A Case of Successful Failure
This technology company almost died of financial hubris, but its behind-the-scenes resurrection proves there’s sometimes a fine line between winning and losing.
You know the company, in part because its name is synonymous with high-profile failure. Eager to ride the wave of a hot new technology, it participated in a controversial government-funding program, staged a flashy initial public offering, and plowed hundreds of millions of dollars into research and new factories that would create jobs, reinvent an ailing domestic industry, and help the environment.
Except that it didn’t. As so often happens, this early adopter failed to find a market for its products. Within a few years, losses mounted, and it filed for bankruptcy protection. The taxpayers and investors in the publicly held firm lost their money, and the company laid off its employees and idled production. In the parlance of venture capitalists, it was a bagel — a zero. And because it coincided with other early failures in the same government program, it helped contribute to a sense that the whole endeavor was an expensive boondoggle. It sunk into oblivion.
Then there’s this other company you may have heard about. Having spent nearly 15 years patiently developing an important new technology, it suddenly finds itself in the sweet spot of a megatrend. The country’s largest manufacturing industry is very interested in the products it makes, and it has a growing list of international clients. Why? It produces an energy-saving technology that is gaining traction among consumers. With impressive growth, its factories are running all-out, and it just announced plans to double its production capacity.
Here’s the thing. Both scenarios describe the same firm: A123 Systems. And therein lies a cautionary tale about how we judge success and failure.
A123 Systems has had an interesting several years. It was founded in 2001, and specialized in lithium ion batteries — the technology that would enable greater use of electricity to power cars and trucks. In 2009, it became eligible for a US$249 million grant from a new U.S. Department of Energy program that was funding innovations in batteries and auto components. The same year, it pulled off a big initial public offering. And it put the cash it raised from taxpayers and investors into two new factories in Michigan. President Obama spoke — by phone — at the grand opening of one of the factories in 2010.
But A123 Systems had a harder time selling its products than it had raising money. The U.S. carmakers were licking their wounds from the financial crisis. Two of the companies most active in hybrids and electric cars — Nissan and Toyota — chose other suppliers. So in the fall of 2012, A123 Systems filed for bankruptcy protection. The company faded from the headlines, occasionally surfacing as a poster child for well-intentioned investments gone bad.
However, A123 didn’t get liquidated like Solyndra, the solar panel company that collapsed in 2011. A123 possessed useful infrastructure, technology, and intellectual property. And around the world, there was great interest in figuring out ways to store and discharge power more effectively. Wanxiang, a privately held automotive parts maker based in China, acquired A123 Systems in January 2013.
At first, instead of focusing on car batteries, the revived A123 Systems put the bulk of its efforts into making big packages of batteries that could be used to help manage the flow of power at power plants, and in solar and wind installations. That business was eventually hived off into a separate unit and sold.
In the meantime, batteries and power storage became hot — across the board. Tesla is building a huge factory in Nevada to produce batteries for use in its own cars and in a new home power storage product. Automakers eager to meet incoming mileage standards have continued to invest in ways to use more electricity to drive power trains, which might use all-electric-powered cars, plug-in hybrids, or gas-electric hybrids. With dozens of hybrid models on the market around the world, A123 Systems was able to find new customers.
Then in June 2015, A123 Systems resurfaced in the news when it made a surprising announcement. The company, which has factories in Michigan and China, was already in the midst of a $100 million expansion. But the factories are running all-out, and orders are expected to rise 50 percent in 2015 alone. As a result, A123 Systems announced it would spend an additional $200 million to double its global manufacturing capacity by 2018.
A123 Systems may have different owners now, but the name, the brand, and technology are largely the same in 2015 as they were in 2009. And I’m guessing that to the extent most people know about the company, they still identify it with its high-profile short-term failure, rather than with its quieter long-term success.
Part of that has to do with the vagaries of public relations. A123’s 1.0 version was a publicly held U.S. company that participated in a highly visible loan program and sold shares to the public — it was built and wilted in the bright glare of publicity. The 2.0 version is part of a Chinese privately held firm, doesn’t take government funds, and generally keeps a lower profile and goes about it business more quietly.
But this tale of two companies also raises an important point. While the public narrative arc of a company might end with its high-visibility face-plant, the story doesn’t have to end there — especially if the company possesses useful technology that can serve a growing market.
The public narrative arc of a company might end with its high-visibility face-plant, but the story doesn’t have to end there.
