Orange County Business Journal

Fisker Battery Supplier Files for Bankrupcty

Chris Casacchia Tuesday, October 16, 2012

The battery supplier for Fisker Automotive Inc.’s luxury hybrid sedan has filed for bankruptcy reorganization and is selling its assets.

Waltham, Mass.-based A123 Systems Inc. has a deal with Johnson Controls Inc. in Milwaukee to sell its automotive assets, including technology, products, customer contracts, plants in Livonia and Romulus, Mich., manufacturing facilities in China and equity interest in Shanghai Advanced Traction Battery Systems Co., its joint venture with Shanghai Automotive.

The transaction is valued at $125 million.

The reorganization comes about four months after the company raised substantial doubts on its “ability to continue,” in regulatory filings as it fought cash shortages, an inventory of defective products and a flurry of negative press.

The challenges first surfaced last year when its lithium-ion battery packs were linked to two separate problems affecting Fisker’s flagship Karma and other vehicles.

The most recent problem with its batteries began in February.

That’s when a Karma died after 200 miles of drive time during a test run by Consumer Reports, sparking a frenzy of criticism from industry bloggers, company watchers and elected officials critical of government subsidies to the clean technology sector.

The “latent manufacturing defect” that apparently caused the troubles was traced to the Livonia plant.

Fisker was one of five customers affected by the faulty battery, A123 Chief Executive David Vieau said in a conference call with analysts after the incident.

The mishap cost A123 $51.6 million to replace battery modules and packs that may be defective, as well as $15.2 million to replace defected inventory, according to the filing.

That was Fisker’s second manufacturing problem associated with A123’s batteries.

In December, the supplier warned of a potential coolant leak from misaligned hose clamps that led to the recall of 239 Karmas—and more bad press.

That problem has been fixed, according to the Anaheim-based automaker.

As part of the transaction process with Johnson Controls, A123 and its U.S. subsidiaries have filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware.

A123 has received a $72.5 million commitment from Johnson Controls to continue operations during the sales process.

In 2007, the company received a $6 million grant as part of the Bush Administration's efforts to promote advanced battery manufacturing. It has used $132 million from a 2009 grant from the Department of Energy, according to DoE officials.