A123 makes lithium-ion batteries for passenger cars as well as other battery storage devices (Photo: A123)

China's Wanxiang plans to invest up to 450 million dlrs in A123, providing a financial lifeline to the embattled US battery maker.

Under the terms of a non-binding memorandum of understanding between the two companies, Wanxiang, a large Chinese automotive components manufacturer, would provide a capital injection that would let A123 continue to grow its core business. The agreement would also give A123 access to the important Chinese market, the US company said in a press release.

"Today's announcement is the first step toward solidifying a strategic agreement that we believe would remove the uncertainty regarding A123's financial situation," said David Vieau, CEO of A123.

A123, which in 2009 received 249 million dlrs from the US government as part of Washington's strategy to promote green industries, has not managed to restore its operations to profitable growth.

The company reported last week that second-quarter revenue plummeted to 17 million dlrs from 36 million dlrs a year earlier. At the same time, net losses widened to 83 million dlrs during the quarter from 55 million dlrs a year earlier.

Vieau said A123 introduced its next-generation nanophospate EXT technology during the quarter and already has a first production customer for it. The technology improves power capability at low temperatures and battery life at high temperatures.

Wanxiang, which has more than 13 billion dlrs in annual revenue and employs about 45,000 people, would like to broaden its global footprint and hopes to use its investment in A123 for that.

The company's CEO,  Weiding Lu, said A123's expertise in vehicle electrification and grid-scale energy storage, coupled with its manufacturing and systems engineering capabilities in Michigan and Massachusetts "creates important synergies with Wanxiang."

The CEO said the MOU is "the first step toward a longer-term agreement."

Because the US administration of President Barack Obama backed A123 in 2009, the planned Chinese investment is threatening to become a political issue in the upcoming presidential elections this autumn.

The Republican Party, which hopes to unseat Obama in November, headlined comments on its Web site: "The company backed by taxpayer dollars and praised by Obama is laying off workers, running out of money and looking for a Chinese takeover."