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An A123 employee works on a bus battery pack. Photo courtesy of A123 Systems.

A123 Deal Ignites Debate Over China, Energy

News that China’s largest auto parts maker is seeking a controlling stake in one of the most heralded U.S. green technology companies, A123 Systems, has quickly ignited into a debate on national security and the energy future.

Of course, the Obama administration, which supported A123 with a $249.1 million grant in 2009, like the Bush administration before it, always argued that energy investments were aimed at strengthening national security. But Chinese deals for U.S. energy companies, an increasingly common feature of the business landscape this year, as we reported, were never meant to be part of that narrative.

A123, a spinoff of Massachusetts Institute of Technology, used its federal funds to open factories in Livonia and Romulus, Michigan to produce advanced lithium-ion battery systems for electric and hybrid cars. Energy Secretary Steven Chu visited A123 just one year ago, praising the effort as a model for U.S. technology leadership: “We helped them start a company,” he said in a video on the Energy Department’s blog. “We gave them research dollars so that they could then show that yes, indeed, there’s a chance that this will work.” But A123 was hurt by the slow development of the electric car market, and the struggles of its largest customer, Fisker Automotive. Recently, the company made clear it was running low on cash.

On Wednesday, having racked up second-quarter losses of $83 million, A123 announced a potential lifeline–a $450 million investment from China’s Wanxiang Group, which would amount to a controlling stake. The foreign deal will require U.S. government approval, and debate on that topic began almost immediately.

Blogging at Forbes, Bob Lutz, former vice chairman of General Motors, first slams the U.S. government for having invested in a technology before consumers were ready for it. (“The marketplace overwhelmingly voted for the speed, range and lower price of conventional cars.”) Lutz then goes on to slam the idea of allowing a foreign take-over of technology that would give the U.S. a competitive advantage: “If we can’t get our act together soon, the country will ‘go Chinese’ company by company, institution by institution, industry after industry.”

Perhaps Lutz is being hasty in his assessment, since The Wall Street Journal notes that opposition to the deal already is gathering on Capitol Hill. The Journal quotes Florida Republican Cliff Stearns, head of the House Energy and Commerce Committee’s panel on oversight: “We need to make sure the federal government isn’t an unwitting accomplice to the theft of our own national secrets.”

BloombergBusinessweek also relays Stearns concerns, adding a rejoinder from the White House that a condition of A123’s funding was that it could only be used for U.S. manufacturing operations. “Any changes to the scope of the grant would have to be approved by [the U.S. Department of Energy],” says White House spokeswoman Amy Brundage.

Responding to the 25 percent surge in A123’s stock price after the deal was announced, InvestorPlace warns readers “Don’t Risk an A123 Test Drive,” arguing the injection of Chinese money won’t cure the company’s woes. “Any new energy technology usually faces enormous headwinds because of the huge investments in infrastructure, the uncertainties of the science, and the necessary large-scale marketing to achieve buy-in from consumers,” says blogger Tom Taulli. “In the case of the EV market, many think it could be a decade or more for the technology to really start sticking.”