Next big thing for A123 may be shift to small batteries
Company also expands in China as it tries to branch out from Fisker
Now that battery-maker A123 Systems has the same corporate parent as Fisker, the supplier's strategy might seem clear: make lithium ion battery packs for electric vehicles.
Not so fast. CEO Jason Forcier is eyeing a bigger target: the fast-growing market for small lithium ion batteries designed to store electricity produced by regenerative brakes.
He also hopes to market lithium ion starter batteries, which weigh about half as much as conventional lead-acid 12-volt batteries. However, high costs currently limit their appeal.
Evidence of Forcier's new business strategy was sitting atop his desk in suburban Detroit: a lithium ion battery with a Daimler sticker on the side. It was no larger than a standard 12-volt battery -- an example of Forcier's desire to go small.
"Instead of big batteries in a few EVs, we'll be producing small batteries for a lot of cars," he said.
Like other battery makers, A123 was saddled with too much production capacity a few years ago, when EV sales failed to catch fire.
But larger rivals such as Panasonic, LG Chem and SAFT had the deep pockets to endure slow sales. Small suppliers such as A123 were not so lucky.
When Fisker Automotive Inc. announced in 2011 that it would replace defective battery packs for the Karma plug-in hybrid, the company's supplier, A123, was on the hook for a $55 million recall.
Both companies went bankrupt, and both were acquired by Wanxiang Group, a Chinese supplier of chassis components with a major presence in the United States.
If Fisker resumes operations, A123 will supply it. But Forcier says A123 isn't making an all-or-nothing bet on Fisker's revival. Instead, A123 is developing its line of small lithium ion batteries, and it's also expanding into China.
In October, A123 was put in charge of Wanxiang's existing electric battery division in Hangzhou. That factory supplies battery packs for electric buses, vans and sedans in China.
That business generated about 20 percent of A123's global revenue last year, and Forcier hopes to increase it. "The EV bus market [in China] seems to be a real opportunity," he said.
Despite A123's newfound niche in China, the company is still losing money, and its operations are running at 20 to 25 percent of capacity.
That can add up to significant losses for a company with 1,300 employees. Last year's revenues were about $200 million.
But with some tough cost cutting -- plus a modest upturn in sales -- Forcier says he thinks A123 can break even on a cash-flow basis in 2015.
Wanxiang appears to have the patience to let that happen. Forcier says the Chinese supplier allotted $50 million to help A123 improve the Hangzhou factory.
Meanwhile, A123 has sold off its stationary battery business so that it can focus on automotive products.
"Back in 2009, we thought we'd all be driving electric cars," Forcier said. "Now we have a much more realistic view of market growth. You'll see this market slowly build."
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