Battery maker struggles to spend US funds

One of the biggest recipients of federal stimulus cash for the development of electric cars has reported its largest-ever quarterly loss, as disappointing demand resulted in a surge in unsold inventory.

A123 Systems, which was awarded $249m to build two factories in Michigan in the second-largest single grant under the Obama administration’s electric vehicle initiative, says business has been so slow that it is now struggling to spend its federal cash.

The company is meant to draw its remaining $121m in funds from the Department of Energy by the end of the year, but is seeking to extend access to federal funds, because it only plans to invest $30m this year.

“This is a new business and it’s been difficult to accurately predict demand,” said Dave Vieau, A123’s chief executive. “We’re not looking to invest heavily in new capacity right now, and we’re optimistic the Department of Energy will extend the deadline for us to take up funds.”

A123, which develops batteries used in the Fisker Karma electric car and GM’s planned Spark model, lost $37.6m in the last three months of 2011, up from $9.3m in the same quarter of 2010.

Unsold inventory doubled over the year to more than $100m after Fisker stopped buying batteries, as demand for its electric cars disappointed. Unsold inventory now accounts for almost a third of A123’s total assets, while unpaid customer bills account for another seventh. The company burned through $40m of cash in the last three months of 2011, leaving it with just $186m at the end of the year.

Shares in A123 fell 2.5 per cent to $1.56 and the company’s market capitalisation has collapsed since shares touched $25.77, shortly after its initial public offering in late 2009.

Another electric battery maker, Ener1, which received $118m in stimulus grants, filed for bankruptcy earlier this year, although it has since emerged from Chapter 11 proceedings, while GM has suspended production of its Chevrolet Volt electric car because of weak demand.

A123 says it anticipates to work off unsold inventory and expects Fisker to place orders for new batteries in the second quarter, once the company has sold enough cars to work through its unsold inventory.

After recently announcing deals with BMW and Tata for proposed electric vehicles, A123 also expects that no single customer will account for more than 15 per cent of revenue going forward, leaving it less vulnerable to another abrupt cancellation. But analysts were unconvinced.

“Battery makers are in a bind. They have no choice but to build out capacity to meet orders from carmakers, but sales may disappoint once products are launched,” said Theodore O’Neill at Wunderlich Securities.

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