Mercedes-Benz U.S. International paid Cobasys $6 million to develop a battery pack for a hybrid vehicle under production, but claims the supplier ran into a funding crisis and is unable to deliver the product, putting the pressure on Mercedes to meet its June 2009 production deadline, the car company claims in Federal Court.

Cobasys is one of the few suppliers to produce nickel metal hydride (NiMH) battery packs for use in hybrids. It submitted the winning bid for the Mercedes hybrid project and, in doing so, agreed to develop, produce and deliver the product on time, the lawsuit claims.

Cobasys allegedly assured the Daimler AG affiliate that had all the requisite staff, funds and equipment to complete the job.     

After Cobasys and Daimler hammered out the production costs and pricing of the battery pack, Mercedes issued a purchase order. It claims Cobasys confirmed that it could meet the expected launch date, but did not sign a confirmation of the purchase order. The plaintiff says it found out later that Cobasys refused to sign the order because its owners, Chevron and Energy Conversion Devices, had cut off funding, leaving the supplier with "no plans or ability to fund its day-to-day operations past that point, much less make the capital investments required to meet its production volume commitments to (Mercedes) and other manufacturers."

To make matters worse, Mercedes claims Cobasys' owners are actively searching for a buyer. They allegedly hid this information from Daimler and Mercedes, leading them to believe that Cobasys was "ready, willing and able to produce the necessary parts, while knowing this is not the case, and while avoiding signing (the plaintiffs') purchase order."

Mercedes claims that Cobasys has since found a buyer, and the sale is imminent. But even if the buyer assumes the contract, Mercedes claims it has become "entirely dependent" on Cobasys' delivering the NiMH battery pack in time. "No other supplier can produce a battery meeting the specifications jointly developed by Cobasys and Daimler," the lawsuit claims.

However, when Mercedes solicited written reassurance from Cobasys, the company allegedly denied having any contract to produce the battery pack. Cobasys told Mercedes that it would continue the development work, but would not be involved with production. The plaintiff also remains suspicious of what will happen to the property rights, as Cobasys "has yet to provide any written concrete assurances that it will not sell or transfer any assets or intellectual property rights required to carry out its obligations."

Mercedes' attorneys are Howard Walthall Jr., Joseph Letzer, Ellen Mathews and S. Greg Burge of Burr & Forman.