- 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.

While A123 announced in the spring that it would launch a field campaign to replace the defective batteries, about 2,000 haven’t been replaced, according to Fisker.

In separate court filings, Fisker has called for a bankruptcy judge to postpone A123’s bankruptcy auction for a month

A123’s troubles followed a string of bankruptcies by energy companies that received backing from the Energy Department, including solar panel makers Solyndra LLC and Abound Solar.

The Washington Times reported this week that while A123 Systems drew down about $129 million from its nearly quarter-billion-dollar grant, a federal database showed barely 400 jobs were created.

Energy Department officials defended the expenditure, saying not all jobs created were reported.

Fisker was awarded an Energy Department loan worth more than $500 million, though it drew down less than half of that money before the loan was frozen because of missed milestones. Part of the loan money was supposed to be used to start production at a facility in Delaware.

Fisker has found itself facing scrutiny in Washington and on the campaign trail.

Republicans on the House Committee on Oversight and Government Reform last month questioned the Energy Department on its loan to Fisker, drawing comparisons to the failed solar company Solyndra.

The House members questioned whether private investors would reap lucrative tax benefits if Fisker went bankrupt.

Fisker also has found itself in the cross hairs of Mitt Romney during the presidential campaign. He called the company a “loser” during his first debate with President Obama.

“You put $90 billion, like 50 years’ worth of breaks, into solar and wind, to Solyndra and Fisker and Tesla and Ener1,” Mr. Romney said.

A company spokesman later told Wired magazine that Fisker didn’t consider itself a loser, seeing as it has sold 1,500 cars, raised $1.2 billion in private equity and is expanding export markets overseas.