Chinese Offer For U.S. Battery Maker Is A Threat To National Security

Trade with China was an issue that got a lot of attention during the recent presidential campaign. Each of the candidates claimed that he would be the one to “stand up” to China, prevent U.S. jobs and know-how from being shipped across the Pacific, protect critical technologies and improve the terms of trade between the PRC and the United States.

Now the fate of a small battery maker may be the first test of how the Obama Administration will deal with China’s efforts to acquire U.S. companies working in advanced technologies with military implications. This case is even more interesting because the company in question was one of the beneficiaries of the Obama Administration’s effort to invest in green energy.

The company to which I am referring is A123. Headquartered in Waltham, MA, the company is a leader in the development and production of advanced batteries and high density energy storage systems. If you follow the clean energy technology world you know that there are lots of alternative ways of generating electricity. The problem is transmission and storage. The U.S. market for electric cars has failed to meet expectations largely because currently available batteries do not hold sufficient energy to make the vehicles practicable (there is also the problem of lengthy recharging periods). A123 was a pioneer in the area of lithium ion technology directed at higher performance, longer life and lower total cost of ownership. There are few companies left in the United States working on advanced storage technologies because of the extremely large capital investments required and continuing market uncertainties.

A123 also has several contracts with the Department of Defense not only for battery development but also in the field of micro-grid power generation. Advanced batteries will be critical to the future of a U.S. military that is increasingly IT heavy and networked. Operational energy — ensuring that power is available at forward operating bases, with units on the move and for dismounted warriors — is one of the biggest logistical challenges facing the U.S. military today. Millions of gallons of fuel are moved every day in Afghanistan, at high cost and risk to our personnel and to private contractors. Soldiers in Afghanistan currently deploy with as much as 500lbs of batteries for a three day mission. Every electronic device the soldier carries — radio, electronic jammer, laser tracker, night vision goggles, etc. — has its own battery. Moreover, there is no system available for recharging them which is why soldiers carry so many and discard them so frequently. Military units today lack the electric power storage capacity needed to run all their IT and communications systems. Consequently generators and vehicles must run continuously, driving up the day-to-day cost of operations. Better batteries would go a long way to improving the military’s energy posture and even saving lives.

Now, as they say, the plot thickens. Like a number of other energy companies over the past several years, A123 recently filed for bankruptcy after having received approximately $250 million in government funding. Unlike companies such as Solyndra, A123 occupies a critical spot in the spectrum of advanced technologies where energy innovation intersects with national security.

To make matters worse, A123 is being pursued by a Chinese company, Wanxiang. While A123 Systems has a tentative asset sale agreement with an American company, Johnson Controls, Wanxiang promised to top that offer in federal bankruptcy court. Just yesterday, the court approved A123’s request to be allowed access to some $50 million in financing offered by Wanxiang. This may result in Johnson Controls offer being rejected and the company being sold to Wanxiang.

The possibility of a Chinese company acquiring one of the few U.S. manufacturers of advanced energy storage systems naturally raises national security concerns. Senators John Thune and Charles Grassley sent a letter to Treasury Secretary Timothy Geithner requesting a very careful review of this potential sale by the Committee on Foreign Investment in the U.S. Hopefully the Committee will see the danger in selling A123 to a Chinese company and opt to protect American technology, jobs and national security.