DUSTIN WALSH

Why there's still hope for A123 Systems

Dustin Walsh covers auto suppliers for Crain's Detroit Business, an affiliate of Automotive News.Dustin Walsh covers auto suppliers for Crain's Detroit Business, an affiliate of Automotive News.
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DETROIT -- Talk to any advanced-battery expert, and they will tell you: The current generation of lithium-ion technology is not fit to launch the electric vehicle revolution.

The batteries are too expensive, they require large and expensive thermal management systems and often fail under extreme temperatures -- a la the explosion at General Motors' Warren Tech Center in March or the Fisker Karma that died during a Consumer Reports test.

Both of which were A123 Systems batteries.

But A123 Systems the struggling battery maker, with its major U.S. plant in suburban Detroit, this week unveiled a new chemistry designed to rectify at least some of the problems with the nascent industry's product.

The Waltham, Mass.-based firm unveiled a nanophosphate lithium-ion battery called nanophosphate EXT, which A123 says is capable of operating at extreme temperatures.

The technology was independently tested in Ohio by the Center for Automotive Research, according to a release by A123.

A123 expects the battery to deliver a 20 percent increase in power at temperatures as low as minus 22 degrees.

Battery capacity is significantly reduced over time under extreme heat, and A123 says this new technology is capable of retaining 90 percent of its initial capacity after 2,000 charges at 113 degrees.

The battery maker also claims a longer life for the battery -- 10 times longer than traditional lead acid batteries.

As it has already been reported by The New York Times and a host of others, the success of this chemistry may well determine the fate of A123 after months of epic slip-ups.

The aforementioned incident at GM and a massive recall linked to a welding machine at the suburban Detroit plant devastated A123's stock and, in some circles, its reputation.

The recall cost an already bleeding A123 more than $66 million and nearly stopped its automotive battery production at the plant in Livonia, Mich. A123 recorded a net loss of $125 million last quarter. The company isn't expected to turn a profit until late 2013.

A123 raised $50 million last month, but it needs more to survive. It's that simple, folks. And while analysts remain skeptical of its survival -- A123 even raised the risk of its survival as a "going concern" in an SEC filing last month -- its executives remain optimistic.

"We believe nanophosphate EXT is a game-changing breakthrough that overcomes key limitations of lead acid, standard lithium-ion and other advanced batteries, CEO David Vieau said in a statement. "We continue to emphasize innovation with a commercial purpose, and we expect nanophosphate EXT to strengthen our competitive position in existing target markets as well as create new opportunities for applications."

A123 is even hiring 400 workers at its Livonia and Romulus, Mich., plants, returning to peak workforce numbers that existed before its problems.

A123 executives continue to have bullish views of the company's future. Jason Forcier, vice president of its automotive solution group, said A123's funding problems are a "bump in the road." He believes the company will not only survive but grow with new and existing technology.

"We continue to do advanced research," he said. "If lithium-air or some other new technology is the way to go, then you'll see us innovating in those areas.

"We've taken a lot of heat over the years, but we're fighters," Forcier said.

Let's hope A123 is a fighter. Because without additional funding or a slew of new contracts, it's future is indeed questionable.

Despite its stock dropping nearly 26 percent on the year, investors responded to the announcement. A123 shares skyrocketed the day after the announcement and have remained about 20 percent higher this week -- a glimmer of hope in the murky depths of the lithium-ion battery industry.

You can reach Dustin Walsh at dwalsh@crain.com.

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