A123 Systems Inc., the electric-car battery maker that filed for bankruptcy this week, had promising chemistry and marquee customers. What it couldn't overcome, even with government funding, were missteps in manufacturing.

A123’s filing immediately became a presidential campaign issue, because the Obama administration pledged $249.1 million in grants three years earlier to help the company bring jobs and factories to the U.S. Republican Mitt Romney’s campaign pointed to the bankruptcy as an example of President Barack Obama’s failures in economic policy.

The company, co-founded by a 26-year-old out of the Massachusetts Institute of Technology, produced faulty batteries that forced its main customer, Fisker Automotive Inc., to recall hundreds of $103,000 cars. The technology won’t disappear: Johnson Controls Inc., a partsmaker based in Milwaukee, has offered to buy A123’s auto-battery business.

“This demonstrates just how difficult it is to get this battery revolution under way,” said Ed Kim, an analyst at AutoPacific Inc. in Tustin, California.

The bankruptcy followed A123’s attempt to sell a controlling stake to a Chinese company, an effort that fell apart amid scrutiny by congressional Republicans. The offer from Johnson Controls has to be approved by a U.S. Bankruptcy Court and could be topped by a rival bidder.

Considering the number of battery makers and still-low demand for electric cars, “attrition was pretty much a given,” Kim said. The surprise was that A123, with government support and fine minds behind it, “would be out of the game so quickly.”

‘Common’ Consolidation

In selling itself to Johnson Controls, A123 would end up in the hands of a more-proven industrial company that may use its electric-car technology in so-called start-stop batteries for hybrid and traditional vehicles. The sale to Johnson Controls keeps the U.S.’s investment in battery technology, and a local manufacturing base for it, at home rather than potentially losing it to China.

“In an emerging industry, it’s very common to see some firms consolidate with others as the industry grows and matures,” Dan Leistikow, an Energy Department spokesman, wrote in an Oct. 16 blog post on the agency’s website. Johnson Controls’ potential purchase “means that A123’s manufacturing facilities and technology will continue to be a vital part of America’s advanced battery industry.”

A123 was founded in 2001 by then-26-year-old entrepreneur Ric Fulop and scientist Yet-Ming Chiang at MIT. The company, funded initially by a $100,000 grant from the Energy Department, owes its name to the Hamaker force constant, used to calculate the attractive and repulsive forces between particles at nano dimensions.

Vue, Volt

In its early days, A123 made batteries for power tools with companies such as Stanley Black & Decker Inc., the world’s largest maker of cordless tools. The company expanded its product portfolio for manufacturing of hybrid and plug-in batteries for vehicles after investments from companies including General Electric Co. and Procter & Gamble Co.

In January 2007, General Motors Corp., as the Detroit-based automaker was known before its own bankruptcy, said that A123 would supply batteries for a Saturn Vue Green Line plug-in hybrid. In August 2007, GM said it would co-develop cells with A123 for the Chevrolet Volt.

Both of those deals eventually soured. GM pitted the battery cells that it co-developed with A123 against those of South Korea’s LG Chem Ltd. In January 2009, GM selected Seoul- based LG Chem to make the packs. The Saturn brand was eliminated as part of the automaker’s bankruptcy later that year.

Federal Aid

A123 applied for $1.84 billion in federal loans in January 2009 to build the first large-scale U.S. plants to supply rechargeable hybrids and electric cars. The company said it planned to eventually spend $2.3 billion on U.S. factories that would employ 14,000 people. In its Oct. 16 filing, it listed 1,763 employees at 10 facilities in the U.S., China and Germany.

Seven months after A123 applied for loans, President Obama announced that the company would be among the recipients of $2.4 billion in federal grants to encourage the development of hybrid and electric vehicles, getting $249.1 million of those funds.

“This is about the birth of an entire new industry in America -- an industry that’s going to be central to the next generation of cars,” Obama said in a September 2010 phone call with A123 Chief Executive Officer David Vieau and then-Michigan Governor Jennifer Granholm. The call was played over loudspeakers during an event celebrating the opening of a plant in Livonia, Michigan.

‘Made in America’

“When folks lift up their hoods on the cars of the future, I want them to see engines and batteries that are stamped: Made in America,” Obama said, according to a transcript provided by the White House.

Obama had set a goal of 1 million electric vehicles on U.S. roads by 2015. With fewer than 50,000 sold to date, that figure appears out of reach.

A123 ended up receiving $132 million of the Energy Department’s $249.1 million grant, using the funds toward building plants in Livonia and Romulus, Michigan. The company first sold stock to the public in September 2009, counting GM, Bayerische Motoren Werke AG, Chrysler Group LLC and Shanghai Automotive Industry Corp. among its customers.

While A123 boasted an impressive list of customers, making money was another matter. In its prospectus, the company said it had never been profitable, had a history of losses and “may be unable to achieve or sustain profitability.”

Investors Flocked

The risks didn’t keep investors away. A123 raised about $380 million for the company and its investors, receiving $13.50 a share in the initial public offering after raising its sale price at least twice. The shares soared 50 percent in the first day of trading, closing at $20.29.