- The Washington Times - Wednesday, October 31, 2012

The recent bankruptcy of battery maker A123 Systems after it won a nearly quarter-billion-dollar federal grant threatens the business prospects of another well-known government-backed company: luxury car manufacturer Fisker Automotive.

Fisker has received nearly $200 million in federal loan money in recent years, but one of its signature vehicles is powered by batteries that come off the assembly line of bankrupt A123 Systems.

And now A123 wants to get out of its contract with Fisker, according to court records.

While Fisker officials did not return email messages Wednesday, company attorneys laid bare the extent of the firm’s ties in a recent filing in U.S. Bankruptcy Court in Delaware.

A123 reported more than one-fourth of its revenue from Fisker in 2011, but the battery maker wants a judge to break its Fisker contract as well as other contracts, saying the deals are below market and unduly burdensome.

The problem for Fisker is that the car manufacturer has no short-term suppliers for the batteries that help power a high-end sports sedan it makes called the Karma.

Attorneys for Fisker said in a court filing that if a judge allows A123 to break the contract, “Fisker’s ongoing business and operations will be severely disrupted and harmed.”

The company said A123’s role as the sole supplier of battery packs for the Karma means no other companies can, at least in the near term, supply Fisker with a crucial component.

“Consequently, the rejection of the Fisker contract represents an immediate threat of significant disruption and harm to Fisker’s business, with a corresponding negative impact on Fisker’s lenders, suppliers, customers and investors,” attorneys wrote in a filing.

Those investors include, of course, U.S. taxpayers. The Energy Department has, through loans or grants, been generous to both companies.

Despite winning a nearly quarter-billion-dollar grant, Massachusetts-based A123 filed for bankruptcy in October, setting off a reported bidding war for the company between Chinese-based Wanxiang Group Corp. and Johnson Controls Inc.

Attorneys for A123 said the Fisker contract, among others, should be rejected because many of the arrangements were “below market” and the company has been performing at a net loss under many of the contracts.

The company also said while it had plans to sell its automotive business to Johnson Controls, the Fisker contract and others would not be attractive to potential buyers.

Fisker, however, said it already holds a potential claim against A123’s estates for breach of warranty provisions stemming defective batteries, a claim that could be worth more than $52 million.

Fisker attorneys said the company had purchased about 2,600 A123 batteries for its Karma vehicles prior to the supplier’s bankruptcy, but some of them contained potentially defective cells.

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