A123 Systems Scores With GM

Shares of A123 Systems (Nasdaq: AONE) roared today as the company announced that it was awarded a contract to supply General Motors (NYSE: GM) with nanophosphate lithium-ion batteries.

But don't let today's move fool you (with a lowercase "f"). The stock is still down more than 50% this year amid falling revenue. Shareholders are getting a bit of a relief rally as the company is finally delivering on its promises with strong second-quarter revenue. It's about time, because I'm not sure how much more disappointment investors could handle. Details of the contract are a little sparse, but A123 vice president Jason Forcier did share that the company would get a "substantial revenue stream" from the agreement.

These batteries won't be put into the Chevy Volt, but rather into future electric vehicles. Need any more proof that electric cars are the future? I don't. After all, I own shares of Tesla Motors (Nasdaq: TSLA). The real question is how to invest in it. Competition is tough in the battery market, but they all have one common element: lithium. Chemical & Mining Company of Chile (NYSE: SQM) is a good candidate there. Or you could go with the automakers themselves: Ford Motor (NYSE: F) has proved that it's committed, with its Focus Electric coming out later this year, while Toyota Motor (NYSE: TM) has long been the hybrid king, with its Prius model consistently sitting atop the list of hybrid sales and with little threat approaching at present.

This production contract with a big automaker like GM is a boon for A123 Systems, but this story is still far from over, and I think it's a little premature to buy shares. I think the stock has potential, and this agreement does provide some validation. If A123 can land more deals like this one, then I may consider buying shares. Until then, it remains on My Watchlist.

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