Machines are used to fabricate batteries at the A123 Systems lithium ion automotive battery manufacturing plant in Livonia, Michigan. The company that received $133M stimulus money could be sold to a Chinese company. (Jeffrey Sauger/BLOOMBERG)

A bankrupt battery manufacturer that was a cornerstone of President Obama’s effort to make the United States a global leader in clean-energy technology could end up in the hands of a Chinese company when it goes on the auction block Thursday.

Congressional Republicans call the company, A123 Systems, which received $133 million in federal stimulus grants, a textbook case of how the Obama administration wasted taxpayer money trying to nurture new industries. Administration officials say the stimulus money was used to build a new manufacturing facility in Michigan that could remain open under new owners, even if they turn out to be foreign.

The company also has a Pentagon contract classified as “secret,” and Sens. Charles E. Grassley (R-Iowa) and John Thune (R-S.D.) are waving red flags. In a letter to Treasury Secretary Timothy F. Geithner, they called for a review by the Committee on Foreign Investment in the United States, an inter-agency group that reviews transactions that might harm national security. Treasury oversees CFIUS.

“We must make sure we don’t sell any of our sensitive technology . . . [and] that we’re not handing that over to a person who would misuse it or sell our sensitive information to the Chinese government or any other country,” Grassley said.

A123 Systems, founded in 2001, sells lithium ion batteries for electric cars and for utilities that use them as backup, community or renewable-energy storage.

“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 phone call to the company when it opened its Michigan plant in 2010. “And it’s going to allow us to start exporting those cars, making them comfortable, convenient and affordable.”

Obama said that American businesses could make only 2 percent of the world’s advanced batteries for hybrids and electric vehicles, but that “we’re going to get up to 40 percent of the world’s capacity.”

But sales of electric cars have been lackluster. And A123 Systems was hit by a series of setbacks. One of its main customers, Fisker Automotive, sharply reduced its purchases in October 2011. In early 2012, A123 spent $51.6 million to replace defective modules. In an effort to sell the company, its investment bankers contacted 74 parties, but only one, Wanxiang America, was interested in buying it and maintaining it as a going concern.

An investment firm, Wunderlich Securities, said in June that it would set a price target of zero on the stock “except that we believe the factory has some residual scrap value.”

On Oct. 16, A123 filed for bankruptcy. On the same day, it received just under $1 million more from the Energy Department.

“Sadly, the list of the Obama administration’s green failures continues to grow, and more folks are out of work,” Rep. Cliff Stearns (R-Fla.) said in a statement. “A123’s bankruptcy is a sign that the Obama administration’s green house of cards continues to collapse. In addition to the risk A123 poses to taxpayers, American intellectual property could be compromised if a foreign interest takes over A123.”

Energy Department spokesman Damien LaVera replied that “despite claims from our critics, Recovery Act funds were not used to develop intellectual property, but to support the construction of a battery manufacturing facility in Michigan. The Energy Department is working through the bankruptcy process to ensure that any assets sold in bankruptcy that were acquired by A123 using Recovery Act funds are used to facilitate the manufacture of lithium ion batteries at locations in Michigan.

Some defenders of the company blame the Obama administration for not providing enough support to A123. The Energy Department approved a $249.1 million grant for the battery-maker but never delivered the final $115.8 million. Some people familiar with the company say the uproar over a loan guarantee to Solyndra, a solar-panel-maker that went bankrupt in late summer 2011, made the administration wary of putting more money into an ailing firm.

“A123 had great technology, and had — and still has — a ton of orders,” said Leslie Goldman, a Washington lawyer who has represented the company. “Basically, the government got behind it and halfway through, when it was needed most, abandoned it. That’s a lesson in the vagaries of politics.”

But analysts said A123 needed to raise significantly more.

The auction that will begin Thursday will be held in a Chicago law firm with teams of lawyers and investment bankers in nearby rooms assessing bids and deciding whether to match them. The winner must then seek approval from the bankruptcy judge on Tuesday.

The two leading bidders are expected to be Wanxiang America, the U.S. subsidiary of a large Chinese automotive parts group, and Johnson Controls.

Johnson Controls is playing the America card. “With the bankruptcy of A123 Systems, Johnson Controls is one of the last standing American companies competing in and building this U.S. advanced battery industry,” the company said in a statement. It said that “it is important to secure the A123 intellectual property” and cited a group of retired military officers called the Strategic Materials Advisory Council, which urged CFIUS to reject a sale to Wanxiang.

Analyst Christine Muchanic of Height Analytics said the Defense Department contract was with the U.S. Army Tank Automotive Research, Development and Engineering Center.

In addition, Johnson Control said the Obama administration may need to approve the sale in any case because of the stimulus money invested in it.

Pin Ni, president of Wanxiang America, said that “everyone can have their voice. We’re in a democracy.” In the 20 years the company has been doing business in the United States, he said, “we have bought a lot of companies, saved a lot of companies and paid a lot of tax here. We have never sent a dividend to China.”

He said that Wanxiang, which has 3,000 employees in the United States, did not plan to send jobs to China and that A123 “already has several plants in China anyway.”

Ni said that CFIUS “needs to do its job” but that he has “confidence in the system.” He said CFIUS has reviewed deals from the company before.

As for the Energy Department grant, “I think they are set up in a very clear way that protects U.S. taxpayers’ interests,” Ni said. “The grant is about creating jobs. That’s my understanding. If you want to keep the grant, you have to do certain things. I don’t think it matters who creates the jobs.”