Tuesday, electric-car-battery manufacturer A123 Systems filed for Chapter 11 bankruptcy protection in federal court in Wilmington, Delaware. A123 makes rechargeable lithium-ion batteries for electric cars. The company has been hurt by the slow development of the electric car market.

A123 announced that it has entered into an asset purchase agreement with Johnson Controls in a transaction valued at $125 million. This brought to a halt their August plans to sell an 80 percent stake to the American arm of China’s largest auto parts manufacturer, Wanxiang Group Corp.

On October 9, that deal encountered opposition from Senators Charles Grassely (R, Iowa) and John Thune (R, SD) concerned about the transfer of American taxpayer dollars and technology to China. A123 has multimillion dollar contracts with the Department of Defense (DOD) and the lawmakers were worried that the arrangement might give the Chinese government access to A123 technology.

Johnson Controls will take over facilities in Livonia and Romulus, Michigan; its cathode powder manufacturing facilities in China, and A123’s equity interest in Shanghai Advanced Traction Battery Systems Company, A123’s joint venture with Shanghai Automotive.

Selling to Johnson Controls has the benefit of bypassing approval from the Committee on Foreign Investment in the United States which reviews deals that could result in the control of a US business by a foreign person or company. Dan Borgasano, a spokesman for A123, said the agreement with Wanxiang required approval from CFIUS but declined to provide any further details related to that review.

Massachusetts-based A123 Systems received a $249.1 million stimulus grant from the Department of Energy (DOE) in 2009 as part of a car battery manufacturing grant program. To date, it has drawn down about $131 million, the department said.

Johnson Controls has also received DOE money. Its biggest grant totaled $299 million and was to be used for its own lithium-ion battery manufacturing program. Johnson has drawn down about $123 million of that grant.

A123 is the battery supplier for Fisker Karma, an expensive luxury sedan built in Anaheim, California. The most recent problem with the Karma’s A123 batteries was in February. That’s when a Karma died during a test run by Consumer Reports, sparking a frenzy of criticism from industry analysts and elected officials critical of government subsidies to the clean technology sector.

The ?latent manufacturing defect? that apparently caused the trouble was traced to A123’s Livonia plant. According to the bankruptcy filing, the mishap cost A123 about $52 million to replace battery modules and packs that may be defective, as well as over $15 million to replace defective inventory.

That was Fisker’s second manufacturing problem associated with A123’s batteries. In December of 2011, the supplier warned of a potential coolant leak from misaligned hose clamps that led to the recall of 239 Karmas–and more bad press.

BSN* Take

We spoke with Dr. Thomas P. Sheahen an MIT educated physicist who is retired from the Department of Energy (DOE) and worked on alternative energy sources for transportation. Sheahen says the military has been working for over a century to develop better batteries – ones that will last longer per charge, and most importantly, produce more energy per cubic foot of size. As every chemical engineer and race car mechanic knows, gasoline is a powerful source of energy, easy to store, and has over a hundred years of infrastructure already in place.

It is reported that DOE’s investments in battery technology have been successful. Today an electric car battery system with a 100-mile range has decreased in price from $33,000, six years ago, to $17,000.

An excellent source for examples of practical conversions of gasoline cars to electric powered, is Jack Rickards’ EVCON 2012.

Sheahen said the best way to fund Research and Development (R&D) for alternative energy ?is where each party puts 50 cents on the table at the same time; and in the case where the private sector walks away from it, the government walks away too.?

This latest setback for battery electric cars will surely become a political football between now and the November 6th US Presidential election. However, that will not deter the experimenters and the car manufacturers who have committed to electric vehicles. As with many things they become an instant success after thirty to fifty years of hard work. That is what has happened with the personal computer industry.