vehicles in 2016 from about 8,000 last year, according to Lux’s projections.

In addition, China has a growing need for large-scale batteries to store energy from the increasing number of wind and solar projects generating power in China — technology that A123 is developing.

China’s aggressive pursuit of clean technology to help feed its voracious appetite for power has led Chinese firms to seek out major partnerships abroad, including with Massachusetts companies. Another Massachusetts battery maker, Boston-Power Inc. of Westborough, has also attracted significant Chinese investment.


Last year, Boston-Power raised $155 million from Chinese investors, led by venture capital firm GSR Ventures, to build a research and development center in Beijing and a manufacturing plant in the Shanghai corridor. In exchange, Boston-Power agreed to base its top executives in China.

Christina Lampe-Onnerud, Boston-Power’s founder, said the move makes sense in large part because China has made clean technology a priority, and its government is spending aggressively on new energy technologies. “That’s where our biggest opportunity is right now,” she said.

The A123 deal has been particularly controversial because the firm has received hundreds of millions in federal and state government support to help develop its technology, which could end up under the control of a Chinese company. Under the agreement, Wanxiang, however, could acquire up to 80 percent of the A123’s stock.

The company’s stock, which once traded at about $25 a share, has fallen to just under 50 cents as the electric vehicle market in the United States has failed to expand as quickly as expected.

Pin Ni, president of Wanxiang’s US subsidiary, said A123’s advanced technologies and commercial capabilities made the battery firm an attractive investment for Wanxiang.


“We are trying to help save the company,” Pin said. “Obviously, A123 has a good technology — like many others in the United States. We think we can further help them to grow the market in China.”

Pin said Wanxiang is bullish on growth prospects in the Chinese battery market because of the government’s plan to produce and sell half a million electric vehicles a year by 2015.

He also sees opportunity for A123 to capture a larger share of the market for storing power on the grid. Wanxiang could capitalize on its strong relationship with State Grid, one of China’s two major state-owned grid operators, Pin said.

A123 chief executive David Vieau said growing in China will help his company to maintain and eventually expand its US operations. He said Wanxiang has a reputation for expanding its foreign holdings, rather than stripping them for their technology.

Andrea James, an analyst who follows A123 for Dougherty & Co., an investment banking firm in Minnesota, said the Waltham firm’s partnership with Wanxiang could save the company, but it’s too soon to tell.

“Getting the capital needs taken care of allows them to continue on the path that they were on,” James said. “Profitability is out there somewhere in the future, maybe, if they can get there — and they need money to get there. And if they can take advantage of the Chinese market, great.”

Theodore O’Neill, an independent analyst who tracks A123, wasn’t so optimistic, in large part because lithium-ion batteries remain prohibitively costly, hampering mass adoption.

“A123 can’t make any money selling batteries here,” in the United States, O’Neill wrote in an e-mail, “so I don’t get how its chances improve in China.”

Erin Ailworth can be reached at Follow her on Twitter @ailworth.