A123 and Fisker Fire at Each Other as Taxpayers Run for Cover

A123 and Fisker Fire at Each Other as Taxpayers Run for Cover
June 11, 2013

Paul Chesser

Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes ... (read full bio)

As if taxpayers didn’t already have to stomach enough corruption, incompetence and dysfunction in the government's promotion of "green" energy, two past exemplars failure have returned to discharge blame at each other.

Fisker Automotive and A123 Systems are the costly malfunctions that zap you over and over again.

The latest, from a FoxBusiness.com report, reveals that sparks flew between the two as both of the Department of Energy-financed companies plummeted in their production, public profiles and value. According to an anonymous source the network says was “familiar with the situation,” when Fisker announced last fall it would cease production, the manufacturer of the $102,000 plug-in Karma blamed the bankruptcy of its battery manufacturer – A123 – for its downfall. The last of Fisker’s only model was produced in July last year.

As Fox Business recounted, Fisker CEO Tony Posawatz told Bloomberg News in November, “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 [A123’s bankruptcy] auction by the middle of December.”

Perhaps there was truth to that, but according to Fox Business, A123 “has fulfilled orders for other customers, including General Motors. A123 is making the batteries for the Chevrolet Spark, which launched last month as scheduled.” In the past A123 has produced batteries that Fisker, because of struggles presumed to be financial, could not take because of curtailed production plans.

The relationship between A123 and Fisker began in January 2010. A123purchased an ownership stake (a reported $20.5 million in cash and stock) in its customer, which it eventually had to write off ($11.6 million loss) in 2011. The arrangement was one where A123’s business was excessively dependent on Fisker’s production of cars, which Obama’s Department of Energy found worthy of taxpayer “investment” anyway. The situation was similar to bankrupted EV battery manufacturer Ener1, in that it received $118 million in stimulus funds while it was almost entirely dependent on a single unproven, often-failed electric car company in which it was invested, Think Cars. The foreign electric automaker had wanted its own stimulus funds but was too shaky even for DOE, but nevertheless the grant that Ener1 received did benefit Think.

A123’s dependency on Fisker also caused problems. In December 2011 A123 laid off 125 of its employees, attributing much of it to Fisker’s curtailed production during the year. A123 had expected to deliver batteries for 7,000 Karmas, but faulty wire harnesses in the vehicles reduced Fisker’s production to 1,500, according to Crain’s Detroit Business. The mayor of Livonia, Mich. Jack Kirksey, which provided economic incentives for A123 to set up manufacturing in his town, said, “They’ve got this pile of batteries sitting there waiting to be put in cars when they manufacture them.”

According to the FoxBusiness.com source, the two companies “weren’t on good terms, saying they didn’t like each other and did a lot of finger pointing,” the Web site reported. A big part of their dispute was over the handling of defects related to the batteries; one which led to a highly embarrassing review from Consumer Reports.

The failure that was consummated by the public relations debacle was actually the second such incident between A123 and Fisker. In December 2011 Fisker recalled 239 Karmas due to faulty hose clamps associated with the batteries. The second incident was revealed in March, when a Karma tested by Consumer Reports shut down after only 180 miles. That problem was attributed to poor calibration on a welding machine at one of A123’s plants, which caused the misalignment of some battery cells that could cause a short.

“Fisker wanted its battery supplier to handle the warranty repairs,” FoxBusiness.com reported, “while A123 felt it was a joint problem, according to the source. Nonetheless, A123 began replacing battery modules and packs that were subject to a manufacturing defect.”

Presumably the first incident caused the main conflict between the business partners over who would take responsibility, since the second occurrence also required A123 to replace batteries for a number of its other customers, including truck-maker Smith Electric Vehicles. Fox reported that neither Fisker nor A123 responded to requests for comments.

As a result, in March 2012, A123 told its investors it would suffer a loss of $257.7 million for 2011, compared to the $152.6 million in losses for 2010. A loss of $85 million was taken in the 4th quarter in part because of the write-down of its stake in Fisker, in addition to reduced orders of its batteries. One Wall Street analyst said the situation reminded him of Ener1 and Think Cars.

A month later A123 became the target of an investor class-action lawsuitand its stock price dropped below $1. The lawsuit followed the second recall of A123’s batteries due to defective products, which the plaintiffs claimed the company failed to disclose. “The company’s statements were materially false and misleading at all relevant times,” the lawsuit’s complaint said.

Later in April 2012, in perhaps the worst example of the agency’s poor judgment, the Department of Energy gave A123 a vote of confidence by extending a deadline until 2014 to spend down its $249 million stimulus grant. Within days of that decision an A123 battery caused an explosion at a General Motors research facility in Michigan, sending one employee to the hospital.

Certainly A123 had shortcomings far beyond its effect on Fisker, but so also did Fisker fumble in ways that had nothing to do with A123. For one, despite only having to produce one vehicle successfully (albeit while preparing to create another, the Atlantic), Fisker burned through at least $1.3 billion (according to some reports) in private investment, in addition to the $192 million it received from DOE. It takes more than some bad batteries to fritter away that much money.

Also the ethically challenged firm that raised much of Fisker’s private investment, Advanced Equities, was subject to fines and punishment by the SEC and by the Financial Industry Regulatory Authority due to unethical practices, which ultimately led to its shutdown. Alleged misrepresentations led to an investor lawsuit against the company. And mishaps such as fires (due to other technology failures, not the batteries, and another caused by Hurricane Sandy) led to losses and hiccups in production.

And to cap off the overall incompetence, after Fisker fired about 160 of its 200 remaining employees two months ago, a lawsuit was filed in California by employees, alleging Fisker violated the federal Worker Adjustment and Retraining Notification Act and a similar state law by not providing 60 days advanced written notice, which the plaintiffs said is required in mass layoff situations. The complaint sought two months of pay and benefits for the fired workers.

This wretched record does not even address the crony capitalism exercised by the executives and backers of both A123 and Fisker, nor the audacity of things like Fisker’s insinuation that a customer was to blame for a fire, or the pursuit by A123’s officials to extract bonus payments after their painful mismanagement and performance.

Worst of all is the Obama administration’s oversight and administration of the stimulus, especially as it pertains to his “green” energy agenda (insert Solyndra, Abound Solar, etc. here). Even after A123 exhibited mass ineptitude, DOE wanted to give them more time to spend taxpayer money! Now we have to watch this sorry bunch point fingers at each other…

Never mind, no we don’t. Obama has pulled off the unimaginable and put the waste of billions in taxpayer dollars out of sight while Americans focus on the outrages of the IRS and National Security Agency scandals. That’s quite a feat.

Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.

[First published at the National Legal Policy Center.]

Paul Chesser

Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes ... (read full bio)