Waltham, Mass.-based advanced lithium-ion battery company A123 filed for bankruptcy on Tuesday, becoming the fourth Obama administration-backed green technology company to declare insolvency after receiving tens or hundreds of millions of dollars in federal grants and loans.

That makes it a big political story, with partisans on both sides denouncing and defending the Department of Energy’s $249.1 million grant to A123 (about $132 million spent so far, mainly to build its flagship factory in Livonia, Mich.). We’ve already seen the inevitable comparison to bankrupt solar company Solyndra, which took a $535 million loan guarantee from the Department of Energy only to go under last year. DOE-backed flywheel energy storage maker Beacon Power and thin-film solar startup Abound Solar have since declared bankruptcy as well.

But A123’s fate is likely to be much different than Solyndra’s, which has seen its plant dismantled and its technology stranded. Johnson Controls, the Milwaukee, Wisc.-based industrial giant with an advanced battery portfolio of its own, plans to buy A123’s automotive battery business for $125 million and has pledged $72.5 million in debtor-in-possession financing to keep operations going during bankruptcy proceedings.

Tuesday’s Chapter 11 bankruptcy protection filing in U.S. federal court in Delaware also puts an end to a $465 million bid by China’s Wanxiang to take majority control of A123 in exchange from saving it from insolvency. That deal has been canceled, A123 CEO David Vieau said in a Tuesday statement on the company’s website.

But that won’t extinguish the political firestorm to come on A123’s crash and burn -- even if parts of the company can be saved, as Johnson Controls seems intent to do with the automotive battery line. Congressional inquiries into A123’s remaining share of its DOE loan, as well as its relationship to struggling plug-in hybrid automaker (and key A123 customer) Fisker Automotive, have been underway for months.

Political Fallout and Presidential Policy

Let’s start with the main stage. Mitt Romney’s campaign issued a statement on Tuesday calling the bankruptcy “yet another failure for the president's disastrous strategy of gambling away billions of taxpayer dollars on a strategy of government-led growth that simply does not work.” President Obama’s campaign fired back that Romney, as Massachusetts governor, had presided over state loans to companies that later defaulted on their debts.

On a less personal, but still political, note, a Department of Energy spokesman wrote in a blog post that Republican members of Congress had signed on as A123 supporters -- not surprisingly, both from Michigan, where A123’s plant was built with federal and state support.

DOE’s blog also stated that 100-mile-range batteries have dropped in price from about $33,000 before it started investing billions of stimulus dollars into the sector, to about $17,000 today. That’s on track to drop to $10,000 by 2015, DOE predicts. Of course, that’s based on a rosy projection for the advanced battery market, which DOE says is set to grow from $5 billion in 2010 to nearly $50 billion in 2020.

In large part, that’s tied to equally optimistic, official Obama administration goals to put 1 million plug-in vehicles on U.S. roads by 2015 -- a growth rate that is hard to imagine, given the fact that only 50,000 EVs have been sold so far this year.

Cost, Quality Struggles: Will GM Stick With A123?

Beyond the core problem of a slow-to-develop market, A123 may have faced struggles to compete on cost against its rivals, according to an analyst who spoke to Wired. Asian companies dominate the advanced battery market today -- South Korea’s LG Chem makes the batteries for GM’s Chevy Volt, Japan’s Panasonic makes Tesla Motors’ batteries, and the Nissan Leaf’s batteries come from a Nissan-NEC joint venture.

To be sure, A123 has a long list of EV customers, including General Motors, BMW, SAIC Motor Corp., Tata Motors and Smith Electric Vehicles. But Fisker was its main customer, with about 26 percent of A123’s revenue, according to bankruptcy filings -- and Fisker has been having its own problems as it strives to meet terms of its own $529 million DOE loan. Fisker was also the company that received A123 batteries that were subject to a mass recall this spring, a disaster that triggered A123’s spiral into bankruptcy.

It’s hard to predict how the proposed acquisition by Johnson Controls will affect those ongoing relationships. GM, which has tapped A123 to build batteries for its Spark EV, issued an official "no comment" on its Chevy Volt website on Tuesday as to whether it would continue using the bankrupt company’s batteries if the Johnson Controls deal goes through.

Price vs. Value for Domestic Green Technology Support

In the meantime, the company as a whole has lost a collective $1 billion over the course of its publicly-traded life, retaining $459.8 million in assets and $376 million in debt as of Aug. 31, according to bankruptcy filings. The company has seen its market value fall from a high of $2.3 billion shortly after its 2010 IPO to an estimated $8.2 million as of Wednesday afternoon, representing the destruction of a whole lot of capital.   

At the same time, EV supporters were quick to point out that A123’s assets and intellectual property represent ongoing value for whichever company picks them up. “Government can help facilitate innovation, but the natural business cycle remains -- some failures in any emerging industry are inevitable," Jay Friedland, legislative director for nonprofit advocacy group Plug-In America, said in a Tuesday statement.

In that sense, A123’s bankruptcy is simply a fire-sale opportunity for consolidation into a growing industry, whether under domestic or foreign ownership. Johnson Controls got its own $299 million DOE advanced manufacturing grant in 2009 to build domestic manufacturing capacity for hybrid and electric vehicle batteries, and will be keeping jobs and intellectual property in the country if it takes over A123’s automotive business.

That means that federal investment into A123 -- and Johnson Controls, for that matter -- will be achieving its goals of creating jobs and fostering domestic technology innovation, the Information Technology and Innovation Foundation, a nonprofit founded and chaired by former Republican lawmakers, noted in a Tuesday statement.

“Through critical public investments in battery innovation by ARPA-E and DOE investments in next-generation battery manufacturing, the U.S. battery industry has made significant technological progress in a few short years,” the group noted. “And as shown by Johnson Controls purchase of A123’s manufacturing plants and technologies, it’s helped spur very promising technologies that U.S. industries will continue to use and build on.”

Whether or not U.S. manufacturing plants can compete on costs with Asian rivals is another question. Both A123 and rival lithium-ion battery maker Boston-Power have turned to building batteries in China with partners, both for low production costs and to serve China’s future market for electric vehicles.

Meanwhile, the fate of A123’s significant grid-scale battery business -- some 24 percent of its revenues came from grid storage partner AES, according to bankruptcy filings -- and other parts of the company remains unclear. Indeed, other bidders may emerge to challenge Johnson Controls for A123’s automotive battery business, which includes plants in Livonia and Romulus, Mich., a factory in China and its stake in a joint venture with Shanghai Automotive.