Last week A123 Systems disclosed in a Form 10-K filed with the Securities and Exchange Commission that it lost $125.0 million during the quarter ended March 31, 2012 and had at the end of that quarter $113.1 of cash and cash equivalents remaining.  The company closed over the weekend on an emergency $50 million of private debt financing and is exploring its strategic options.  A123 acknowledged that these circumstances raise substantial doubt on its ability to continue as a going concern.  The news at A123 Systems follows the bankruptcy of advanced battery producer Ener1, Inc. last January and the closing of International Battery in March.

The problems at A123 Systems, should they become worse, will undoubtedly attract great attention from media and political commentators.  In 2009, A123 Systems received the second largest award, $249.1 million, under the Recovery Act Electric Drive Vehicle Battery and Component Manufacturing Initiative, the Department of Energy’s FOA-26 grant program.  Ener1’s subsidiary, EnerDel, received a $118.5 million grant under the same program (International Battery did not receive an FOA-26 award).  The ongoing challenges of advanced battery manufacturers will provide unfortunate fodder for those arguing against continued government financial support for the development of new energy technologies.

If criticism intensifies, which is likely, it will be important to communicate an important point:  Government funding of new energy technologies is meant to support those technologies, not the companies that develop them.  The failures of Ener1 and International Battery, and the troubles of A123 Systems, are business failures, not technology failures.  Companies come and go.  Corporate assets get bought, sold and reorganized.  None of that should matter to taxpayers.  What should matter is whether the technologies that A123 and Ener1 owned at the time they received their grants has been advanced and pushed closer to commercialization.  Indications in both cases are that they have been.

If the Electric Drive Vehicle Battery and Component Manufacturing Initiative can be criticized for anything it is that the program focused on funding immediate deployment of advanced automotive battery manufacturing technology rather than its longer term development.  Many pointed that out at the time.  The problems at A123 Systems and the failures of Ener1 and International Battery are powerful testimony to the fact that the market for that technology in 2009 was critically immature.  A better use of the funds would clearly have been investing them in the development of new, next-generation battery technologies that could facilitate the development of a market for advanced automotive batteries in the future rather than cater to one that did not fully exist.

In fairness to the Department of Energy, the emphasis on immediate deployment and “getting shovels in the ground” was a political directive motivated by a critical economic crisis, not a considered policy decision.  As a consequence, DOE funding of advanced battery technology over the past three years has not been as efficient as it might have been.  But that is not to say that it has been a failure.  Steady progress on increasing energy density, decreasing battery cost and improving battery system management continues to be made.  The market we hoped for in 2009 is not here yet and some of the original players in the market may not make it to the finish.  But that market is substantially closer than it was three years ago, and by that fact the success or failure of the FOA-26 program should be judged.

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