A Twisted Clean-Tech Tale: How A123 Wound Up In Bankruptcy 164
curtwoodward writes "Advanced battery maker A123 Systems was supposed to be one of the marquee names of the U.S. cleantech manufacturing scene — it won hundreds of millions in federal grants, had operations around the globe, and supplied the luxury Fisker electric car. In 2009, as the economy sputtered, A123 registered the country's biggest IPO. Today, it's in bankruptcy court, with possible buyers submitting bids for its parts and pieces. How'd A123 fall so far, so fast? As losses mounted, its reliance on just two big customers came back to haunt the company — and a series of screwups at a Michigan plant delivered the final blow."
Just another cautionary tale (Score:5, Insightful)
Re:Just another cautionary tale (Score:5, Insightful)
The government has been tossing taxpayer money to the oil industry, big agriculture, banks and everyone else who could buy themselves a politician or two since the beginning of time.
This particular failure sounds like a combination of bad management plus the fact that developing and scaling new technology is hard.
Private enterprise... (Score:2, Insightful)
Re:Private enterprise... (Score:4, Insightful)
Re:Just another cautionary tale (Score:5, Insightful)
Just a few clarifications to your post.
Loan guarantees are not grants.
A123 received a $250 million loan guarantee, not $90 billion.
Government has a vital role to play in keeping the economy moving. This is done through tax incentives, loans, stimulus programs and grants.
The problem is that the wrong corporations capture these incentives. Obsolete industries and industries which are doing fine without incentives tend to capture most of them... (i.e. General Electric receives enough government incentives that they pay no taxes but they are a perfectly viable business to stand on their own.)
Having worked for a corporation that bet big on .. (Score:3, Insightful)
... so-called "green/cleantech" I can say unreservedly it was about 99% hype and 1% reality. They dropped at least $2B in their attempt to diversify their portfolio into greentech and acquired a number of companies - including the one I worked for - to buy their credibility in the solar panel marketplace.
As it turned out, said marketplace - and greentech in general - was and is a bust. Rich yuppies are basically the only ones that can afford to purchase, install, and maintain solar panels even with massive State and Federal government subsidies both in the U.S., Europe, and elsewhere. Given the very poor efficiency of solar panels and their very long term ROI, those yuppies are the only ones with more money than good sense.
For all Al Gore's, the UN, and pro-globalists' hand-wringing over AGW (and I'm not here to get into THAT debate), the reality is that most people and therefore most businesses aren't particularly concerned about climate change. When the economy tanked in the 2008-ish time frame, the corporation I worked for - the world's largest semiconductor equipment company - said they had, in their 30+ years in business, NEVER see demand drop off a cliff the way it did. Consumer demand for electronic gadgets quite literally disappeared and did so almost overnight. It was a stunning hit to the solar plexus of that industry. Needless to say, a year on I was laid off.
Greentech far from saved them - and, thankfully, at least it was mostly THEIR OWN dollars they spent on greentech investments -- and it turns out the vast majority of the dollars they dumped into those investments turned out to be giant loss. It was nearly all hype and very little reality.
On a mundane level I don't have a huge problem with the Federal government taking big bets on cutting-edge technology that private industry typically can't afford. Note: NASA, the Military in general (from whom we have GPS among many other military-to-private sector innovations to thank for), and of course DARPA from whom we may not have this little thing called the Internet.
Even if there was no real skepticism around climate change I don't believe it would matter. The money the UN wants from the major nations to "fix" climate change would end up being a giant slush fund for lavish UN diplomat expenses. I'd bet big money not a dime would go to any good or positive net effect to supposedly fix or even seriously address climate change issues beyond expensive committees filing expensive 500-page reports and jet-setting between Dubai and New York and London and Tokyo to confab with like-minded global elitists. Climate change isn't something that will be fixed on a macro scale. That, among many other reasons (i.e., the general massive corruption and ultimate pointlessness of the UN), is why so many nations are resisting funding this cluster. Many people are struggling to merely survive in this world - in fact, the vast majority of the global population is in that bind - and concern over how many hydrocarbons they're pumping into the environment is of zero to less-than-zero concern.
Re:Just another cautionary tale (Score:4, Insightful)
Loan guarantees like the one A123 got totalled $90 billion in the "stimulus" bill passed in 2009. Government sticking its thumb on the scales of the economy is always a bad idea--whether it be bailing out banks or perpetual ethanol subsidies + ethanol mandates + import tariffs.
Just a few clarifications to your post. Loan guarantees are not grants. A123 received a $250 million loan guarantee, not $90 billion. Government has a vital role to play in keeping the economy moving. This is done through tax incentives, loans, stimulus programs and grants. The problem is that the wrong corporations capture these incentives. Obsolete industries and industries which are doing fine without incentives tend to capture most of them... (i.e. General Electric receives enough government incentives that they pay no taxes but they are a perfectly viable business to stand on their own.)
Read post more carefully before refuting, parent was quoting the total amount of 'stimulus' loan guarantees in that year, not the money given to A123 specifically. Now, you could argue that it'd work fine if it weren't for the 'wrong' corporations getting the money, but really... are there 'right' corporations that could be getting money? Someone has to pay the taxes in the first place, after all... and since when has robbing Peter to pay Paul ever resulted in net gains?
Re:Just another cautionary tale (Score:2, Insightful)
Loan guarantees are not grants.
Well, the previous poster did call it a loan guarantee. As to whether or not it is a "grant", it's indistinguishable from a grant to the people that received money from that loan that would otherwise not happen and the bank that made that loan who would otherwise have to deal with the default instead of a fairly risk-free investment. All of this happened at considerable taxpayer expense.
Government has a vital role to play in keeping the economy moving. This is done through tax incentives, loans, stimulus programs and grants. The problem is that the wrong corporations capture these incentives. Obsolete industries and industries which are doing fine without incentives tend to capture most of them... (i.e. General Electric receives enough government incentives that they pay no taxes but they are a perfectly viable business to stand on their own.)
The government that has the money to keep the economy moving, has the money to flush down sinkholes and does. It's almost like they have no incentive to actually keep the economy moving.
Re:Just another cautionary tale (Score:3, Insightful)
Not at all better (Score:4, Insightful)
in general, a government doing some tipping is better then an economy left completely to its own devices
Totally false.
A123 being propped up by the government meant that other companies developing battery technology were less likely to work on similar problems because they had to get real money, which would have been also less easy to come by with A123 funded in that space.
Private investors are way more careful to invest in things that might work. They are obviously smarter at this because they are using real money, with real consequences for loss. Neither is true of government funds. The government stinks on ice at picking out winners in the market and in the end most of the money they give out is essentially a laundering operation to campaign donors.
Re:Just another cautionary tale (Score:3, Insightful)
Oh god that's such bullshit.
If you can't get your fucking "winning business idea" funded, then your idea is not a "winning business idea."
Oil companies are not the only companies out there. If you have an amazing idea for clean energy, there are literally THOUSANDS of other investors you could court with pockets deep enough to help you realize your dream. Stop whining about "fat cats refusing to fund my ideas," and start coming up with ACTUAL WORKABLE BUSINESS MODELS.
Re:Having worked for a corporation that bet big on (Score:4, Insightful)
For all Al Gore's, the UN, and pro-globalists' hand-wringing over AGW (and I'm not here to get into THAT debate), the reality is that most people and therefore most businesses aren't particularly concerned about climate change
Lets be a bit more honest here: you don't have to be a "pro-globalist" to be worried about Climate Change. The science is the same regardless of the politics (even if political pre-conceptions make people want to ignore it). And I think it's not reasonable to say that if most people were concerned the businesses would be as well. They all have a vested interest in the status quo and hence will nearly always be behind the direction the people (or scientific results) are going. It's only in the ideal free market fantasy that this isn't true.
Climate change isn't something that will be fixed on a macro scale.
This is a pretty close-minded attitude, and this sort of thinking is most likely the main thing that may indeed prevent it from being fixed this way (or at all). Just because some greentech doesn't work, that doesn't mean none of it will. Hydroelectric power requires massive funds that are almost always public sector, and it's enormously successful (and profitable in many cases if you consider the net benefits). It's just conveniently ignored by those who decry "wasted" greentech money.
While the laws of physics are deterministic (at least at this scale), the laws of human behavior are not. Plenty of macro-scale activities have profound effects on our micro-scale behavior.
Many people are struggling to merely survive in this world - in fact, the vast majority of the global population is in that bind - and concern over how many hydrocarbons they're pumping into the environment is of zero to less-than-zero concern.
This is a very good point. But if Climate Change is real, the vast majority of the future global population's lives depend on us solving it. So we should be expending enormous resources to convince them that they should be concerned (or better yet, help lift them out of desperation).
Re:Just another cautionary tale (Score:2, Insightful)
What part of simply not taking their money away is the government "favoring" business? If the government is favoring anyone, it's the people who they give handouts to.
Yes, big business also gets handouts. Those are wrong too. However, just because you're rich doesn't mean you got it from a government hand out, and it certainly doesn't mean that the government is "favoring" you by staying out of your way. That's like a mobster who isn't "protecting" you from anyone other than himself and his own thugs.
EXCUSE ME? (Score:5, Insightful)
Government has a vital role to play in keeping the economy moving. This is done through tax incentives, loans, stimulus programs and grants.
Yeah, by ripping off people by creating an A123 Systems, Solyndra, you NAME it, they keep the economy going! You know, the guys who just chew up money, give it to their buddies, and run off having raped everyone with a corporate scam. And by keeping the economy going, I mean inflating and taxing the US economy into asphyxiation to where PEOPLE HAVE NO MONEY TO BUY because they are paying for this corporate welfare garbage. Except that they aren't because the debt is GROWING AT ABOUT FOUR BILLION DOLLARS PER DAY.
FREE markets which are markets free from government meddling (this includes corporate welfare and tax breaks for the big businesses) allow the economy to work AS IT SHOULD. Consumer demand drives supply chains. Consumer demand is WHAT PEOPLE WANT. When people get what they want, you have a healthy economy.
You can put financial regulations and environmental protections in place against businesses all day long, but as soon as you try to force the market to do something, it will adapt. For instance, there is an anti-tobacco subsidy where the government pays you to not plant tobacco. You plant one acre to prove that you can plant tobacco, and the government gives you FREE MONEY to not plant tobacco on the rest of the land. It doesn't take but five seconds of thought to understand how not only does this increase the growth of tobacco but drains the coffers at the same time. This is one of the simplest examples. You end up with your controls both fostering corruption (great way to pay yourself or your buddies) and creating inefficiencies in the economy which will be bypassed as there is still demand for whatever the government was trying to kill and which will be abused because there is an artificial free supply of government-issued "incentive."
Re:Just another cautionary tale (Score:2, Insightful)
Loan guarantees are not grants.
When you hand them to companies in businesses that are too risky to actually obtain private financing, they might as well be grants.
Government has a vital role to play in keeping the economy moving.
That is an opinion. And an opinion that could quite possibly why we have the sort of problems we do. Big government breeds big business. Government bureaucracy and regulations are an added cost drag on the business of actually producing and selling products, and they force businesses into having to be larger in order to offset the massive overhead of accounting and regulatory compliance required by a government.
Think I am full of crap? Try as a small business to obtain a government contract outside of very, very small items if you don't have inside contacts. You'll double the size of your company overnight just hiring people to fill out paperwork.
Re:Not at all better (Score:3, Insightful)
You completely neglect the market forces at work in the 1800's before the trust busting days of the US government. The only force powerful enough to dislodge the rabidly growing trusts was the US government - and then it was only a matter of time. Free markets break down when there are monopolies, monopolies form and grow if allowed to, and monopolies eventually become inherently destructive. If it wasn't for the government, there wouldn't have been a Microsoft monopoly, because US Steel or Standard Oil or AT&T or one of the railroads would have owned them or shut them down.
To declare that a government has no place in the markets is just unicorn shit pie.
Re:Just another cautionary tale (Score:5, Insightful)
Government has a vital role to play in keeping the economy moving. This is done through tax incentives, loans, stimulus programs and grants.
That's their claim, but it's hogwash. Every dollar 'given' as stimulus has been taken from other people, either directly through taxes, or by devaluation of capital through inflation.
That capital is thus no longer available to its original (proper) owners, and so cannot be invested by them. The only remaining question is whether the government is more careful with how it invests other people's money than they are themselves.
To illustrate the point, may I present: A123 Systems.
Mod parent up! (Score:3, Insightful)
I think I get where you're going with the "environmental regulations" argument though that can somewhat be argued the same way. If there is a way around a regulation, you'd better be sure the market will find it!
Look at it this way. We have a population of ~270 million "entities of self interest." They're all chipping away at whatever they can get a piece of. If the government is spending half the GDP on the weapons of war, well, where do you think all the jobs are going to be? Yeah. So everyone's getting a job with a government contractor making UAVs, analytics software for intercepted comms, etc. which have no use in the consumer market. Of course, since the tech is there, someone will make money now selling the equipment which ends up turning the police agencies para-military. Instead of this, couldn't have we just NOT gone into so much debt with these military contractors and let the economy do its thing? The guys running the NSA spy/data centers could have been employed by NVIDIA to design an even better GPU since the capital would have been free for your average Joe to buy more of their video cards. From there, your Lockheed guy might as well have been at a startup designing a new AI that could make use of all that power and actually contribute something progressive to mankind like autonomously surveying the canyons of Mars for mineral deposits or an asteroid for mining potential.
To add to the loan/subsidy issue, I will bring up student debt. A generation ago, no one had substantial student debt. If you wanted to work your way through university in the states, you actually could. Now with the government cramming Stafford and Parent Plus loans down everyone's throats, you're typically stuck with either taking the loan or going to work in the food service and paid nothing. When the students get this "free money" (money printed for free by the bankers and given to their friends so that they can charge you 9% interest) and have NO idea how much, say, $20k/semester actually means, they'll just take the loan! When the student isn't qualified for a loan, there is a "Parent Plus" loan which must be taken out in the parent's name despite the student of course being completely independent from his parents. (My dad was dead and I was not a taxable dependent as I was actually working while in school, and Georgia Tech still crammed this down my mom's throat in '08.) When this kind of thuggery happens, yeah, schools can charge WHATEVER THEY WANT, and those fees will be paid.
That's what happened in my case when I was in school.
And yep, I work for a government leech doing UAV stuff now. But it gets the student loans paid, so I can't complain. ;)
Re:Just another cautionary tale (Score:4, Insightful)
Every dollar 'given' as stimulus has been taken from other people, either directly through taxes, or by devaluation of capital through inflation.
That capital is thus no longer available to its original (proper) owners, and so cannot be invested by them. The only remaining question is whether the government is more careful with how it invests other people's money than they are themselves.
Every dollar 'given' as a stimulus to keep up the law has been taken from other people, either directly through taxes, or by devaluation of capital through inflation. That capital is thus no longer available to its original (proper) owners, and so cannot be invested by them. The only remaining question is whether the government is more careful with how it protects other people than they are themselves.
You see? With the same hogwash argument you could argue that we should abolish all police, judges and the army, and let people decide how they protect themselves. Some will invest in a private army of their own, other will just keep some bodyguards, other will bound together and form some corporation with group of leaders which then organise the protection of their members. We should also encourage competition by having at least two local providers of security where you can pay your protection money to.
And suddenly we are inmidst of tribal warfare, with local warlords feuding each other for territory -- pardon: marketshare. Local businesses will bloom marketing services to the local private armies. Lets call those businesses thus "marketenders".
But we had a big historical experiment: Which countries did thrive? Those whose libertarian society gave large tax breaks to the wealthy, even extempting the most wealthy from all taxes, gave the protection business into private hands as fiefdoms, and encouraged everyone to found their own territory, unregulated, with their own standards? And then let the war -- pardon, the market -- decide whose country -- pardon, business -- will survive and conquer -- pardon, buy -- the others? Or those, who had a strong government with an efficient administration, setting general laws everyone had to comply with, a good state education system open to everyone, a well organised army and police force and a system of judges and courts paid enough to decide fair and according to the law?