This may be the closing chapter of A123 Systems as a U.S.-owned firm. According to news reports citing sources with knowledge of the matter, lithium-ion battery maker A123 is now owned by Wanxiang Group, China's largest maker of auto parts and a major supplier to Ford and General Motors.

Wanxiang's $260 million bid bested a joint offer from Johnson Controls and NEC for control of most of the assets of A123, including the automotive battery business that Johnson Controls had wanted to purchase, a representative of Lazard Freres, investment banker for A123, told Reuters. Germany's Siemens was also a bidder, according to news reports.

Wanxiang's apparent winning bid is sure to raise an outcry in Washington, D.C., however. A123 had received $250 million in U.S. Department of Energy grants and has spent about half of the funding to build its key battery plants in Michigan. The company is also developing battery storage technology for the U.S. military, an area that could raise national security concerns -- although according to reports, A123's government business will be sold separately to U.S.-based Navitas Systems for $2.25 million, which could assuage some concerns on that front.

Congressman Bill Huizenga, a Michigan Republican, wrote on his Facebook page: "I have serious concerns over the Chinese firm Wanxiang Group Corp attempt to buy A123. I am concerned this transaction poses a threat to U.S. national security, America's global innovation leadership and job creation." According to Huizenga, A123's contracts with the DOE involve power grids, advanced armor, unmanned vehicles and portable power systems.

A123, founded in 2001 and funded with $200 million in VC investment, went public with a $2-billion-plus valuation in 2010, only to crash and burn amidst consistent losses, slow growth for its electric vehicle battery business, and a fatal recall of its lithium-phosphate batteries from key EV partner Fisker Automotive. In fact, the fate of Fisker and A123 seem to be increasingly intertwined. Recently, Fisker announced that it has idled production of its Karma plug-in hybrid sports cars due to A123’s reduced output, though it looks for the situation improve -- with ownership of A123 established.  

The sale must be approved by Delaware Bankruptcy Court, where it is on the schedule for Tuesday. The Committee on Foreign Investment in the U.S., chaired by Treasury Secretary Tim Geithner, still must weigh in on the sale. It is not clear if the balance of the Obama grant can be transferred to Wanxiang.

To facilitate the transaction, A123 and all of its U.S. subsidiaries have filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. A123’s non-U.S. subsidiaries were not included in the filing. This action is expected to allow A123 to provide for an orderly sale of its automotive business assets and all other assets and business units under Section 363 of the Bankruptcy Code and help maximize the value of its assets for its stakeholders.

Andy Karsner, U.S. Assistant Secretary of Energy, EERE (2005-2008), notes in a Facebook posting, "In the wee hours of last night, in a quiet bankruptcy auction, A123, once at the vanguard of advanced energy storage for mobility and security, was bought by the Chinese for less than the value of the Stimulus grant it was awarded. [...] If the U.S. government would exercise even a fraction of the involvement to ensure intellectual property it cultivates stays at home, rather than investing overwhelming hype on Ed McMahon-sized checks, press events, and ribbon-cuttings, the nation's energy economy would be less politicized, more competitive and more secure. This is a sad story and embarrassing end to a once promising American startup."

The Obama DOE has shown inconsistent judgment in funding the manufacture of new technologies in solar (Solyndra, Abound) and in flywheel energy storage (Beacon Power). 

The administration has not fared well in battery technology either. A123 is gone. LG Chem, a Korean battery company with a factory in Holland, Michigan, furloughed 200 workers in September. That factory was to provide batteries for the Chevy Volt and was built with the help of $151 million in DOE Recovery Act Awards. Ener1, now bankrupt, won a $118 million award from the DOE to build batteries in Indiana.

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Jeff St. John contributed to this article.