But the deal that would save A123 is facing opposition from right-wing commentators and lawmakers who fear a Chinese economic takeover.
A123 -- the maker of the batteries for the Fisker Karma hybrid-electric car, among other industrial applications -- has struggled to remain solvent after years of losses. Wanxiang has offered a lifeline valued at $450 million to the company in exchange for an 80 percent stake, but U.S. Republican lawmakers are in an uproar over the proposed deal because of a $249 million green-energy grant from the federal government.
"Today's announcement is the first step toward solidifying a strategic agreement that we believe would remove the uncertainty regarding A123's financial situation," A123 CEO David Vieau said in a statement Thursday. Wanxiang already has about 3,000 employees in the U.S. out of 45,000 employees worldwide. It also has more than $13 billion in annual revenue, more than enough to guarantee the health and longevity of A123. As of July, A123 had enough liquidity for five months of operation.
A123 admitted it got into trouble in part because the passenger electric-vehicle market did not grow as quickly as it expected, but also saidt its growth was hampered because its liquidity was limited, preventing it from expanding into international markets.
"A substantial capital investment from Wanxiang would not only provide financial stability to A123 as we continue grow, but it would also align us with a large, successful global brand in the automotive and cleantech industries," Vieau said.
Wanxiang said a core part of its investment will be expanding the domestic and international operations of A123.
Despite the fact the massive Wanxiang investment would guarantee the survival of the company and help it establish access to the massive Chinese battery and energy market, Republicans are attacking A123 as being the next Solyndra, a solar-energy company that went south after receiving a $535 million government loan.
Right-wing commentators have jumped on the deal as being evidence of failed government investments and the stupidity of green-tech investment.
"It's another example of a government-directed 'green jobs' initiative, which, while environmentally praiseworthy (especially if you believe in manmade global warming), was economically idiotic: When capital is spent on a product for which there is insufficient demand, negative economic value is created and jobs, green or otherwise, are lost," Forbes contributor and former General Motors Co. (NYSE: GM) Vice Chairman Bob Lutz wrote Wednesday.
Lutz's commentary exemplifies an outpouring of angst over the A123-Wanxiang deal.
"This is just another example of [U.S. President] Barack Obama's failure to follow through on his economic promises and the millions of taxpayer dollars he has wasted," Republican National Committee representative Kirsten Kukowski said, according to the Boston Globe. Republicans have likewise been seeking to compare a possible Wanxiang stake in A123 with the bankruptcy of Solyndra.
Despite what many commentators are saying, the situation is not at all one of clear mismanagement of government investment, and in fact may represent a boon for the company, shareholders, and U.S. manufacturing.
At the center of the debate is the $249 million matching federal grant made to A123. Under the grant agreement, the U.S. government would provide matching funds for each dollar A123 spent to build U.S. manufacturing facilities. The money could only be used to build factory capacity or employ people at those plants, not for any kind of foreign development or research-and-development operations. To date, A123 has only drawn about one-half of the government grant money.
Because the federal investment in A123 came in the form of a grant and not a loan, as was the case with Solyndra, the company was not on the hook to repay any of the funds to the government. The A123 grant money seems to have been effective in building jobs, too. A123 had about 300 employees in 2008, but it now has more than 1300 following the 2009 federal grant.
Moreover, while Solyndra actually went bankrupt, Wanxiang at least considers A123's product to be worth its investment. By investing in A123, Wanxiang is guaranteeing the continued operation and expansion of the company -- a $450 million investment is not pocket change. While the matching federal grant won't go away, even if Wanxiang holds an 80 percent stake in A123, the funds can still only be used to build U.S. manufacturing capacity.
A123 seems mystified by the backlash against the deal. "It [the Wanxiang deal] just became this springboard for 'China's winning the economic race,'" said A123 representative Dan Bergasanosaid, adding that A123 sees the deal was a way of saving the company and expanding its global reach. Fundamentally, A123 said the deal demonstrates that Wanxiang "sees value in the company going forward."
Moreover, A123 shareholders seem pleased by the deal as well. The company's share price rose 6.4 percent to 75 cents after the deal was announced Thursday, although it fell 4.49 percent Friday to 58 cents. Wanxiang's share price rose 3.59 percent to 5.20 yuan (81 cents) Friday.
The Wanxiang investment in A123 will most likely save 1,300 U.S. manufacturing jobs, provide liquidity and financial backing to expand U.S. high-tech manufacturing, and represent a positive outcome for A123 and its investors, yet detractors like Kukowski and Lutz still disagree.
Lutz showed his hand in his conclusion: "If we can't get our act together soon, the country will 'go Chinese' company by company, institution by institution, industry after industry. There will be no need for a military conflict against an overwhelmingly superior force: the Chinese will simply buy the country, a little piece at a time. And we seem happy to let them do it!"
Lutz's implication is that the real problem with Wanxiang taking a stake in A123 is that it's a Chinese company. Lutz appears to fear we are about to "go Chinese" because a Chinese company is investing in an American one, and his point seems to be that it would be better for A123 to go bankrupt than to allow a Chinese company to save it, an argument that strays dangerously close to jingoism and xenophobia.