* A123 benefited from U.S. green technology loan guarantees * Chinese auto parts company Wanxiang to take 80 pct stake in A123 * A123 reported 2nd-qtr loss of $82.9 mln By Paul Lienert Aug 8 (Reuters) - U.S. battery maker A123 Systems, which got a $249 million green technology grant from the U.S. government three years ago, said on Wednesday that a Chinese auto parts maker is looking to take an 80 percent stake in the faltering company. China's Wanxiang Group Corp plans to invest up to $450 million, A123 said. A123, which makes high-tech auto batteries for hybrid and electric vehicles, received the federal grant in 2009 under an Obama administration initiative to encourage the development of green technology. In 2010, Energy Secretary Steven Chu visited A123's Romulus, Michigan, plant where he applauded the company for being "a perfect example of what's possible when the private sector, government, and academia work together". Obama's push for clean energy technology has come under fire from Republicans since the failure of two government-backed solar panel makers in the last two years. Solyndra LLC, which filed for bankruptcy protection in September 2011, left taxpayers on the hook for $535 million in loans. The company filed a Chapter 11 reorganization plan in July. Abound Solar filed for Chapter 7 liquidation in July. The Obama administration has said the country must win a clean energy race with China through advances in areas such as battery technology and solar power. The U.S. solar panel industry has blamed the failure of Solyndra and other companies on China flooding the world market with cheap panels. Kevin See, an analyst with Lux Research, said that with regard to the battery market the Obama administration underestimated the level of international competition and over estimated demand for electric vehicles. "It really does look like the American attempt to become a leader in battery manufacturing has failed ... There's still going be manufacturing in the U.S., but it's not necessarily going to be benefiting American companies," See said. Weak U.S. demand for electric and hybrid vehicles has put financial pressure on battery suppliers like A123. U.S. electric car battery maker Ener1 Inc, which received a $118.5 million government grant, filed for Chapter 11 bankruptcy last January. A123 Chief Executive David Vieau said any deal with Wanxiang must be cleared by U.S. and Chinese government regulators. The pact with Wanxiang will "align us with a large, successful global brand in the automotive and cleantech industries," Vieau told investors on Wednesday. Wanxiang CEO Weiding Lu said in a statement that the deal would "help expand the company's capabilities both domestically and internationally." Vieau said on Wednesday that his company hopes to do well in China where there is a government-mandated expansion of the market for electric and hybrid vehicles. WEAK EARNINGS On Wednesday, A123, a maker of lithium iron phosphate batteries, reported a second-quarter loss of $82.9 million, or 56 cents per share, compared with a loss of $55.4 million, or 44 cents per share, a year earlier. The company said second-quarter revenue fell 53 percent to $17 million and that it ended the quarter with $47.7 million in cash and equivalents, down from $113.1 million at the end of the first quarter. A123 warned last month that it had cash to fund its operations for only the next four to five months. The company said the deal should be done before the end of the year and a quick cash injection should help it get through the next several months. A123 received more than $200 million from venture investors before raising $378 million in a 2009 initial public offering. That same year, it was awarded a grant under the Obama administration's $2.4 billion Electric Drive Battery and Component Manufacturing Initiative. Wanxiang, one of the largest non-government-owned companies in China with annual revenue of more than $13 billion, has an electric vehicles subsidiary in Hangzhou and a U.S. subsidiary in Elgin, Illinois, outside Chicago. The parent company supplies auto parts to many of China's largest automakers. A123 has battery contracts with Germany's BMW, China's SAIC and U.S. startup Fisker Automotive, and is slated to provide batteries for General Motors' upcoming Chevrolet Spark EV. The terms envision Wanxiang providing an initial loan of $25 million, plus another $50 million on closing, A123 said. Wanxiang also will purchase $200 million in senior secured convertible notes and invest as much as $175 million through the exercise of warrants it would receive in connection with a bridge loan and convertible notes. Vieau said on Wednesday that the company would continue to be publicly traded after Wanxiang takes effective control. A123 shares rose as high as 34 percent in pre-market trading and closed up 6.4 percent at 50 cents.