A123 Files for Bankruptcy, Sells Off Auto Business

[Updated 4:20pm ET. See below] It’s a dark day for A123 Systems and U.S. cleantech.

The struggling Waltham, MA, lithium-ion battery maker (NASDAQ: AONEhas filed for Chapter 11 bankruptcy and is selling its automotive business to industrial tech company Johnson Controls (NYSE: JCI) for $125 million.

That means A123’s plants in Livonia and Romulus, MI, some of its Chinese manufacturing facilities, and all of its automotive technology, products, and customer contracts will be turned over to Johnson.

A123 says in a statement that it “continues to engage in active discussions regarding strategic alternatives for its grid, commercial, government and other operations, and has received several indications of interest for these businesses.”

In August, A123 signed a big investment agreement with China’s Wanxiang Group, in an effort to survive its financial problems. The 11-year-old company had suffered from a major battery recall, customer slowdowns (lack of demand for electric vehicles), and layoffs.

It’s not immediately clear now what the future of Wanxiang’s ownership stake might be, how that would play with Johnson Controls, and what exactly is happening to the company’s employees in various locations. According to a new Boston Globe report, A123 says it is not moving forward with the Wanxiang agreement. [Previous sentence added as an update—Eds.]

What is clear is that A123 will probably be used as a political pawn in the U.S. presidential campaigns and debates (likely starting tonight), as the company received a $249 million federal grant from the Department of Energy in 2009 to build its manufacturing facilities. In that year, A123 also made a splash for having the country’s biggest IPO ($370 million-plus).

How quickly things can turn.

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