

A123 files for bankruptcy - pedalpete
http://blogs.wsj.com/corporate-intelligence/2012/10/17/batteries/

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yetagain
So, I actually know one of the executives (friend of a friend) at A123 and
I've been hearing about the company since well before it went public. I guess
these are my thoughts on the company.

Auto makers strung them along. A123's technology was cool, but ultimately no
auto maker would allow itself to be beholden to a proprietary battery
technology ahead of its time. Imagine you go with some new battery technology
patented by company Y and create a massively successful vehicle. Next year,
company Y asks for double and you're faced with Y taking your profits or
having next year's model have a significantly reduced range. Companies simply
can't offer that.

In A123's case, manufacturing had trouble. That needs to be clarified. When
working in China, the trouble was that IP protection is poor and it's
culturally normal to copy/steal other's technology. They had to split up
manufacturing and create processes to make sure that their IP was safe. When
looking to work with US automakers or the US government, they (and many
unions) wanted manufacturing jobs in the US.

Ultimately, A123 was trying to create a premium product in a market where
things are meant to be interchangeable. Imagine a company trying to sell
"ultra-flour" or something. Even if it's provably better, it's not how the
market operates. Auto makers were (and probably are) interested in their
technology. However, it's hard to commit to proprietary battery tech. A123
always felt right on the verge of an agreement with Toyota or GM that never
materialized. Toyota isn't going to single-source a component - it's against
the way Toyota does business - and GM has probably learned from its past of
doing the same.

I always thought that they should have focused on smaller items. A car is a
major item and it's something that grabs headlines, but A123's cells could be
used for other applications (and were: I think it was Black and Decker that
was using A123's batteries in their high-end tools for a while). While cars
are great, better batteries could be great for phones, laptops, and other
applications where reducing battery life wouldn't be as terrible as reducing
vehicle range - and, in fact, we've seen LTE phones that have sold very well
with a fraction of the battery life of their predecessors.

EDIT: In a way, A123 was a bit like ARM. They were creating something new that
could challenge incumbents and open up new opportunities. The smartphone
revolution wouldn't have happened on x86 given the power draw. However, if ARM
was the exclusive manufacturer of their design/instruction set, it might not
have happened either. The fact that ARM licensed their IP gave companies a
feeling of safety - one they never got from A123. For example, if Apple is
unhappy with someone's yield on processors, delivery schedules, whatnot, they
can get another fab to make their A6. If Apple were to be unhappy with A123's
deliveries, they wouldn't have another place to get the same technology from.
ARM's licensing meant that Motorola could use a TI processor in one phone and
then evaluate whether TI was a good partner or whether they wanted to try
Qualcomm for their next device - and processors from Qualcomm, Samsung, TI,
nvidia, and others would all be generally interchangeable from the consumer's
stand point. That wouldn't be true of substituting mass-market batteries for
A123 batteries and with the world's supply of their battery technology
controlled by them, that meant giving A123 a lot of leverage over you. That's
where A123 had a different path from ARM and why I think a lot of companies
wouldn't commit to using A123's technology - they'd be beholden to one
company. If A123 licensed the technology, they might have become the ARM of
batteries and seen others manufacture them while they focused on research and
development. Maybe I'm completely off and it isn't a comparable situation.

~~~
001sky
Very compelling, thanks for posting this. A123 sounds like it will be an
usefull case-study somewhere, in years to come.

 _I always thought that they should have focused on smaller items. A car is a
major item and it's something that grabs headlines, but A123's cells could be
used for other applications_

One interesting question, in hindsight, might be would they have survived/
succeeded at reduced scale? And what role valuation and politics had in force-
feeding them into a make-it-or-break-it aspiration.

Hopefully some of their good stuff will remain available, in whatever form,
however.

~~~
yetagain
So, I'd argue that smaller batteries aren't smaller scale. A lot of people are
chasing autos right now. However, that's not the majority of battery use. I
think part of the issue is that your smartphone's battery is "good enough". By
good enough, I mean that while people complain about battery life, it doesn't
stop them from purchasing the devices. So, a smartphone that gets 2x battery
life isn't the same draw. In fact, based on the Anandtech review of the iPhone
5, some phones get substantially greater use times when compared to other
quite popular models.

By contrast, the 60-ish mile range of a Nissan Leaf just doesn't cut it in
more ways than one (unlike a phone, it can't be easily charged in loads of
places, unlike a phone that could charge 50-80% in an hour, the car really
needs a third of a day, etc.). So, a better battery for a car might become
game-changing while a better battery in a power tool or phone might just be
nice or luxurious.

Still, there are a lot more applications for batteries in the non-auto world.
Premium laptops could be sold with them or as aftermarket add-ons, phones,
tools.

Not to beat a dead horse, but in hindsight it was quite clear that no
established auto maker would allow themselves to be single sourced on a
critical component - no responsible business could operate that way. To pursue
the auto market would have required being the auto maker, selling out to one
of the auto makers, or allowing the auto maker to multi-source your
technology. And, in A123's defense, they did create their own plug-in Prius
cars (google Hymotion), but Toyota didn't like it, it was an expensive add-on
to an already expensive car ($10k I think), and took up a bunch of trunk
space.

It's also possible that it would have been more successful in more niche
areas. To talk about software for a moment, everyone wants to make Facebook,
Google, Weebly, Reddit, etc. It's the kind of project that people consider
cool. However, it means that a lot of smart people just ignore things that
companies need (those enterprise-y things) as dull - and those enterprises
often end up with poor tools in those areas. It's possible that A123 could
have worked on delivery vehicles or other vehicle fleets.

Consumers are hard to please. If I want to go from Boston to New York, I want
to be able to go with the best convenience. Cargo doesn't tend to give a crap
if it's delayed half an hour. So, for UPS' local delivery trucks, batteries
might work nicely. Batteries tend to better with frequent starts and stops
than combustion engines. UPS could have battery swapping stations to remove
one battery pack for a freshly charged battery pack in a way that might be
hard for consumers. UPS could easily make the calculation that the cost
savings could mitigate 15 minute delays.

I don't mean to say that it would work for UPS. However, when we look at
things like LNG or full ethanol or other alternative fuels, they tend to be
more widely used in fleets that can manage the infrastructure to handle them.
However, those enterprise-y things aren't the things that grab headlines and
change the world. You don't get the feeling of "everyone knows what I do and
I'm having an impact on the world" from helping UPS to cut its fuel budget by
15%. You get that feeling from doing very public, very consumer things.

For example, by some estimates (US DOE), cars use about 40% more energy than
passenger rail. So, everyone who likes green things wants more passenger rail.
However, then we take a look at freight. Trucked freight uses over 1000% more
fuel than freight rail. So, if one wants to reduce energy usage (and
pollution) the most, moving freight from truck to rail is much more important
than moving a passenger from car to rail. It's also more convenient since
freight often doesn't mind waiting an hour or two for a transfer in the way
that passengers want convenience. But freight rail is the behind-the-scenes
logistics and doesn't have the same celebrity factor.

So, politically, we talk a lot about new passenger rail and how it's wonderful
and green. However, consumers are hard to please - you have to really make
sure that something works with changing consumer patterns, that it is
convenient for their lives, etc. Enterprises can often be satisfied more
easily. A consumer might get annoyed that a battery exchange station takes 10
minutes while a UPS driver is happy that they have a 10 minute break. A
consumer doesn't want to wait a couple hours for a transfer while freight is
generally happy to idle.

So, it's possible that even within the automotive sphere, going toward the
enterprise side of things could work out better. It's not as cool, but it can
also be a stepping stone to something wider.

------
rayiner
I don't understand this.

Whenever people talk about cutting the defense budget, people bring up DARPA
and how much great research is funded through it. But then the same people
decry federal subsidization of companies like this when they fail.

The whole point of federal investment in R&D is to invest in things that have
future promise but are too Blue-Sky for the market to support yet. For every
success, DARPA has a dozen projects that never go anywhere. That's just how
that game is played.

People should expect cutting edge like this to fail often. That's the whole
point. If companies like this were sure bets, they wouldn't need government
investment.

~~~
twoodfin
There's a big difference between funding research, particularly defense-
related research, and playing VC, guaranteeing hundreds of millions in loans
to build factories. I don't think individual DARPA grants approach that size
within an order of magnitude.

What exactly was "blue sky" about Solyndra or A123? Why trust politicians
rather than the market to figure out how we'll generate and store energy in
the future?

~~~
rayiner
Individual DARPA grants are indeed much smaller ($10m is a good sized
contract), but it's also free money. Guaranteeing a $100m loan is a much
lesser commitment, on average.

As for the market--the market is good at figuring out how to extract maximum
efficiency from existing profitable technologies. It naturally under-invests
in forward-looking R&D. I'm pretty sure there was a paragraph about this in my
Econ 101 textbook in college, in the context of Singapore's massive public
investment in R&D and associated massive GDP growth.

~~~
msgilligan
I would argue (as I do in a separate comment) that A123 seems to fall more in
the first category of increasing efficiency in existing profitable
technologies (autos and batteries) than in the second category of (pure) R&D.
It wasn't a research project. It was a company seeking to introduce a some new
applied technology into an existing market (autos.)

------
ilamont
Not cited in any of the news articles I've read about the bankruptcy is the
very nasty patent fight involving A123, Hydro Quebec, and the University of
Texas. Some of it is described in this book excerpt:

[http://gizmodo.com/5805875/the-knock+down-drag+out-fight-
ove...](http://gizmodo.com/5805875/the-knock+down-drag+out-fight-over-the-
next-generation-of-batteries)

You can imagine the distraction and uncertainty that this brought about early
in the company's history. The parties finally settled, but not until 2011.

------
ck2
I find this sad. Hobbyists loved A123 battery quality.

------
001sky
This story/headline at the WSJ seems to have been posted before, but with now
updated content. Its fairly even keeled, focusing on the cost/phsyics issues.
Here is a relevant summary:

 _At $10,000 a car, the costs of a 100-mile range battery are still
prohibitive for a mass-market car, even if gasoline’s superiority in range and
refueling aren’t taken into account. This is one reason why General Motors Co
. is rolling out a Cadillac version of its Chevy Volt plug-in hybrid,
following Tesla Motors founder Elon Musk’s strategy of compensating for the
high cost of lithium-ion batteries by marketing his electric car as an
alternative to a Porsche. If you want more than 1% of the market to be
electric cars, you start by selling to the 1%._

