A123 Systems Hits the Accelerator

So far, the electric vehicle market has been slow to take off, but A123 Systems (Nasdaq: AONE  ) is betting that we're about to hit an inflection point in the near future. In the last two days, the company has added another auto partner and expanded its relationship with China's largest automaker, making its exposure to the electric vehicle market even bigger.

Betting on India
A123 Systems said yesterday it would supply complete battery packs to Tata Motors (NYSE: TTM  ) , India's largest automaker, for electric transit buses and other commercial vehicles. This is a big move into a large market with one of the most well-known auto manufacturers in the developing world.

The commercial vehicle market appears to be much stronger than passenger vehicles, and A123 Systems is betting that will be the case in India as well. In the U.S. Smith Electric Vehicles, Navistar, FedEx (NYSE: FDX  ) and others are expanding commercial electric vehicle use because they can count on defined routes and see the financial impact more closely. That's different from the passenger vehicle market, which has suffered from range anxiety and weak sales.

Expanding in China
The company also announced an expanded partnership with SAIC Motor, a Chinese auto manufacturer who A123 Systems already has a joint venture with. The new agreement is to do a feasibility study to define a business plan and estimate investment for a joint manufacturing facility in China.

The expansion into India and China helps broaden A123's footprint, but it doesn't alleviated near term challenges. Fisker is still having trouble ramping up production, and until larger automakers start pumping out electric vehicles, the company has too much capacity. The company hopes that comes sooner rather than later.

Is this the turning point?
A123 Systems has agreements with General Motors, BMW, Volkswagon, and a slew of other manufacturers, so investors need to keep an eye on how these companies begin ramping production. The third quarter was a step in the right direction for A123 as product revenue and shipments spiked higher. Management predicts that we're hitting an inflection point in demand, and the growing customer agreements may show that they're right. Earnings come out next week, so check back for our Foolish analysis of the fourth quarter for A123 Systems.

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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.

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