A123 may be in bankruptcy court, but it is still subject to a bidding war for its assets.
NEW YORK (CNNMoney) -- Lithium battery maker A123 Systems may have been forced to file for bankruptcy protection this week, but the company is still attractive enough to spark a bidding war for its assets.
A123 (AONE), a major supplier to the U.S. electric car industry and recipient of $249 million in government stimulus funding, announced Tuesday that it had filed for bankruptcy.
The same day, A123 said it had entered into a $125 million deal for the sale of its automotive assets to U.S. parts maker Johnson Controls (JCI, Fortune 500). As part of the deal, Johnson Controls agreed to provide A123 the funding it needs to operate during bankruptcy reorganization.
But Chinese auto parts maker Wanxiang Group went to federal bankruptcy court in Delaware on Thursday, arguing it has a better offer for A123 already on the table, and seeking to be the one to provide bankruptcy financing to A123.
Earlier this year, Wanxiang agreed to pay $465 million for a controlling stake in A123. But the deal ran into government opposition due to the investment in the company by the Energy Department and the company's contracts with the U.S. Defense Department.
Bankruptcy judge Kevin Carey gave the first round to Johnson Controls on Thursday, allowing A123 access to the first $15 billion of financing from Johnson Controls -- once Johnson Controls agreed to cut the interest rate to match the offer from Wanxiang (see correction below).
But a decision on who will get to buy the assets, and at what price, is still pending before the court, which is charged with getting the best deal possible for creditors.
Related: A123's bankruptcy -- Good for America
Michael Lew, analyst with Needham Co., said the bidding war is proof that no matter what financial problems forced A123 into bankruptcy, the industry sees it as a valuable business going forward.
"Electric cars aren't a good value proposition right now. But over time the market will evolve," said Lew. "Johnson Controls' interest validates A123's business."
Related: Year of the electric car blows a fuse
Lew said he believes there could be additional bidders for A123 before the issue is settled, and that it's difficult to predict who will win. He said while Wanxiang might have the more lucrative offer at the moment, the deal could be rejected if the bankruptcy court determines it won't win regulatory approval.
"Their offer is bigger, period. But there is a concern about all of the IP [intellectual property] going to China," he said.
Related: Smart's electric car might actually be...smart
Neither Johnson Controls nor A123 responded Friday to requests for comment on the bidding war, and Wanxiang could not be reached for comment.
Correction: An earlier version of this story incorrectly stated the amount of financing available to A123 from Johnson Controls. It is $15 million not $15 billion. 
First Published: October 19, 2012: 2:55 PM ET
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