Government-backed luxury carmaker Fisker Automotive has bought thousands of
batteries from A123 Systems under an exclusive supply deal, but now the auto
company may have to look for another power source for its high-end, plug-in
hybrid Karma vehicles -- and at a hefty cost.
With the bankruptcy of U.S.-based A123 and questions about its battery
supply contract, Fisker said it could expect more than $90 million in added
costs to purchase batteries from suppliers other than A123, according to court
records.
The expenditures have increased as the California-based automaker
reportedly seeks outside investors or buyers, still owes U.S. taxpayers for
much of the nearly $200 million it has borrowed from the Department of Energy.
A123 has had its own financial troubles. The battery maker went bankrupt
last year after receiving more than $120 million in federal grant money from
the Energy Department, but it recently won approval from a judge and the U.S.
government to be purchased by a Chinese competitor, Wanxiang America Corp.
While Fisker tries to negotiate a battery supply deal with A123's new
owners, the automaker filed a claim in A123's bankruptcy case last week that
outlines tens of millions of dollars in losses.
Fisker attorneys said A123 agreed to sell the auto company 5,000 lithium
ion battery packs for $14,500 each, dropping the price to $12,950 for the next
22,499 battery packs.
But by the time A123 went bankrupt last year, Fisker said it had
purchased only about 2,600 batteries while estimating it will need another
15,000. Fisker attorneys said the search for other battery suppliers won't be
cheap. The company estimated an additional cost of $6,080 per battery, with
overall costs totaling $91.2 million.
The numbers provide more detail to the gloomy financial picture Fisker
attorneys painted in a separate court filing last year, when they predicted
that the automaker would be "severely disrupted and harmed" if the supply deal
faltered.
"Consequently, the rejection of the Fisker contract represents an
immediate threat of significant disruption and harm to Fisker's business, with
a corresponding negative impact on Fisker's lenders, suppliers, customers and
investors," attorneys wrote in a filing.
Before the takeover by Wanxiang, attorneys for A123 sought to reject the
Fisker battery supply deal, among other company contracts, arguing in court
papers that many of the arrangements were below market.
Facing a potential cash shortage, Fisker has been busy looking for
outside investors or buyers. Citing sources familiar with the talks, Reuters
reported that China's Zhejiang Geely Holding Corp. was a favorite to secure a
majority stake in Fisker.
"The company has received detailed proposals from multiple parties in
different continents which are now being evaluated by the company and its
advisers," Fisker spokesman Roger Ormisher told Reuters. Bloomberg also
reported that Dongfeng Motor Group, also of China, is competing for a majority
share in Fisker.
Reached by phone Tuesday, Mr. Ormisher declined to comment on the
company's claim in the A123 case beyond what Fisker attorneys outlined in
their filing, which included a more than 50-page copy of the battery supply
contract.
Fisker, which recently hired Chicago turnaround company Huron Consulting
Group, was awarded a Department of Energy loan for more than a half-billion
dollars, but it drew down less than half of that money.
Energy Department officials ultimately froze the funding because of what
they called missed milestones. Part of the company's loan was supposed to
start production at a facility in Delaware.
Founded in 2007, Fisker won a $528.7 million loan from the Energy
Department's advanced-technology vehicle manufacturing loan program two years
later. Its current chief executive, Tony Posawatz, is a former executive at
General Motors Co., where he was line director in charge of the Chevrolet
Volt.
Fisker's trouble landed the company some unwanted attention during the
presidential campaign last year when Republican candidate Mitt Romney called
it a "loser" during his first debate with President Obama.
At the time, a company spokesman told Wired magazine that Fisker didn't
consider itself a loser, noting that Fisker had sold 1,500 cars, raised $1.2
billion in private equity and was expanding export markets overseas.
