Most all of us in the ceramics field, to greater and lesser extents, have been rooting for A123 Systems to succeed, so its been painful to see the company in recent months entering what appears to be a death spiral. Yesterday, with the release of A123’s Q2 financial reports and the official announcement of a Chinese company taking a major ownership stake in the enterprise, the direness of its straits became fully stark.

In an online report, A123 Systems said, “Total revenue for the second quarter of 2012 was $17.0 million, a decrease of 53% from $36.4 million in the second quarter of 2011. Within total revenue, product revenue was $11.5 million, a 61% decrease from $29.6 million in the second quarter of 2011, and services revenue was $5.5 million, a decrease of 19% from $6.8 million in the second quarter of 2011.” Ouch.

The profit/loss picture was even uglier: “Gross loss was ($29.2) million in the second quarter of 2012, compared to a gross loss of ($17.5) million in the second quarter of 2011.”

Clearly, this was an untenable situation and something had to give. Thus, it is not surprising that the company simultaneously announced that it had reached a “nonbinding” agreement with China-based Wanxiang Group Corp. that would permit the company to invest up to $450 million in A123 Systems, with the option of an additional investment of $175 million. (Practically speaking, the “nonbinding” adjective means Wanxiang may decline to make the investment if circumstances and facts change, and the two sides “are currently negotiating definitive documentation.”)

A123’s announcement describes the Wanxiang Group as “China’s largest automotive components manufacturer and one of China’s largest non-government-owned companies.”

A123 CEO David Vieau says in the announcement that the agreement

“… is the first step toward solidifying a strategic agreement that we believe would remove the uncertainty regarding A123’s financial situation. A substantial capital investment from Wanxiang would not only provide financial stability to A123 as we continue to grow, but it would also align us with a large, successful global brand in the automotive and cleantech industries. Wanxiang has a successful track record of operating in the US with significant employment and commitment to good corporate citizenship, and we expect that a strategic agreement with Wanxiang would help enhance our competitive position in the global marketplace, especially in China.”

It may be jumping the gun a bit, but the Wall Street Journal and Reuters are reporting that with these moves, Wanxiang is grabbing the reins of of A123.

Will the investment work? The WSJ reports that Wanxiang “has been an active buyer of distressed auto-parts makers for nearly a decade.”

But, I don’t think it is going to go well for the Obama administration and the DOE, who provided a grant to A123. The development is going to be a headache, and is sure to be spun as something along the lines of Solyndra 2.0.

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