By on August 17, 2012

U.S. Senators long have warned of an exodus of American know-how to China. Last year, Michigan Senators Debbie Stabenow and Carl Levin complained to United States Trade Representative Ron Kirk about another attempt by China ”to illegally gain an unfair advantage over the U.S. automobile industry that will cost our country jobs. The United States must respond strongly to stand up for American businesses and working families.”

A year later, the exodus is in full swing, and it starts to hurt. This time, it pains automakers to see how Chinese companies are getting their hands on taxpayer-funded secrets.

Battery maker A123, hailed by Michigan Governor Jennifer Granholm as a contributor to “63,000 jobs,” praised by Senator Levin for hiring “thousands of employees by next year,” praised again by Senator Stabenow for creating “thousands of jobs for us in Michigan,” will power the creation of thousands of jobs in China.

Two years ago, this video was posted on Youtube, complete with an allegedly impromptu telephone call, President Obama congratulated A123 “on this tremendous milestone” of being “the first American factory to start high volume production of advanced vehicle batteries.” Two years, a $249 million grant from the Obama administration, a $135 grant and tax credit from the State of Michigan later, A123 is just about out of money, and being rescued by the Chinese. China’s Wanxiang Group wants to pay $465 million for A123, a move that “may help China unlock the secrets to critical and advanced green-car technologies,” as Reuters writes in a thorough analysis of the deal.

Author Norihiko Shirouzu talked to “engineering chiefs from two global auto makers,” (he names GM and Toyota in the lede, but does not connect the names to the unnamed sources) who “expressed concern at the prospect that A123 could lose control of its fiercely guarded battery design and manufacturing know-how. They are particularly worried that Wanxiang might shift part of A123’s research and development activities to China.”

Said one Chief Engineer to Reuters:

“I don’t care if A123 manufactures more battery cells and packs in China. That wouldn’t jeopardize its technological advantage. But showing what’s inside their black box … the technology that makes those battery cells packed with energy, to its Chinese investor, which has its own battery business, is completely another matter.”

The secret sauce of A123’s batteries is iron-phosphate, a chemical that makes sometimes violently flammable lithium-ion battery much safer. Iron-phosphate is also used in batteries made by China’s BYD, a fact mentioned by Shirouzu three years ago, when he was still writing for the Wall Street Journal. There had been a low level intellectual property conflict between A123 ever since. There were reports that A123 was looking to sue BYD over the batteries, but apparently, A123 soon had more pressing problems.

Wanxiang, says Reuters, profited from the troubles of the U.S. auto industry, “having bought up distressed parts makers over the past decade. It formed a joint venture which bought and turned around Driveline Systems, an axle maker in Illinois, and has taken over parts operations from Ford Motor Co, among others in the U.S. Midwest.”

Today, Reuters writes in a separate report that the A123 deal has closed:

“A123 Systems said the planned investment includes an initial credit extension of $25 million that it expects to receive this week. The rest coming through a mix of convertible notes and bridge finance with warrants, as certain conditions are met. The line of credit would help A123 keep making batteries for electric and hybrid cars. Last month, the company said it was left with only 5 months of cash. If all the warrants and notes are later converted to shares, Wanxiang will own 80 percent of the firm, A123 said in a statement. The agreement follows the non-binding memorandum of understanding that A123 signed last week.”

No protests were heard from Senators Stabenow and Levin against their baby A123 going to China. Stabenow, who used to complain that “China’s “New Energy Vehicles” plan will harm American companies and workers, cost Michigan jobs,” now chose to focus on the farm bill, and the funding of harbors.

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15 Comments on “Automakers Worried About A123 Deal, Stabenow And Levin Silent, No Phonecalls From The President...”

  • avatar
    Sgt Beavis

    The politicians got paid, they’re happy to stay silent.

  • avatar

    This is the new battleground: where the United States proves it has the mettle to lead in the 21st Century, or whether it will take a back seat and this Century (and beyond?) will belong to China.
    Just what did you expect China will do with the trillions in U.S. treasuries and dollars it controls?
    It is deeply ironic that after Reagan stared the Soviet Union into oblivion, Communist China is about to eat America’s lunch.
    Maybe Prime Minister Harper is right: we should build a pipeline to the Pacific coast and begin supplying China with oil. It seems our southern cousins have become, er, too stupid? fat? lazy? all of the above?
    This is just too painful to watch………..

    • 0 avatar

      Reagan spent the soviet union into oblivion by leaping headfirst into the downward debt spiral that we all now enjoy in full bloom: the cold war was won on the tax payer’s credit card.

      • 0 avatar

        History has shown that it’s worth it for a nation to go into debt to crush an enemy who wants to crush you. And make no mistake about it, the Soviet Union wanted to crush the west. Our big mistake was funding it alone and not having the other NATO countries putting in their fair share.

        And now it’s like we’ve forgotten the lessons we learned from the cold war by giving another enemy who wants to crush us (China) most favored trading status and transferring technology that will enable them to do this to us.

  • avatar

    I assume everyone on this board is aware that the latest mutation of the superPAC, the 503(c)(4), “social welfare” organizations can collect and spend unlimited funds from unlimited and anonymous donors for sole purpose of advancing the election or reelection of public servants. It’s never been easier or more discreet for foriegn powers to buy your elected reprentation away from you.

    • 0 avatar

      Foreign lobbyists are people, too.

    • 0 avatar

      The great irony being that those who wrote these new rules for fund raising were the same who raked Clinton over the coals (as he should have been, and as they now should be) for campaign donations that came from China. Which, to bring it back into this story, was around the same time as the infamous GM supermagnets-to-China fiasco (which required Clinton’s sign-off for national security reasons) that was the breaking of the dam of our technology being carted off. Bush’s admin did no better.

      And back then the mainstream media cared, or at least more than now. Peter Jennings (iirc) covered the extent of our export of tech, how the Chinese front companies that do all their shipping are really PLA owned and profits go to upgrading their military, etc. (The example given at the time was that the shipping company that delivered Beanie Babies to our shores were actually funding new tanks).

      We’re not just tying our own noose, our “leaders” paid the Chinese to braid the rope, gave them the tech to build a gallows, and then borrowed the money from the Chinese to build it.

      But hey, they still have favored nation status!

  • avatar

    A fate we so richly deserve – btw, you also forgot hubris and greed.

    Laughably, I read an op-ed in Forbes where the author inferred that by not allowing manufacturing jobs to freely flow into countries like China was a form of racism and thaAmericansns were better suited for other endeavors.

    sigh… I would make a comment about how I can’t wait to see all those old ex-hippies in congress die off, but I suppose the next generation of politicos won’t by any better – they will just pander for votes so they can get their fat gold-plated retirement while simultaneously kissing big businesses ass for campaign money (let me stop here before I really get fired up).

    Anyways, this will be interesting to watch, the Chinese in opposition to the idiots who infest the US government and our business leadership seem to take a long view (or are perhaps driven by the need to maintain China’s explosive growth to stave off economic collapse) on such matters and are trying to corner the market on the electrification of the automobile? If anybody cares to remember, China by intent or happenstance became the largest processor of rare-earth minerals and created quite a stir when they decided to limit exports.

    “coincidentally” – the US has done an extremely thorough job of mapping all the mineral wealth in Afghanistan and conveniently sold covering its ass to the US public as stopping terrorism and freeing the locals from tyanny.

  • avatar

    I cannot believe I am saying this, but the government and respective politicians have been too “hands off” in their approach to A123 Systems. It is understandable in a sense, because of the justifiably harsh criticisms received when they intervene in the operations of American business. Where did all of the money go? A123 Systems went on a hiring spree after they received the money, and I cannot help but imagine offices, full of cubicles, full of engineers playing World of Warcraft and adjusting their Fantasy Football rosters all day. Ultimately, we have to ask if the technology is worth saving from Chinese hands, and I am not sure who is qualified to make that decision. It is either that or write off the money, because apparently management at A123 has no interest or ability to manage the small amount of liquidity they have left.

  • avatar

    Once a company accepts ‘government money’ they somehow seem to lose their senses and forgot that they are in business to make money. But government funds are so ‘seductive’ that I think management/owners see this as a way to live high on the hog and live it up…for tomorrow you die! Sad for our country when the basic business model gets so corrupted by greed and incompetence. But this is what is happening and we elected these guys. So who is to blame anyway?? not the Chinese. They are just doing what everyone else is doing.

  • avatar
    Chicago Dude

    “This time, it pains automakers to see how Chinese companies are getting their hands on taxpayer-funded secrets.”

    Just a point of fact, here.

    Unless there is a national security component to it, there is no such thing as a [US] taxpayer-funded secret. If the American taxpayers funded it, it is in the public domain, with the exception of the mess created by the Bayh-Dole Act. But even then we are talking published patents and not secrets.

    Now an interesting result of the A123 sale to a foreign company is that under the Bayh-Dole Act, it is possible that an American company can come in and start using the patents royalty-free or at the very least at the same royalty rate as A123 is paying. I don’t think the courts have addressed this as I don’t think this type of situation has happened before. But it is worth a shot.

    35 USC Section 204:
    blah blah blah
    exclusive right to use or sell any subject invention in the United States unless such person agrees that any products embodying the subject invention or produced through the use of the subject invention will be manufactured substantially in the United States.
    blah blah blah

    Seriously, if A123 moves the factory to China, they lose exclusive rights to the patents.

  • avatar
    el scotto

    Couldn’t the US Government slap a “national security” or a “vitally needed basic research” label on A123 and keep the boondoggle rolling along?

  • avatar

    End all fake energy subsidies and schemes to price the middle class out of existence and all these problems go away. This technology is worthless without the government crippling superior technologies.

  • avatar

    Like Ronnie, I think, I have the misfortune of having Stabenow and Levin as my senators, as well as Carl Levin’s brother Sander as my congressman. It’s marginally better than being represented by John Conyers.

  • avatar

    Sorry, I can’t feel much sympathy for you guys with the loss of tech and knowhow to China. Since World War II at least, the U.S has been pulling in a lot of the best and brightest engineers and scientists from all over the world, including China, with higher wages then the rest of us could afford. It was called the “Brain Drain”. Things are just evening up a bit now- get used to it.

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