Will the Fisker Fiasco Pull A123 Down?

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A123 (Nasdaq: AONE  ) recently posted its fourth-quarter results. While revenue climbed by 68% over the comparable year-ago period, earnings were in the red.

A123 makes lithium-ion batteries used in electric cars, so it relies on the much-hyped electric vehicle industry for its survival. Recently, some have been optimistic about the prospects of this industry, which makes me wonder if A123's losses deserve a second look.

Numbers you should know
The $85 million loss posted by A123 was nearly double that of the year-ago quarter. Analysts who were expecting the company to post a loss of $0.53 per share were disappointed when it posted an even steeper drop of $0.65 per share instead. In fact, this seems discouraging when you compare it to Polypore International's (NYSE: PPO  ) 53% surge in lithium-ion battery separator sales, which occurred largely due to enhanced demand in the electric vehicle segment.

The Fisker fiasco
When I put A123 under the microscope, I found that its heavy dependence on one of its biggest clients -- Fisker Automotive -- was primarily the reason why the company's profits slid. A123 supplies battery packs for Fisker's Karma car. Owing to loan issues with the Energy Department, Fisker temporarily halted operations at its plant, thereby cutting down on orders.

Early in January, fellow Fool Travis Hoium saw the Fisker fiasco coming. After Fisker stopped buying A123's batteries, A123's unsold inventory nearly doubled compared to the prior-year quarter, amounting to $100 million. The right side of the company's balance sheet just doesn't look right, as it is now mostly burdened with unsold inventory and unpaid customer bills. This company definitely needs to set things straight.

Once bitten, twice shy
Better late than never, the company has been diversifying its customer base rapidly and does not expect any single client to account for more than 15% of its revenue. Late last year, the company hooked up with General Motors (NYSE: GM  ) to supply batteries for its "green" Chevy Spark EV. A123 is also diversifying geographically, and has enhanced its exposure to emerging countries by partnering with Tata Motors (NYSE: TTM  ) in India and SAIC Motor in China.

The Foolish takeaway
Although A123's fourth-quarter numbers were far from impressive, the company seems to be making the right moves. This is a company that is now strategically diversifying across customers in various geographies, and reducing its dependence on any one of them in the process. This, along with the bright long-term prospects of the electric vehicle industry, could propel this company to greater heights in future.

What do you think? Add A123 to your Watchlist to keep tabs on this stock -- just click here.

Fool contributor Navjot Kaur does not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Polypore International and General Motors. 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 (3) | Recommend This Article (3)

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 March 14, 2012, at 11:28 AM, mogudu wrote:

    I'm waiting for the success of BMW active Hybrid.

    A123 supplies batteries to BMW.

  • Report this Comment On March 14, 2012, at 12:11 PM, ULOK wrote:

    Was is not an AONE battery problem w/ the clamps a few months back.

    Moreover...Was it not a "battery problem" with the Consumer Report situation last week.

    The way I see it, the headline should be....

    Will A123's battery problem pull Fisker Automotive down...?

    response..No - However, Fisker should consider new suppliers going forward!

  • Report this Comment On March 14, 2012, at 1:06 PM, pdreher wrote:

    A123 is supplying GM with 1 kwhr batteries for the e-Assist platforms. GM is converting their entire fleet to e-Assist because it adds 10 mpg to fuel economy, and is cheap.

    Buick LaCrosse e-Assist is standard since last October. And Chevy Malibu e-Assist is standard since February. Together these models sell half a million units per year. AONE gets $700/kwhr, so expect a $100 million uptick in quarterly revenue from AONE this year, with more to follow.

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