Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



A123 Systems Thinks It Has a Golden Ticket

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Could this be the technology that saves A123 Systems (Nasdaq: AONE  ) ? Could a new battery that operates at higher temperatures and reduces the number of components needed to cool a battery change the landscape of electric vehicles?

The company sure thinks so, and it hopes that a higher adoption rate is just around the corner.

What's new?
In an announcement made just this morning, A123 Systems unveiled its Nanophosphate EXT, a battery it says can change the game for electric vehicles and other applications. The technology will allow more extreme operating temperatures, reducing and possibly eliminating the need for cooling systems. According to testing performed at Ohio State University, the cells will retain more than 90% of their capacity after 2,000 full charges at 45 degrees Celsius (about 113 degrees Fahrenheit). In the announcement, CEO David Vieau said:

We believe Nanophosphate EXT is a game-changing breakthrough that overcomes one of the key limitations of lead acid, standard lithium ion and other advanced batteries. By delivering high power, energy and cycle life capabilities over a wider temperature range, we believe Nanophosphate EXT can reduce or even eliminate the need for costly thermal management systems, which we expect will dramatically enhance the business case for deploying A123's lithium ion battery solutions for a significant number of applications.

Investors bought into the hype early and have pushed shares 36% higher as I write this. The company's list of partners includes General Motors (NYSE: GM  ) , Fisker, BMW, Land Rover, and John Deere, so the potential opportunity is enormous if vehicles are built with this technology and consumers adopt it on a widespread basis.

Challenges remain
On a technological level this is a big step forward for A123 Systems, but it doesn't erase the company's challenges. Management delayed its prediction for breaking even on gross margin until 2013 and first-quarter revenue tumbled as customers had trouble ramping up production. A once-solid balance sheet has also been weakened, down to $116 million in cash and $144 million in long-term debt. The company has burned through millions in cash to build capacity, and up to now the sales rate of electric and hybrid electric vehicles hasn't kept pace.

The start of production from Fisker should help jump-start sales, but until demand from big players like GM, Tata, and BMW, as well as grid and commercial partners, picks up pace, the company will be fighting to survive. A new technology like this will take years to actually hit the streets, so I don't think the impact will be big in the near term.

Tesla Motors (Nasdaq: TSLA  ) has shown that sales can be brisk for electric vehicles, but the partners A123 has landed haven't been nearly as efficient in bringing vehicles to the market. Fisker delayed production, causing a lot of pain for A123 investors, and companies like Tata and Geely are just getting off the ground. Ford (NYSE: F  ) chose LG Chem as its battery partner, the Chevy Volt has been disappointing, and the Nissan Leaf has failed to live up to its potential. A better battery is great, but solving technological problems before consumers are ready to buy EVs isn't enough to pave a way to profitability.

I've focused on electric vehicles here, but Edison International (NYSE: EIX  ) subsidiary Southern California Edison, Vestas, Satcon, AES, and many others are also working on grid storage solutions, which is a big opportunity. But again, the grid business isn't exactly fast to adopt new technology.

We've already seen A123's biggest competitor, Ener1, file for bankruptcy due to production delays by customers and financial trouble, and I think the risks for A123 are extremely high right now. This is a boom-or-bust investment that could either pay off in spades or leave you wondering where your money went. That's not something I would like to bet on until we at least reach breakeven on cash flow, and that won't be for another year.

Interested in reading more about A123 Systems? Click here to add it to My Watchlist, which will find all of our Foolish analysis on this 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 and Tesla Motors. Motley Fool newsletter services have recommended buying shares of General Motors, Ford Motor, and Tesla Motors. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (1) | 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 June 13, 2012, at 1:32 AM, lowmaple wrote:

    OK, I'll be first. Granted a very speculative stock. However a small third here before it becomes obvious to everyone how good this company's prospects may be warranted. Or at least when the hype dies down.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1910330, ~/Articles/ArticleHandler.aspx, 10/26/2016 10:07:08 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,068.22 -101.05 -0.56%
S&P 500 2,133.66 -9.50 -0.44%
NASD 5,246.87 -36.53 -0.69%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
AONEQ.DL $0.00 Down +0.00 +0.00%
A123 Systems CAPS Rating: **
EIX $71.18 Down -0.44 -0.61%
Edison Internation… CAPS Rating: **
F $11.76 Down -0.09 -0.76%
Ford CAPS Rating: ****
GM $31.45 Down -0.15 -0.47%
General Motors CAPS Rating: ***
TSLA $201.02 Down -1.32 -0.65%
Tesla Motors CAPS Rating: **