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.

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