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A123 Systems ramps up, spins off battery start-up

A123 Systems, one of the few energy tech companies to go public in recent years, is trying to compete in auto and grid storage with manufacturing scale.

Despite all the attention that Tesla Motors gets, lithium ion battery maker A123 Systems is just as much a bellwether for public green-technology companies.

A123 Systems on Tuesday reported its second-quarter results which appeared to disappoint investors; its stock was down more than 10 percent Wednesday morning.

A123 Systems' batteries are being targeted at passenger cars, heavy-duty vehicles, and grid storage.
A123 Systems' batteries are being targeted at passenger cars, heavy-duty vehicles, and grid storage. Martin LaMonica/CNET

The company is currently seeking to scale up to bring down product costs and meet anticipated demand for its technology. In its earnings call, executives said A123 Systems has made progress in pursuing supply deals for passenger cars, heavy-duty vehicles, and grid storage.

It announced a deal to supply 44 megawatts worth of batteries for utility AES. It has dropped out of a program to supply batteries to Chrysler but has signed a major automaker seeking to expand its hybrid-vehicle line.

A123 Systems is also diversifying its technology bets. CEO David Vieau disclosed that A123 Systems has spun off a new battery company called 24M Technologies, which will be funded by A123 Systems and venture capital investors.

Vieau was cagey on technical details but said the technology was developed at A123 Systems and improved at the Massachusetts Institute of Technology, where founder Yet-Ming Chiang developed the nanomaterial research which became the basis for A123 Systems' batteries.

24M Technologies work will "have some lithium components and some flow battery components to it," Vieau said. The technology is principally suited for the grid and is not expected to be available until the latter half of the decade, he said. A flow battery typically uses liquid electrolytes that flow between two tanks to create an electrical current.

Transition year
On the financial side, A123 Systems said that its revenue grew and losses increased during the second quarter. Revenue climbed 14 percent to $22.6 million but its net losses widened to $34.2 million, from $21.9 million in the same quarter last year.

The company, which went public almost one year ago, has seen its stock price slide from a high last fall of $25 to just over $10 for the last few weeks.

Investors should not expect A123 Systems to be profitable this year, executives said. The company is ramping up production to supply its customers which plan to release hybrid and electric vehicles a few years from now.

A123 Systems, aided by federal and state incentives, is investing in a battery-manufacturing facility in Michigan, which it plans to officially open next month, and focusing on product quality. With larger scale, it expects that margins will improve, particularly in the heavy-duty and grid storage areas, Vieau said.

It has signed to supply batteries to heavy-duty vehicle makers and is making progress scaling up operations at a joint venture in China. The company also expects to start supplying electric-sedan maker Fisker Automotive and truck maker Navistar in the next few quarters.

Despite the losses, Vieau said he feels "pretty good about the progress we've made." Whether the company can become profitable will become clearer next year, when the company executives said they expect to see faster revenue growth and better margins.