Electric Car Battery Manufacturer A123 Systems Files for Bankruptcy, But...

Keeping Perspective

First, the bad news: A123 Systems, the electric car battery maker that has GM and Fisker as customers and which received a $249 million federal grant, has just filed for bankruptcy and said it would sell its assets to Johnson Controls. Obviously that's bad for the company, and reflects poorly on the health of the electric car industry. But while I'm sure that every single negative aspect of this story will be used by the media and politicians to score points, I'm not so sure that things will be kept in perspective, so allow me to provide the other side of the coin.

The financial health of individual companies in an industry and the long-term outcome for a technological advance are two very different things. Warren Buffett has often said that he believed that since the Wright brothers, air travel has cumulatively generated negative profits. It has actually destroyed capital, as many airlines have gone bankrupt multiple times and profit margins have often been slim if there were any at all. Yet in no time air travel went from a marginal thing to something that is safe, affordable, and ubiquitous. Things went very wrong financially in the industry, but the technology itself progressed just fine. I believe a similar thing is happening for solar panels; it's hard to make money, but the panels themselves keep getting better and cheaper.

Technical Progress Isn't Lost

I think a similar thing will happen to electric car batteries. You'll have a bunch of startups and big companies that will get in trouble because they mis-timed the market or made bad technical decisions or whatever, but overall, the technology will keep progressing until it gets to a tipping point that makes it effective and cheap enough for it to become mainstream and replace the internal combustion engine in passenger vehicles.

Advanced manufacturing is tough, especially for startups that don't have big financial rainy day funds. If it takes 2-3 years to ramp up production on something, you have to make forecasts about many things, and if you turn out to be wrong, everything can go down in flames. For example, if 2 years ago A123 forecast that the world economy would be X and Y electric cars would be sold per month, and they set up their company around these assumptions, but they actually were wrong, it can make them fail despite having a good product and competent management. I'm no insider, so I can't be sure that this is what happened, but it seems very plausible.

But all of A123 Systems' breakthroughs and technologies aren't lost. They'll be sold to another company, and engineers will keep building on them to create the next generation of EV batteries. That's how it goes.

Via Bloomberg

See also: How Much Does the Chevy Volt Cost to Make? Is It Really $89,000?

Tags: Electric Cars | Electric Vehicles

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