The saga of A123 Systems (NAS: AONE) has finally come to an end -- at least for now. The stock that was once a Wall Street darling has filed for Chapter 11 bankruptcy protection and will likely leave stockholders completely wiped out as it searches for a path to the future.

The company built too much capacity too quickly, and the appetite for electric vehicles didn't live up to expectations. Continuous delays by auto partners like Fisker left the company underutilized and on a financial death spiral.

Don't say we didn't warn you that this may be coming. My predecessor Toby Shute questioned the company as far back as 2009. It took more time for me to be convinced this was a certain loser, but I finally made an underperform call earlier this year.


What's next?
The latest news is that Johnson Controls (NYS: JCI) will buy the company's automotive assets for $125 million, including two U.S. facilities and a stake in a Chinese battery maker. The company will also provide $72.5 million in debtor-in-possession financing.

The remainder of the company's assets will be sold through the bankruptcy court.

Government investment gone bust
This is another example from the federal government's terrible track record of picking winners in emerging industries. The government gave $249 million in grants to the company. Solyndra was the most famous bankruptcy, but battery competitor Ener1 also filed for bankruptcy, and A123 Systems will be a black eye as well.

Unlike Solyndra, which was a debacle on many levels, A123 won't likely be a complete waste for the government. The company listed $459.8 million of assets and $376 million of debt. The company has some of the most advanced batteries on the market and has partnerships with big names like BMW, Smith Electric, Daimler, and Navistar, so the jobs the grant was intended to create may indeed live on. Whether or not it was a good use of funds is another debate entirely.

The way to play this
What this could do is change the future for Johnson Controls. The company is a steady operator, but it isn't known as an exciting company. Adding A123 Systems' technology and auto partners could change that. The company has the size to patiently wait for the battery market to mature, and if A123's Nanophosphate EXT technology is as good as advertised, it could be a game changer.

Tesla Motors (NAS: TSLA) has proven that there's a market for electric vehicles if you make them right. Given enough time, Johnson Controls may be able to leverage some of the amazing vehicles in the pipeline and fuel competitors to Tesla's vehicles.

What happens with this latest political football? Check out our free report: "These Could Skyrocket After the 2012 Presidential Election." Barack Obama and Mitt Romney have competing visions for getting America back on track, but The Motley Fool will have you prepared to profit -- no matter who wins! Download your copy now, for free, and discover hidden ways to profit from the election.

The article A123's Bankruptcy originally appeared on Fool.com.

Fool contributor Travis Hoium has no positions in the stocks mentioned above. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw. The Motley Fool owns shares of Tesla Motors. Motley Fool newsletter services recommend Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


Increase your money and finance knowledge from home

Asset Allocation

Learn the most important step in structuring an investment portfolio.

View Course »

Behavioral Finance

Why do investors make the decisions that they do?

View Course »

Add a Comment

*0 / 3000 Character Maximum

2 Comments

Filter by:
philblock

criss1011: And don't forget, after WWII the Japanese took almost the whole electronics industry from us. Because the people who ran the companies could not see into the future. It is only the last couple of years that "HAM" radio operators are able to buy American made communication equipt. The whole "Ham" radio system was taken over by the Japanese, and they built some fine equipt., and still do. And they still dominate the market. Politicians, unless they have an engineering or scientific background, should not be meddling in the private market . As for RCBEVs, RCBEVs have been a failure for over a hundred years. People of every persuasion all over the world have tried it, and failed. Why? Because of the Achilles heel, the battery. The best designed ICE is useless without a power supply--i.e. gasoline or such. The best designed RCBEV is useless without a power supply, in this case, either RCBs or Fuel Cells. There isn't any other choice. No RCBEV can compete with a comparable ICE. But an EV powered by Fuel Cells can. Why? Because an FCEV operates like an ICE. As long as fuel is on board, it will go. With the advent of the major auto mfgs. scheduled to introduce their FCEVs the next couple of years, the RCBEV has been relagated to the RCBEV grave yard (along with the Stanley Steamer--another great idea destroyed by reality). Over the long run, RCBs cannot compete with Fuel Cells, technically or price wise. Soo--goodbye Tesla (a poor idea that will be destroyed by reality).
Enjoy!

October 18 2012 at 11:31 PM Report abuse rate up rate down Reply
chris1011

"This is another example from the federal government's terrible track record of picking winners in emerging industries."

Of the 90 billion that the government set aside for energy research, less than 1 billion was lost to bankrupcy, so a track record of 99% is pretty darn good. I would like to see any stock picker have that kind of record.

As an engineer, I worked in power engineering research during the Reagan administration with researchers at Sandi National Labs. I can tell you that only 1 project in 10 ever really worked out, and these were the brightest scientists and engineers in the world. And yes, the Reagan administration dumped bucketfuls of money at emerging technologies - this is nothing new. Research is always risky, but without it we would be listening to vacuum tube radios and there would be no internet.

October 17 2012 at 3:16 PM Report abuse rate up rate down Reply