For A123 Systems (Nasdaq: AONE), the promise of a booming market with eager customers has left investors disappointed yet again. Wait, haven't we heard this story before?
When the company reported earnings yesterday, we saw little real progress toward financial viability. Indeed, A123 may be taking steps backward. Management wants everyone to focus on recent signings with auto, grid, and commercial partners. Instead, here are three things that worried me about the company's results.
- Capacity doubled from a year ago, and the company expects 760 MW-hrs of capacity by 2012. Unfortunately, revenue was down 2.1% to $24 million year over year, meaning that extra capacity is going unused. More capacity is great if revenue is streaming in, but with just 62.9 MW-hrs in shipments during 2010, A123 must be counting on a lot of growth to pick up the slack.
- Management expects that its EBITDA loss will be higher in 2011 than the $120.6 million it lost in 2010. For a comparison, last time we heard from competitor Ener1 (Nasdaq: HEV), it expected to break even on EBITDA by 2011.
- The capacity buildout has been more expensive than anticipated, leading to concerns on the balance sheet. Cash and equivalents have fallen to $216.8 million at the end of 2010, from $457.1 million. The expected EBITDA loss in 2011 will put more pressure on the company, and if pieces don't fall just right, shareholders may have to absorb another dilution of shares.
On the plus side, a major customer just rolled in; Fisker is expected to begin production in the second quarter. A123 Systems expects an inflection point in revenue coinciding with this production ramp. We'll see whether that prediction turns out to be true.
Falling behind the competition
Steady advances by battery-making competitors hinders A123's prospects. Valence Technology (Nasdaq: VLNC) is making major progress in the commercial vehicle market, booking triple-digit revenue growth last quarter as customers picked up purchases. Advanced Battery Technologies (Nasdaq: ABAT) is making a variety of products in China, staying profitable while expanding its business. A123 Systems' closest competitor, Ener1, is struggling with some of its same problems, but could be on a faster path to break even on EBITDA.
We've been hearing about the rosy prospects of the battery market for years, without seeing much progress. I like its potential, but I'll have to take a "wait and see" approach to shares at this point. Battery makers have let me down too many times before.
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