Wanxiang Group Corp. wants A123’s R&D intact as part of its $450 million rescue investment, and a big chunk of the money ($200 million) is tied to continued access to $120 million in unspent Department of Energy loans -- a provision that’s sure to raise hackles on Capitol Hill.

Those are the terms of the memorandum of understanding between A123 and Wanxiang, which detail just how the Chinese automotive technology giant is breaking up its financial takeover of a U.S. lithium-ion battery technology company on the ropes. A123 has been battered by continuing losses and a massive battery recall. It got a NASDAQ delisting notice this week, and has only enough cash for a few months more operation if the Wanxiang deal (or another of similar size) doesn't go through.

But it also got a $249 million DOE grant, along with $100 million in state tax credits, to build its battery plant in Livonia, Michigan. That has opened it up to attacks from political opponents of the Obama administration’s multi-billion-dollar green energy programs, calling the deal a giveaway of taxpayer money.

Beyond that, there’s the burn of having cutting-edge technology fall into the hands of a Chinese company. A123 has continued to promise new, more efficient lithium-ion battery designs, even as it has struggled financially.

But Wanxiang makes clear that it wants to retain A123’s in-house R&D smarts. It has structured its deal in tranches, including an initial $75 million senior secured bridge loan with associated warrants, or rights to buy equity shares in the future. Of that first round, $50 million is contingent on “absence of material diminishment of the Company’s research and development and engineering teams by reason of resignations or departures,” according to the MOU. In other words, the A123 brain trust has to stay on board, and the labs have to stay running.

A123’s genesis as a federally funded MIT startup, as well as certain contracts with the U.S. military, complicate its relationship to its core intellectual property. That’s a critical factor when it comes to the $120 million that A123 has yet to draw on its $249 million DOE loan. Republicans in the House and Senate have already started to question whether a company controlled by a Chinese owner should retain access to U.S. taxpayer cash.

The DOE has confirmed that the $249 million is only available for in-country investment, and recently extended A123’s access to the remaining $120 million through late 2013.

Perhaps that status-quo condition will satisfy Wanxiang’s demand that its $200 million in senior secured convertible note financing, the largest single chunk of its bailout package, come with “reasonable assurances that A123's government grants and tax credits will remain available” after it takes its controlling stake.

That provision is sure to raise an outcry among the political and pundit-class opponents of DOE’s green stimulus program. But it’s also going to be a critical factor in just how generous Wanxiang’s takeover offer turns out to be for A123. According to an analysis by John Petersen at AltEnergyStocks, A123 will get a lot less out of the deal if it doesn’t keep its grants and tax credits. Specifically, the exercise price of the bridge financing warrants would drop from 42.5 cents to 17 cents per share, and the senior secured note-related warrants would fall from 60 cents to 24 cents per share.

Policymakers and politicians in the United States and China are going to disagree about the terms of this deal, but analysts agree that shareholders will have no choice but to go along. Then, of course, there are the jobs to consider. A123 employs some 1,200 people, 900 of them in Michigan, and has already gone through a small round of layoffs.

Of course, U.S. companies like A123 and rival lithium-ion battery maker Boston-Power are big recipients of Chinese investment, and build batteries in China like everyone else. General Motors gets its Chevy Volt batteries from South Korea’s LG Chem, and big players like Panasonic, Saft and BYD hail from Japan, France and China, respectively.

At the same time, A123’s government support was tied to the promise of building high-tech and factory floor jobs in the United States, not overseas. A123 is supplying batteries to Fisker Automotive, a company also in perilous financial straits and fighting for access to federal funds, as well as BMW, Chinese automaking giant SAIC and truck and bus makers like Eaton, Navistar, and BAE Systems. It also has more than 100 megawatts of grid-scale energy storage work for utilities in the U.S. and abroad.

It’s hard to predict how Wanxiang will choose to develop A123’s technology if it does acquire its controlling stake, but it’s certain that manufacturing in China will be part of its plan. That certainly ought not single the two companies out, however. China drew $66.7 billion in foreign investments in the first half of 2012, and $7.6 billion in July alone, while U.S. multinationals put $879 million into China in the first quarter of this year.

In contrast, Wanxiang, one of a few Chinese companies that has invested in U.S. operations that employ Americans, is part of a relatively small, but significant, return flow of capital. Chinese investments in the United States have added up to about $20.9 billion over the last decade or so, according to the Chinese Ministry of Commerce.

Beyond questions of the batteries A123 is building today, however, it’s clear that its core value to any prospective buyer lies in its future potential, driven by R&D. Amidst its financial woes, the company continues to come up with technology breakthroughs, like its June announcement of batteries that retain their charge at extreme temperatures without the need for expensive thermal management systems.

A123 expects that technology to be ready for volume production in mid-2013, about the same time it’s said it could reach a cash-flow positive status on a quarterly basis. Of course, anything beyond the next few months is hard to predict. A123 and its new would-be Chinese owner may have to walk carefully through a political minefield to make it to next year.

Tags: a123, batteries, boston-power, byd, china, doe, energy storage, federal, fisker, general motors, grid storage, lg chem, lithium-ion, panasonic, saft