A123 Systems bankruptcy stalls Fisker Karma production

Fisker Automotive is in a hard place as the bankruptcy of A123 Systems halts battery pack supply.

The bankruptcy proceedings for A123 Systems is causing headaches for the companies using their battery pack systems. The largest purchaser of those packs is Fisker Automotive, for installation into the Fisker Karma. As a result, according to Bloomberg News filed on Thursday, the company has suspended assembly of the Fisker Karma until a buyer is found for A123 Systems' assets.

A123 Systems is Fisker's sole battery supplier. At this early stage of the automotive lithium ion battery market, there are not standardized battery sizes or behavior that would allow Fisker to just swap in a new battery pack from a different supplier. Instead, each battery maker uses a unique size, shape and behavior of the battery and battery management system. As a result the vehicle is designed around the battery pack, and the situation forces sole supplier relationships between battery makers and vehicle OEM's.

When A123 Systems sought bankruptcy and started the process of selling itself to the highest bidder, this apparently interfered with A123's manufacturing ability despite the debtor-in-possession financing arrangements that had been arranged. In late October, Fisker Automotive filed a motion seeking to delay the bankruptcy proceedings, and positioning itself as an unsecured creditor because of the multi-year supply agreement between the companies.

The 2014 Chevy Spark EV is also planned to be built using battery packs supplied by A123 Systems.

Fisker CEO Tony Posawatz told Bloomberg News "Because we have no batteries, there's no production right now. Inventory is starting to get a little low. We'd like to restart production as quickly as possible. We should know the outcome of the auction by the middle of December." Roger Ornisher told Bloomberg that Fisker needs to reserve the A123 battery packs in its possession for battery pack replacement rather than new car assembly.

The auction for A123's assents, including the factories in Michigan where these battery packs are assembled, is due to occur on Dec. 6. Johnson Controls and China's Wanxiang group are among the bidders.

On Tuesday, the Strategic Materials Advisory Council wrote Treasury Secretary Timothy Geithner asking that the Committee on Foreign Investment in the United States (CFIUS) oppose the acquisition of U.S. battery manufacturer A123 Systems, Inc. by Chinese automotive parts manufacturer, Wanxiang Group Corporation. The Council warned that "[t]his transaction would no doubt result in the loss of American jobs and the transfer of technologies critical to our nation's infrastructure and military hardware to China."

The Council further noted, "For over thirty years, China has pursued an overt economic strategy of acquiring both natural resources and promising technologies. This strategy creates Chinese dominance of entire supply chains for selected materials and related technologies. Allowing Wanxiang to acquire A123 Systems would continue this trend and make the U.S. dependent on an unreliable foreign source for yet another critical defense component. For example, China has a near monopoly of rare earth production that allows it to manipulate the supply for a range of defense and renewable energy products, including nickel-metal hydride battery production. The U.S. must not allow China to acquire a similar position with A123's lithium-ion battery technology and dominate its supply chain as well."

Earlier this week it was announced that Fisker Automotive had hired Joel Ewanick, former GM marketing chief, to be interim chief of marketing, replacing John Beattie who is retiring.

Source: Bloomberg