"We believe the asset purchase agreement with Johnson Controls, coupled with a Chapter 11 filing, is in the best interests of A123 and its stakeholders at this time," A123 CEO David Vieau said in the statement.
"As we move through this transaction process, we expect to continue operating and working with customers and suppliers," he added.
Johnson Controls' interest in A123 Systems dovetails with the company's "commitment to the development of the advanced battery industry," Alex Molinaroli, president of the company's power solutions unit, said in the statement.
"Requirements for more energy efficient vehicles continue to increase, which is driving automotive manufacturers to pursue new technologies across a broad spectrum of powertrains and associated energy storage solutions," the statement said. "We believe that A123's automotive capabilities are a good complement to our existing portfolio and will further advance Johnson Controls' position as a market leader in this industry."
Rich Kwas, an automotive analyst for Wells Fargo Securities, said the deal makes sense for JCI because it "will broaden the company's lithium-ion technology offering and enhances its scale."
"Longer-term, the transaction should further solidify JCI's position in advanced batteries," Kwas wrote in a statement today. "According to A123's investor presentation, the company has 22 transportation programs that were sourced for production or in production spread across both commercial and light vehicle OEMs."
A123's filing comes one day after the Waltham, Mass.-based company filed a document with U.S. Securities and Exchange Commission stating that it would default today on payment for $143.8 million of notes that expire in 2016.
"The company may not have sufficient cash to fund operations and may need to seek the protections provided under the U.S. Bankruptcy Code," A123 said in the filing. "No assurance can be given that the company will be able to avoid restructuring, reorganization, or a bankruptcy filing."
A123 received a $249.1 million federal grant in 2009 to build its Livonia plant, but has struggled since, posting 14 straight quarterly losses.
Wanxiang deal fails
In August, A123 announced a deal with China-based Wanxiang Group Corp. that would provide A123 $465 million in financing for an 80 percent stake. But the deal required approval from the U.S. and Chinese governments -- which had not happened.
"We determined not to move forward with the previously announced Wanxiang agreement as a result of unanticipated and significant challenges to its completion," Vieau said in the statement.
A123 reported a second-quarter loss of $83 million. In July, A123 said it had only five months of cash remaining.
A123's troubles in part stem from the failure of its lithium-ion batteries -- a Fisker Karma plug-in hybrid fitted with an A123 battery failed during an April test by Consumer Reports. Replacing the defective batteries is expected to cost A123 $66.8 million, including a $15 million inventory charge. The announcement devastated A123's stock price, which as of Monday had fallen 85 percent this year.
The problem was linked to incorrect calibration of an automated welding machine in Livonia. The flaw could cause an electrical short, leading to battery failure, the company said.
The bankruptcy filing may fuel further political debate over government financing of alternative-energy and transportation businesses. Federal grants and loans to companies including A123, Fisker and Tesla Motors Inc. have drawn scrutiny from congressional Republicans following the September 2011 bankruptcy filing of solar-panel maker Solyndra LLC two years after it received a $535 million loan guarantee from the U.S. Energy Department.
President Barack Obama called A123 CEO David Vieau and then-Michigan Gov. Jennifer Granholm during a September 2010 event celebrating the opening of the plant in Livonia, west of Detroit, that the company received the U.S. grant to help build.
"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 the phone call, according to a transcript provided by the White House. "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."
Electric-vehicle sales since 2011 totaled fewer than 50,000 through September, just 5 percent of Obama's target to have 1 million such vehicles on U.S. roads by 2015.
Republican presidential candidate Mitt Romney said last month that Obama has picked "losers" for alternative-energy loans and grants. His running mate, Paul Ryan, has called for all green-energy subsidies to be eliminated.
Obama and Romney are scheduled to hold their second presidential debate tonight -- and the A123 bankruptcy could end up in the discussion.
The U.S. Department of Energy allotted about $90 billion for various clean-energy programs through the administration's stimulus package. Of that, at least $813 million went to energy companies that eventually filed for bankruptcy, including A123, Solyndra, Beacon, Abound Solar and EnerDel.
The Solyndra failure has been regularly cited in stump speeches leading up the Nov. 6 U.S. presidential election, including those of Romney, who argues that the government should not be in the business of picking corporate winners and losers.
"The riskiest strategy of all is not competing aggressively for the technologies of tomorrow and the jobs that come," Dan Leistikow, DOE director of public affairs, said in a blog post. "In an emerging industry, it's very common to see some firms consolidate with others as the industry grows and matures."
A123 had promised to create 38,000 U.S. jobs, including 5,900 at its own plants, in return for the government funding under the 2009 American Recovery and Reinvestment Act's Electric Drive Vehicle Battery and Component Manufacturing Initiative.
A123 has tapped $132 million of its 2009 grant, the DOE said. Johnson Controls, which supplies lithium-ion batteries to a number of vehicle manufacturers, also received a $299 million grant under the same program.
About 26 percent of A123's revenue last year came from Fisker for the Karma battery. Next year, A123 will provide the batteries for the Chevrolet Spark EV that will be introduced by General Motors Co.
"GM is aware of the situation with battery supplier A123," GM spokeswoman Kim Carpenter said. "We are monitoring the situation, but we expect no delays in the Spark EV program."
Johnson Controls supplies batteries to Ford Motor Co., BMW and Daimler, among others.
Bloomberg and Reuters contributed to this report.