For A123, Government Funding Brings Both Job Creation and Innovation, CEO Says

4/14/10Follow @xconomy

A123Systems president and CEO David Vieau says some investors have questioned whether the company’s aggressive pursuit of federal funding for lithium-ion battery production is a sign that the company doesn’t have a sustainble business without government support.

But for A123 (NASDAQ: AONE), “it really is about jobs,” Vieau said yesterday at a fireside chat-style discussion at the IdeaStream Symposium, put on by MIT’s Deshpande Center for Technological Innovation. “We do feel a sense of social responsibility to create jobs to the extent that we can do it and give our shareholders a good return.”

A123, whose nanoscale electrode technology comes out of MIT, was initially funded in 2001 with a $100,000 grant from the U.S. Department of Energy, but grew over the last decade to pull off a $380 million IPO in September 2009.

A123′s first product, a battery for handheld electric tools, was used by Black & Decker, but the company has since evolved to focus on batteries for electric vehicles. It put its first production facilities in Asia because the region possesses all the materials, equipment, manufacturing, and development knowledge surrounding lithium-ion battery production, says Vieau. “If we had been able to do it in the US from the beginning, we would have,” he says.

Last year, A123 won a $249 million grant as part of the DOE’s push for electric vehicles, and used the funding to begin construction on its first U.S. manufacturing facility in Livonia, MI. The federal backing is enabling A123 to maximize the value of its technology for shareholders, Vieau says. The company will outfit electric cars from automakers such as Chrysler, Navistar, and Fisker Automotive with batteries produced at the Michigan plant.

At its first Livonia site A123 has worked on “duplicating the Korean factory as exactly as we possibly can” in order to get its products out most efficiently, Vieau says. But with future Michigan factory installations, the company hopes to innovate in its manufacturing facilities to become more efficient and survive without government backing.

Though state and federal funding, including $100 million in tax breaks, were what convinced A123 to put its first U.S. manufacturing plants in Michigan, it’s also realized other benefits from working on the ground alongside the auto industry.

“It’s been much much better than I ever expected in terms of the innovation ability,” Vieau says. For one, automotive engineers have a keen ability to adhere to a tight production schedule—a feat those in the IT world, which Vieau comes from, have a harder time matching, he says.

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