The excitement over A123 Systems' (Nasdaq: AONE) potential seems to have worn off. Investors are getting tired of potential and want to finally see some actual results. The company's fourth-quarter earnings report didn't ease any fears with an astonishing $85 million loss. To put that in perspective, the company's entire market cap is $251 million, just over three times what the company lost in one quarter.

The disappointment at Fisker and the generally disappointing ramp-up of electric vehicles has been well documented, but let's focus on one thing today: Can A123 Systems survive?

The balance sheet
A balance sheet that was once flush with cash has taken some real hard hits recently. Cash is down to $186.9 million and inventory is an incredible $103.4 million. The company also added debt this year, now totaling $202 million between short- and long-term debt.

Cash burn
Companies don't go bankrupt because they're posting net losses, they go bankrupt because they run out of cash. So A123's cash burn rate is important.

During 2011 the company's operating cash burn was $251.6 million, up from $127.8 million the year before. So, even if we assume a generous 25% margin on incremental revenue, the company would have to increase sales by $1 billion to make it to cash flow positive. To do that in five years, the company would have to grow at an annual rate of 48.9% and would probably run out of cash in the meantime.

The company is also adding debt, so it needs to generate even more cash to cover payments to debt holders.

The light at the end of the tunnel?
A123 Systems has an impressive lineup of partners that should give it some hope for the future. General Motors (NYSE: GM) has signed up the company to make batteries for the Chevy Spark, which is due to launch in 2013. Tata Motors (NYSE: TTM) will get complete battery packs from the company for electric transit buses and other commercial vehicles. BMW, Smith Electric, Navistar, and many more have also partnered with the company.

The question is: Will demand pick up soon enough for A123 to survive? I'm not making any bets that it will happen. A123 Systems and battery makers have shown me the only thing they're good for is disappointment, and that makes A123 Systems a perfect underperform candidate for my CAPS profile. So I'm adding an underperform CAPScall today.

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