A123 Powering Forward on Its Planned IPO

A123 Systems filed another amendment to the registration statement for its proposed IPO on August 19th. With this amendment, A123 is much clearer on its anticipated Federal funding than it was in earlier filings. In addition to discussing the recent DOE announcement that they'll receive $249.1 million in ARRA battery manufacturing grants, they've reduced their estimate of the ATVM guaranteed loans that they'll be eligible for from $1 billion in their July filing to $235 million in the current filing. This most recent number is specific enough to indicate that it reflects ongoing negotiations rather than hopes and aspirations. I hope they get it.

When A123 originally filed their registration statement last summer, the planned offering amount was $175 million. Under the ARRA battery grant program they'll need to come up with $250 million in matching funds. Similarly, under the ATVM loan program they'll need to come up with roughly $60 million in matching funds. If one assumes that all of the matching funds requirements will need to be satisfied by the IPO, they'll need to raise $500 to $700 million in the IPO to meet their cash requirements.

If the IPO goes off for $500 million or more, it will be a watershed event on Wall Street and likely result in a frenzy of activity for other stocks in the energy storage sector. I'm excited because there are still a number of storage sector stocks that trade at objectively low valuations.

In early August I wrote an article titled "Alternative Energy Storage: Cheap Continues to Outperform Cool" which suggested that the companies in the Cheap Emerging and Cheap Sustainable classes still had significant upside potential. I continue to believe that these companies will be solid performers after a major storage sector IPO. I'm less sanguine about the ability of Ener1 (HEV) and Valence (VLNC) to maintain their current market capitalizations in the wake of a major IPO for a company that makes a competitive product and has far stronger business fundamentals.

September should be a very interesting month.

Comments

[Mayascribe:]

And make some $, too!

Exide is very healthy, today.

Aug 20 01:20 PM

[ginchinchili:]

Mayascribe, both Exide and Axion are up nicely today. So is EnerSys, after yesterday's route. John must be a happy camper today. He's earned it--many times over.


On Aug 20 01:20 PM Mayascribe wrote:

> And make some $, too!
>
> Exide is very healthy, today.

Aug 20 02:22 PM

[jerrydd:]

The battery wars will kill about 2/3's of the companies either from bad management, fraud or just a bad product. Exide.

Sadly the best from previous records is going to be Panasonic, other Japanese and a couple like A123 who's cells are robust and put out about 2hp/lb has all 3. SAFT is known for quality batteries so I's expect theirs are very good teamed with Johnson Controls who's past lead quality has been lacking. But they can't mess with these as you need tight quality control or they'll be replacing 1,000's of $7k packs!!

Valance's battery doesn't work --

On whether to buy A123 depends on what you have to pay for it.

But I'm disturbed by giving such a huge amount of money as a grant to any company.

What the Gov should have done is ordered 100k EV conversion kits for compact cars, trucks and 50k 3 wheel enclosed MC EV's. These could be used in the gov, military, city. state gov fleets and would actually get EV's on the road.

This would have been far better than giving away money. What high tech batteries need is orders. The puny number of EV's for the next 3 yrs is at most a couple factories worth. I'd bet in the next 3 yrs there are not 20k EV's total from the car industry.

There is at least 1m units/yr market if reasonably priced and 1-2 seat lightweight commuters, basically weather proof, safety 2-3 wheel MC's costing $7k-13k that get the equivalent of 300-600mpg.
There is not a chance in hell big auto will build them. But they would only need $1500 battery packs to go 100 miles, many at 70-80mph.
Safe, light, aero EV's can be very cost effective at 1/2 or less the cost of a gas car and almost nothing to run. With gas going back to $4-5/gal once the world economy recovers, they will start looking very good.
Just this morning I drove my no body version and went 22 mile for $.16 of electricity. It's the size of a Harley trike. With the body on it will get better mileage.
I think the demand is going to far outstrip supply in EV's for some time. But small companies could build these EV's instead and could be a good market for Lithium batteries.

Aug 20 02:23 PM

[John Petersen:]

Mayascribe and ginchinchili, my screen for the companies I track is all green except C&D, which is currently off a nickel. We'll have a better idea of whether I'm a happy camper when mid-November rolls around and I can do a one year cheap vs cool review. As we all know, lots of things can happen between now and then.

Jerrydd, in my experience the things that change the world come from entrepreneurs like you who believe a thing needs doing regardless of whether anyone else agrees or disagrees. Determination and persistence opens a lot of doors that money can't touch. You and I have a many differences of opinion, but I have to admire your spine and consistency.

Aug 20 02:34 PM

[ginchinchili:]

jerrydd, I don't necessarily disagree with your assessments regarding some of these companies you mention, but it might be more useful to back your opinion with some statistics or perhaps some weaknesses in their fundamentals, which there are, in my opinion. I think I remember you saying you had bought an Exide battery (I believe it was Exide) and you were very disappointed with its performance. However, if the vast majority of their customers are satisfied with Exide's products, that would suggest a different, more substantiated, conclusion.

I have my own reservations about Exide and Valance, but it's mostly about their fundamentals, which I think would be fair in using to draw some conclusions about their managements. On the other hand, I know nothing about their R&D departments. Companies do learn and make improvements. The fact that Exide has forged a partnership with Axion suggests to me that they aren't just sitting around waiting for the world to start liking their old batteries.

Aug 20 03:10 PM

[Zenfar:]

Remember a rising tide raises all boats... Focus on the positive, nothing wrong with the whole sector going for a ride, with a few leading the pack...

Aug 20 03:15 PM

[Don Harmon:]

Of course I am for the whole sector going on this ride!

Aug 20 03:36 PM

[Mayascribe:]

John: Have you heard anything about the virus floating around here on Seeking Alpha?

YellowHoard did an instapost about this and I'm not liking what I'm reading. If this popup happens, happens to you, or anybody reading this, just click the page off, and then you can resume what you are doing. DO NOT OPEN THE POPUP. It's a scam designed to put as virius into your computer. The virus has hit a growing percentage of people here whom with I'm interacting; about five people's computers so far I know about, including mine several times.

Maybe you can contact them about this, find out what they are doing about this virus?

Might be a good idea to read YellowHoard's instapost first. Some high-rated commentors are commentating.

Aug 20 08:45 PM

[Mayascribe:]

Wow! "...as virius!"

Where'd dat come frum?

Aug 20 08:47 PM

[John Petersen:]

Mayascribe, I've sent a question on the virus through the contributor relations side and will keep you posted. On an unrelated matter, Thomas Weisel has upgraded Exide to overweight with a 12 to 18 month target of $11.

Aug 21 12:31 AM

[Mayascribe:]

Thanks, John. I don't want to be in the middle of this; hopefully I won't be. But, SA has to be informed. I left this site open tonight while I joined a couple of pals for a beer or three. The virus popup occured again while I was out.

Great news about Exide. Thanks!

Also, thanks for contacting SA. The last thing we want is for this social exchange of rather brilliant financial and educated minds-- people with incredibly sage viewpoints--to abandon this site because of a rogue virus.

Aug 21 01:43 AM

[John Petersen:]

Mayascribe, the word from SA is that it is not a virus but a corrupt ad that is being misinterpreted as being a virus. They are trying to identify and remove the affected ad.

Aug 21 03:28 AM

[Mayascribe:]

Thanks for checking into this matter, John.

Exide and Axion are fun waves to be surfing right now.

Aug 21 10:42 AM

[ari5000:]

xide / axpw.ob -- John -- never would have bought them without your articles -- in fact it was the only reason. My family has been greatly enriched.

Can't thank you enough -- a true gem of Seeking Alpha.

Aug 21 11:02 AM

[noapplefanboy:]

I wouldn't necessarily expect an A123 IPO to lift ALL boats. While the A123 IPO will make the valuations of many in the sector look cheap, it will make the valuation of some of the others in the sector (HEV and VLNC come to mind) look downright expensive.

Aug 21 11:15 AM

[John Petersen:]

ari5000, while recent events have made my table pounding last December look pretty prophetic, my "cheap" companies got savaged beyond reason by the market downturn while the "cool" companies had an easy ride of it. So it was a no-brainer to love Enersys at $5.90, Exide at 2.15 and Active Power at $0.26.

noapplefanboy, if I had to guess what the A123 terms will be I'd peg the IPO price at 2x to 2.5x the last GE investment, or roughly $20 to $25 per share. With 80 Million shares out pre-IPO (including cheap warrants) and assuming that another 20 million go off in the IPO, it gets the company to a $2 billion market cap with almost $1 billion in equity (including grants) and something in the range of $80 to $100 million annual revenue. The side by side comparisons will get real interesting at that point.

Aug 21 11:27 AM

[Mayascribe:]

John: According to altenergystocks.com Axion and Xide blew away the other 25 battery stocks this site tracks.

altenergystocks.com

Probably had my fifth or sixth best trading day ever, today. I'm beat!

Aug 21 07:38 PM

[John Petersen:]

Mayascribe, if you're willing to share I'd be curious to know what your charts are telling you. The Thomas Wiesel upgrade obviously did a lot of good for Exide and I have no idea what's going on with Axion, but I do like it.

Aug 22 12:38 AM

[Mayascribe:]

Honestly, John, I don't know what to think about the Wiesel upgrade. I read the charts, and act. What I do absolutely believe, from my research of how the markets react, is that a pullack is coming. There is not one time in stock market history when a pretty severe pullback has not occurred after a gain of these proportions. When...I cannot predict. My voluminous research indicates that late September is the time to sell off, or rather, a time to get out before the sell off. Check out my Instablog about this repeating history. Yet, I have a few stocks I will not ever sell. Got in so low, that any pullback will never be to the lows of which I bought them. Why pay the taxes?

The way I'm going to handle the Energy Storage Sector, is to ride it out, partially. Anytime one makes $'s like you and I made during the last week, is time to become full of caution. Today, I was nervous about my recent manuevers as I would be having dinner with Diane Lane.

Yeeks!

My thinking is that after the A123 IPO, there will be a retracement in the Energy Storage Sector. Why do I predict this, is because what new news is going to happen after the IPO? Uncle Sam has already spent his $'s on batteries. By then, Cash for Clunkers will be an afterthought. It'll all be not about cars and transportation, but the Grid, then forward--my prediction, stale for a time, market-wise.

The "Wells Fargo Mid Year Outlook" pamphlet I recieved states this downturn "may" happen. WFC calls for a year S & P end of 1015. We're already ahead of that.

If they are wrong, it will only be by maybe 100 points upside or so on the S & P.

Honestly, remember months ago when I said, "Banks, batteries and bullion," are what I want to be invloved with? Well, banks have had their run. What bank is going to double up from here, within the next year? Ah hah...from here forward, there are a few gold stocks, and REE's that will most definitly double, or quadruple up.

I'm debating about doing an Instablog about this. There are most certainly some mining stocks that will go crazy-up in the near, and especially moreso, the 1 to 3 year future, maybe as much as in the 10-fold magnitude.

Most defintely, as you have made so obvious, some battery stocks, will, too.

Aug 22 03:06 AM

[jimp:]

Mayascribe,

Do you mind divulging what mining stocks you like for the long term?

Thanks

Aug 22 10:00 AM