Another Blunder Affects Taxpayer-Funded EV Battery Company A123

Three Stooges photo

Just as the Department of Energy gave A123 Systems a vote of confidence by extending a deadline until 2014 to spend down its $249 million stimulus grant, the deeply troubled electric vehicle supplier experienced another setback.

One of their batteries caused an explosion.

The blast occurred yesterday morning in Warren, Mich. at General Motors’ Alternative Energy Center – a research facility – while performing on an A123 battery “intensive tests designed to make it fail,” the Detroit News reported. GM confirmed to Crain’s Detroit Business that chemical gases released by the battery caused the explosion. One employee was sent to the hospital with non-life threatening injuries.

“I just want to say how very fortunate we are that only one person was seriously injured,” said Warren Mayor James Fouts, who toured the site after the fire was extinguished, to the Detroit News. “There were 80 people in that building, but only one person received a possible concussion and some chemical burns, from what I’ve been told.”

The incident comes just as A123 reported in a Securities and Exchange Commission filing, also yesterday, that DOE agreed to extend until the end of 2014 its grant that was originally scheduled to expire this year. 

“We see this as very positive because it allows us to continue on our growth path in Michigan,” A123 spokesman Dan Borgasano told Reuters.

U.S. taxpayers must wonder if Obama-supporting law firms who got millions of dollars from DOE are conducting due laziness (as opposed to due diligence) for the agency once more. There has been no confirmation that the new Three Stooges movie was filmed at A123’s new plants in Michigan, but you have to wonder. Extension of a deadline and payments beyond the $127 million A123 has already received calls into question Energy Secretary Steven Chu’s management and judgment once again.

Bestowed with $279.1 million (which includes $30 million under a separate contract) from U.S. taxpayers, plus $135 million in grants and tax credits from Michigan, A123 has committed repeated unforced errors. To recount what NLPC has already reported: 

1.     Led by supporters of top Democrats (which included promotional video by A123 President David Vieau of President Obama’s cap-and-trade policies), the company let go 125 of its factory workers (“green jobs”) in late November because of diminished production by its business partner, Fisker Automotive.

2.     In December Fisker – itself the recipient of a $529 million DOE loan guarantee that has now been suspended – recalled 239 of the only electric vehicle it has produced so far, the $102,000 Karma. Faulty hose clamps on A123 batteries were the cause.

3.     After suffering net losses of $85.8 million in 2009 and $152.6 million in 2010, A123 reported a loss of $257.7 million for last year that included an $11.6 million write-down of its ownership in Fisker. In February analyst Theodore O’Neill of Wunderlich Securities wrote that A123 faced “a doomsday” scenario.

4.     Despite those losses and layoffs, A123 awarded its top executives big salary increases by an average of 36.6 percent, in addition to new stock considerations and severance considerations should the company transfer ownership.

5.     In an embarrassment of astronomical proportions, a Fisker Karma purchased by Consumer Reports shut down before it could begin its testing of the vehicle. The problem was attributed again to a faulty A123 battery, leading to another costly recall, which also affected four other A123 customers. Fisker’s survival is in jeopardy also (“Two Solyndras for the price of one?”).

6.     The recalls spurred a class action lawsuit by investors against A123 for failure to adequately disclose its costs incurred to fix its batteries over the next several quarters, which represents approximately one quarter of the company’s projected annual revenue for 2012. “The company’s statements were materially false and misleading at all relevant times,” the complaint said.

7.     A123’s stock price has plummeted to below $1, reaching a low of 82 cents per share last week. It stood at $2.28 when the executives got their pay boost on February 8. At one time it had traded at over $20 and was near $10 a year ago. This morning it hit 89 cents. O’Neill told Associated Press, “People are just looking to get out before (the stock) goes to zero.”

8.     Yesterday’s explosion at the GM test facility. A123 has the contract to supply batteries for Chevrolet’s next electric car model, the unfortunately named Spark. “We received a call at about 9 a.m. that a battery had exploded at the tech center,” said the Warren, Mich. fire marshal. “We responded and found two victims and a small fire.” The Detroit News reported extensive damage to one of the facility’s buildings. Is an injury lawsuit against A123 next, if the fault of the fire doesn’t belong to GM?

GM has already had its own public relations problems with the Volt, which has been the subject of investigation over its batteries (not made by A123) causing delayed fires, and lax sales have led to temporary layoffs. Certainly the automaker doesn’t need more headaches like this, and executives might look for an “out” in its contract.

You have to wonder what the bunglers who analyze grants and loans at DOE thought when they granted A123 a two-year deadline extension. They already cut Fisker off after $193 million with its loan because of failure to meet benchmarks. But now they are extending Fisker’s blundering battery manufacturer?

Maybe the Farrelly brothers shot their new movie at DOE headquarters instead. Plenty of pokes in the taxpayers’ eyes there – please, no nyuk-nyuks.

Paul Chesser is an associate fellow for the National Legal and Policy Center.