A123 Systems: 'No assurance' it can continue to operate

[TylerDurden]

A123 Systems: 'No assurance' it can continue to operate

By Lizzy Alfs
Business Reporter
AnnArbor.com
Posted: Thu, May 31, 2012 : 5:21 p.m.


Massachusetts-based manufacturer A123 Systems issued a “going concern” warning in a filing with the U.S. Securities and Exchange Commission this week.

The lithium-ion battery maker said it expects “significant net losses and negative operating cash flows over the next several quarters.”

The warning comes after the battery maker — which employs about 700 people at its battery plants in Romulus and Livonia and about 40 at its research and government solutions division in Ann Arbor — recalled defective batteries built at its Livonia plant. The company makes batteries for electric vehicle startup Fisker Automotive, BMW and General Motors.

A123 is replacing battery modules and packs that may contain defective prismatic cells produced at the facility. The cost: $51.6 million. It also recorded an inventory charge of $15.2 million related to existing inventory at the plant that may be defective.

A123 said in the filing it's looking to raise additional capital and is in discussions with strategic partners for investments in the company while it continues to seek to reduce cash used in operating and investing activities.

“Although the company’s intent is to improve its operating efficiencies and to obtain additional financing, there is no assurance that the company will be able to obtain such financing on favorable terms, if at all, or to successfully further reduce costs in such a way that would continue to allow the company to operate its business,” the filing says.

In 2009, A123 landed government support via a $249.1 million economic stimulus grant from the U.S. Department of Energy — a grant Ann Arbor entrepreneur Maria Thompson was credited for playing an instrumental role in. Thompson retired as an A123 executive in 2010.

That came after the battery manufacturer won $125 million in tax credits and incentives from the Michigan Economic Development Corp in spring 2009 and a $10 million cash grant from the state in fall 2008.

Then the company took a series of blows after it temporarily laid off about 125 workers last fall after Fisker delayed a key product. In December, the company acknowledged a manufacturing error in the hose clamps in the internal cooling system of up to 50 battery packs.

General Motors acknowledged Wednesday’s filing and told Reuters in a statement: “We are aware of the filing and continue to work closely with A123 Systems as we do with all of our suppliers. Our plans for the Chevrolet Spark remain unchanged.”

For first quarter ended March 31, A123's total revenue dropped 40 percent to $10.9 million. Product revenue was $7.3 million, a 53 percent decrease from $15.5 million in the first quarter of 2011.

Shares of A123 (NASDAQ: AONE) are down Thursday after the news, falling 10.5 percent to $1.02 a share.

[hydro-one]

industrial espionage.....

[neptronix]

industrial espionage.....

Or self sabotage.. which one is it?

I guess you have to ask yourself how, exactly, our domestic industry can fail this bad, even with good products at a good price, built in a foreign country where labor is extremely cheap.

What a waste of our taxpayer dollars. If they can't make batteries, liscense the IP to someone else who can, for god's sake..

[liveforphysics]

The only path to ensure failure in the EV battery industry is to pick a chemistry and stick with it.

[Lock]

http://secfilings.nasdaq.com/filingFrameset.asp?FileName=0001047469%2D12%2D006082%2Etxt&FilePath=%5C2012%5C05%5C15%5C&CoName=A123+SYSTEMS%2C+INC%2E&FormType=10%2DQ&RcvdDate=5%2F15%2F2012&pdf=

The increase in cost of product revenue was primarily due to a warranty charge of $51.6 million related to our field campaign to replace prismatic battery modules and packs that may contain defective cells as well as a $15.2 million inventory charge related to these defective battery cells. In addition, we increased our inventory charge by $1.6 million due to expired aluminum foil at our Romulus facility.

I had no idea aluminum foil can expire... oxidization from improper storage?

[whatever]

There are some big downsides to manufacturing offshore, just what happened in china and why a123 went back to usa, I could have a guess at what went on in china, its been going on since the 70's. Imagine if es forum people got a grant of 250million plus, what could be achieved. On the positive side all of a sudden there are a123 20ah cells going cheap and many different suppliers in china to choose from. It seems a123 has completely overlooked the ebike market, these 20ah cells are ideal.
Being given such huge amounts of money is going to lead to waste of funds, its often the ones who struggle for cash that succeed in the long term. Take as another example tidal force with the large grants it got.
I would guess there are many a123 executives have done very well out of all this. A123 developed one hell of a lithium battery
I think its a great tragidy they might not survive, but the cells will go on, now the chinese have the technology.

[GCinDC]

but wait, after months at a buck a share, it's up 50% today. is there a pulse?

[Jason27]

A123 isn't going anywhere. I'm sure obama and his people are figuring out how to keep the company going. he cant afford another solyndra moment

[Jozzer]

The only path to ensure failure in the EV battery industry is to pick a chemistry and stick with it.

Better yet - pick a chemistry, stick with it - then refuse to sell your product to 80% of enquirers because you are scared they will build bad packs and start fires - then build some bad packs yourselves and start your own fires!

[lester12483]

News Update :7-6-12

DETROIT (Reuters) - Once a high-flying green technology company, battery maker A123 Systems Inc on Friday told investors it has about five months of cash left to fund operations, adding to woes for a sector short on results and long on government loans.

The company, which received a $249 million grant from the Obama administration as part of a program to develop advanced lithium-ion batteries, said in documents filed with U.S. regulators that it "expects to have approximately four to five months of cash to support its ongoing operations" based on its recent monthly spending average.

----------------------
My view is they need to cut costs and consolidate now, no one is going to bail them out and they might drag the whole ev industry with them. LG Chemical will have to fill the void. I still wish they would sell cells to the public.

[Punx0r]

a sector short on results and long on government loans.

Unfortunately, that seems a fair and accurate general criticism.

[grindz145]

I still hope they stay in the game. The more players the better. You can't just sit still though. You have to be pounding redbulls if you're in the battery industry, if you want to keep competitive.

[pwbset]

It's hard not to pounce and buy up some AONE shares just because they are so cheap. If they get guberment or more private sector support and get some dough the stock will skyrocket... to at least $2-3/share I bet. Wish I wasn't broke. If I had a spare thou just laying around I'd probably buy some stock... or a cromotor and 24 FET... haha.

[lester12483]

.63 cents was the share price today. Kinda sad to see it keep falling.

[bigmoose]

I think they are down for the count. The "dead cat" bounce was a couple of weeks ago... sad ending to a company with stellar potential.

[deVries]

It's too political to let it fail now... maybe after election it will file Chapter 11. Great buying opportunity for the turn-around after liquidation of shareholder value. This happened with Seagate (hard drives) & Mutual Shares over a decade ago...

Either that, or GM is just going to step-in with more funding & exclusive sourcing...

Edit to add what I wrote elsewhere: A123 consistently gets more or renewed financing deals from big industry players that buy their products. Unfortunately, this means more exclusive supply chains to "protected" customers & *maybe* continued backdoor plant "leakage" in China or Korea, IMO. This is good for us hobby players if we're willing to buy from China *assuming* supply remains. USA made cells only showed-up in China after the defect announcement, so that Made in USA supply may end completely once sold-out.

I really don't think A123 will disappear, transportation/utilities customers want their products, but it is possible some 3rd party preys on a Chapter 11. So far, A123 "power players" probably get better deals by investment financing & getting exclusive purchase contracts to be a better deal for them. Keeps A123 dependent on their money and exclusive supply requirements effectively "owning" or capturing their product and controlling A123 supply too.

New edit: It's no surprise to me the Chinese make the next big investment too... see that Chinese investment news in next post...

[deVries]

A123 Mass.-based company said on Wednesday that Wanxiang Group Corp., a Chinese conglomerate, agreed to acquire up to an 80% stake in return for an up to $450 million investment.

http://online.wsj.com/article/SB1000087 ... 08486.html

This is not surprising to me, since the USA is "married" to China for so many export products that are more and more becoming higher tech manufactured products too. It's probable we will get continued lower pricing to A123 tech with more product shipping from China, and the USA plant can continue to wait/idle "grow slow" for a volume business to finally take hold here. This investment is good, imo, since A123 products will expand even faster in volume sales in China.

China's more planned and "command & control" directed economy can "mandate" & "subsidize" more growth in EV products and already is The Leader by far in volume and production vs USA, so A123's main business will continue to be in China. EV tech in the USA will continue to be for the wealthy & upper middle class in 4 wheel transport, unless quality foreign imports in volume drive prices down here. We no longer have the industrial base to rapidly drive prices lower vs China.

Learn to speak Chinese, have your children learn Chinese, realize China is the manufacturing giant that will win out in volume production. China is our strategic partner, and China will be the greatest powerhouse of manufacturing in our lifetime. It's in both our interests to be on friendly terms & share peaceful goals to help each other become better nations. The USA can still be great for R&D and production of products that depend on continued R&D, but once that tech can be transferred to China for volume production it will be. Even Japan has transferred a large percentage of its manufacturing to China, though the Japanese were traditional enemies/rivals of the Chinese for centuries.

Apple Computer anyone?

This has nothing to do with Labor Unions or high labor cost. Germany is a perfect example. It has everything to do with Wall Street, Foreign Investment vs USA Investment, and your "wonderful" politicians in DC controlled by this ideology that won't invest in its own population to expand the middle class. The wealthy class in the USA is far too powerful politically, and has already redistributed far too much wealth & power into their hands of control by destroying our own middle class and changing the rules/laws in their extreme favor to perpetuate their ruling class. Wall Street says they do "God's work"; they call it "creative destruction"... quiet arrogant and sociopathic, imo.

Imo, until the political climate changes in the USA to focus on reversing its rapidly shrinking middle class & preventing by active law enforcement the insane "criminal" greed of Wall Street's "legalized" financial rapes of the middle class & the corrupting power of far too much wealth in too few hands, then only the military industrial complex & aerospace & transportation favoritism that have the "political protectionism" will be decent manufacturing jobs for middle class "stability" that is already in far too limited numbers vs other worse options.

Maybe EV can expand enough to gain a permanent foothold of growth if fuel costs remain higher for other transport... but the cost performance ratio of EV batteries needs to double capacity for the same weight/volume & price we have now too.

[GCinDC]

China & U.S. Battery Technology - Green America’s big-time battery innovator A123 got millions in taxpayer support. Now China’s snatching up the company, and its knowledge.

on npr at 9pm tonight (in one hour) tho looks pre-recorded

[hillzofvalp]

Thanks for the tip...

I have 350 m1 cells on the way... I wish they weren't going to be Chinese funded in the future

[lester12483]

Perhaps now A123 will sell to small businesses.

[flathill]

Thanks for the npr link
I love how the mit shill Sadoway doesnt mention he is named in many of the key a123 patents and has a financial stake
He keeps saying we need to move beyond lithium ion to get people thinking lithium ion will never work in vehicle apps
He goes on to say almost no research is being done on moving beyond lithium but still a123 sale to china is all good

Doesnt mention his revoltuionary metal battery is only 70% efficient
He says the first app for it will be households but who wants 500-700C batts in their home!

Lithium ion is already good enough and the market will soon grow exponentially
There will be no battery glut as all the wall street analysts predict
And china knows this!
Once tesla shows the way with solar power supercharging stations powered by near free second rate cells that they rejected for ev use (slightly high IR) but are still perfectly for stationary apps

You can power your house right now with second rate tesla cells right now if you sign up with solar city in select markets

Now thats a win win

[Chalo]

Sadly predictable, given that they wouldn't sell their products to the people ready to buy them. Jackasses.

Hopefully now the Chinese folks who have been making A123 cells will go direct to their customers. I doubt a bunch of Western vultures quarreling over patent ownership will slow them down much.

Chalo

[silverrich1]

http://www.youtube.com/watch?v=ge7xKPEd-Pg

[scphantm]

http://money.cnn.com/2012/10/16/technol ... index.html

Damn, how expensive is the R&D and equipment to make these cells? That is a boat load of cash for batteries.

[arkmundi]

“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....There is “no assurance” that A123 will be able to find a way to continue to operate its business as a going concern, the company said.

http://www.bloomberg.com/news/2012-10-16/electric-car-battery-maker-a123-systems-files-bankruptcy.html
Hope that they can somehow persevere.