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Another Auto Deal Sets A123 Systems Up for Disappointment

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Electric vehicles are again making some rumblings ahead of the North American International Auto Show, which starts next week. Bob Lutz, formerly an executive with General Motors and Ford, will be announcing new trucks, vans, and SUVs from VIA Motors. And A123 Systems (Nasdaq: AONE  ) has announced it will be supplying batteries for the new vehicles.

Shares of A123 rallied on the news, but are investors getting ahead of themselves?

VIA's market isn't your traditional tree-hugging market, like the Chevy Volt or Nissan Leaf went after. And it isn't going after the high-performance market Tesla Motors (Nasdaq: TSLA  ) seems to have a hold of. Instead, it is marketing trucks and SUVs, normally marketed for their horsepower and toughness. If electric vehicle sales aren't going well to wealthy, environmentally conscious folks, what makes them think men with a little dirt under their fingernails would want an electric vehicle?

Another bust for A123 Systems
I've chronicled A123's struggles at the hands of Fisker Motors for the last year. Fisker's slow ramp -up has thrown a wrench in A123's financial plans and has some of us wondering out loud if the company can survive.

Another deal with another automaker may be positive for A123, but I'm still not convinced the company is worth investing in. Electric vehicles have proven to be a disappointing segment of the market and hanging your hat on anyone but Tesla right now is a risky proposition.

Not a good time to take the plunge
Ford, Nissan, and GM are all getting into electric vehicles, but none has had much success so far. A123 Systems and other battery makers could benefit if they do, especially after signing a deal to provide batteries to the Chevy Spark, but sales have been so bad I would stay away from battery makers.

Do you have thoughts on A123 Systems? Leave them in our comments section below and click here to add the company to My Watchlist, and My Watchlist will find all of our Foolish analysis on its stock.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of General Motors, Tesla Motors, and Ford Motor. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (5) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 06, 2012, at 4:06 PM, zman555 wrote:

    this was the worst pos ive ever read the fool shouldnt let idiots post !

  • Report this Comment On January 06, 2012, at 5:46 PM, Zacs wrote:

    From what I've read about A123, they have diversified and are not totally relint on lectric cars. There will be huge business in helping the smart grd grow and supplying battery backup to wind and solar farms. Also, the electric car market is doing much better than the writer of this article suggests. Most people who bash electric cars know little about them, few have driven in one. Ask a Leaf owner if he likes his Leaf and you'll get a yes. Same goes for Volt. Drove in a Fisker a few weeks ago. Sensational car. 2012 will be the year of the electric car and A123 is in good position to make huge profits.

  • Report this Comment On January 06, 2012, at 9:44 PM, DanFrederiksen wrote:

    your perception is critically wrong on a couple of points. first, tesla is most certainly not a safe bet. I'd say it's more likely safe to fail. they have lost a lot of money on the roadster, they really managed the cost side poorly spending as much as 300k$ per car they've sold. they've net lost towards a billion dolllars so far yet their stock is valued at 3bn. if they don't sell 7000+ model S consistently every year they wont survive which means the stock price is hugely over inflated. it's a super bubble. I wouldn't touch it with a 60 foot pole.

    your second big mistake is to conclude EVs haven't been successful. the two available models Volt and Leaf have been entirely production limited. some of the first Volts were stickered at 50% above recommended price. so you can't say it hasn't been a success when the factories wont let people buy more. plus the cars are hugely overpriced. batteries are expensive but nowhere near justifying what they charge for the cars.

    but the resulting conclusion about A123 is more or less correct. they are losing a quarter of a billion dollars per year now which is crazy. not sure how they are able to be that wasteful. that's the same level of loss tesla has building the production line for the model S. plus A123 refuse to sell to those who want their sells. idiots are in charge. despite the product being really really good. it's the cell I would choose for a production car because it's safe, long lived, very powerful and requires no cooling. it's the right cell to make EVs shine.

    I don't think A123 will survive, hopefully the cells will through some kind of restructuring or license sale. GM should license those cells. that would be the smart play. separate themselves from A123's poor business.

  • Report this Comment On January 07, 2012, at 4:18 PM, gotmyleaf wrote:

    I'm not sure what the "tree-hugger market" buys, but I purchased my Nissan LEAF because of the money I save driving it. VIA motors will probably be successful with the right support and marketing because it can run an F150 WITHOUT GAS.

    I think that the DRIVE WITHOUT BUYING GAS market is huge.

    Success is when, despite having limited supply, in limited markets with low consumer education still selling over 15,000 units in the U.S. alone in a product's first production year. The product being EV's.

  • Report this Comment On January 08, 2012, at 6:50 PM, TMFFlushDraw wrote:

    I understand that production has been limited for EVs, but the sales numbers are anemic. Nissan sold 9,674 LEAFs in 2011 and Chevy sold 7,671 Volts.

    I didn't even get into A123's balance sheet and incredible cash burn rate.

    My point is if Volts and LEAFs aren't flying off showroom floors, how fast can we expect F150s to sell? In my opinion not well.

    Travis Hoium

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