A123 Systems IPO Meets with Great Success

Reuters is reporting that A123 Systems, Inc. (AONE) increased the number of shares offered in its IPO from 25 million to 28.1 million and sold those shares at a price of $13.50. If the underwriters exercise their overallotment option, which is usually the case in IPOs of this size, the total IPO proceeds will be $437.5 million before costs, commissions and discounts. This IPO has been a long time coming but it was worth the wait. I want to congratulate the A123 team and the underwriters on a job well done.

Assuming full exercise of the underwriter's overallotment option, A123 will have 104.1 million shares outstanding and carry a market capitalization of $1.4 billion. The offering proceeds, together with its pre-offering cash reserves of $115 million should leave A123 with enough liquidity to finance the continued development of its technology and provide roughly $310 million in matching funds for its ARRA battery grants and its anticipated ATVM loan. Now it's all in the hands of management to implement their strategic plans and bring an important product to market.

I’ve been writing about the energy storage sector for over a year. I believe energy storage will be a fundamental enabling technology for cleantech, the sixth industrial revolution and a major investment theme for the next 20 to 30 years. I’ve written about an emerging consensus that sales in the energy storage sector will grow from $30 billion to well over $100 billion by 2020. I’ve also written about a variety of technologies and companies that will benefit from explosive growth in the sector.

The challenges facing the energy storage sector are enormous, but so are the opportunities. I see an energy storage future where the developers of every technology we know about and many that we don't know about will have far more business than they can possibly handle. It will be great to have a bright line standard like A123 Systems that investors can use to evaluate the relative merits and risks of both established energy storage device manufacturers and emerging developers of new technologies. I look forward to adding A123 Systems to my list of pure play energy storage companies and covering its progress in detail.

Disclosure: none.

Comments

[Random Capital:]

It is a great company unfortunately Lithium Ion Batteries are not the future. Only recommended for day traders not for investors. (solo-duo.hu)

Sep 25 12:38 AM

[John Petersen:]

absolute return guy, the only companies in the *BTTRY index that I don't pay a lot of attention to are BYD and JCI. They're both fine companies, but they both have a high level of business diversification and are not "pure plays" in any sense of the word. The only omission from the *BTTRY index is France's SAFT Groupe which is another wonderful company that I don't write about much because it doesn't report with the SEC and trying to do Euro conversions on a regular basis is a major pain. You could do a lot worse than a weighted portfolio of these stocks. I favor the lead-acid companies because the group trades at lower P/E, P/S and P/B multiples than the more exotic chemistries, but that's a personal thing.

Advill, there are a number of nano-technologies out there that seem to have interesting potential including silicon and carbon nanotubes and my personal favorite graphene, which is a single atom carbon sheet. These emerging technologies are probably 5 to 7 years from production and more like 10 to 15 from cheap, but they're part of the brighter future I see for the storage sector.

Windsun33, A123 is actually a pretty solid company and between their own assets and the anticipated Federal grants and loans there's close to a billion in hard assets, so even in the $20 range it's hard to be too critical. If you lay their numbers alongside Ener1 and Valence, A123 looks downright cheap. I have no doubt that over the next few years the battery market will get overheated, but in the interim there are a lot of objectively cheap manufacturers of fine products that should benefit mightily from the increased attention. With A123 trading at 20x sales, I see a lot of upside in Enersys which trades at 0.6x sales and Exide which trades at 0.2x sales. I've followed A123 religiously because this "event IPO" should kick off a three to five year run where storage companies become the darlings of wall street after spending years as the orphan stepchildren.

Sep 25 01:09 AM

[JLBR:]

A1's Prospectus listed "acquisitions" as a possible use of funds. They've certainly got a lot of cash now!! Wonder whom they might have in mind. Maybe Altair Nano!? No expert here, but I think titanate anodes could make a big difference in max charge cycles of A1's batts. I for one would like to see consolidation in this space.

Sep 25 02:38 AM

[John Petersen:]

In an IPO of this size, the lawyers always include acquisitions language in the use of proceeds section, but I wouldn't look for A123 to stray too far from their planned path of bringing LiFePO4 to market. A123 has a lot of cash, but it has very specific cash requirements including $250 million in matching funds for their ARRA manufacturing grant and another $60 million in matching funds for their hoped for ATVM loan. Both those requirements are tied to A123's lithium phosphate technology. So once you take the mandatory outlays out of the cash equation, the rest probably represents working capital for business expansion. I would personally rate an acquisition as highly unlikely.

Sep 25 03:46 AM

[Moon Kil Woong:]

There are other players in this market. New tech is good, but this rings mostly of limited subscription hype. Those developing and selling batteries today have all run into troubles with demand and cost.

Sep 25 05:10 AM

[ari5000:]

John,

You don't have any problem with 20x sales? The IPO is bound to stay up -- on a low float, no shorting situation.

In 6 months, we'll have a better idea what the Street really values AONE. I definitely think the way to win though, as you say, is to buy competitors like XIDE at a discount. AONE prone to giving up a lot of gains when the pump ends.

Sep 25 08:20 AM

[jerrydd:]

On Sep 24 01:17 PM Don Harmon wrote:

> Jerrdd wrote: "Don, you need orders before you'll get much investment
> and your batteries are way too expensive for that. Other companies
> like LG and Sky, etc are selling theirs for $.30/wthr in EV sizes
> so that is your price point if you want orders. Life is going to
> be rough for battery makers as so few orders, they are going to cut
> to the bone to get them."
>
> Jerry, we have orders and are shipping every week, and our battery
> packs have been tested by Sandia Laboratory. Price is relative to
> quality and I would like to see exactly what you claim is offered
> @ $.30/whr? Show us examples - not just assumptions!

Here is one of them, EVComponents, and they are EV size cells, not made up of little cells like yours. Hopefully the URL will come through.
www.evcomponents.com/S...
GM told SAE Magazine they were buying LG cells for that.

Please tell us how many 10kw or larger packs you have shipped? How much does a 10kw pack of yours cost?

> Jerrydd wrote: "For your price you can buy A123 battery packs with
> full BMS, monitoring in single lots and they are far better batteries.
> Most of the EV drag racers now use them. That is why EV people don't
> buy much of yours and buy container loads of the others."
>
> Jerry, for your information you can buy LiFeBATT battery packs with
> full BMS monitoring also in single lots and they are equal to or
> better than A123's product. Plus our prices are less than A123's!
> I also question whether A123 offers any battery packs complete with
> BMS in single lots?

If that were true then why does no one use your batteries for EV racing? They almost all use A123's. Why?

Nobody is buying "container loads" of advanced
> Lithium-ion batteries either FYI.

Again you are wrong. EV Components gets a container at least every month.

LiFeBATT also does not sell individual
> cells. We make the largest format LiFePO4 cells only for our complete
> plug & play systems.

Your batteries are made up of many 10 amp cells, No? Not large format cells. While Sky is full size cells.

>
> You make these statements like you have some proof of your assertions?

I put the proof up before and others did to.

> I would like to see your proof. You really have little knowledge
> of this market as far as I can see? It would be prudent of you not
> to comment on what LiFeBATT offers since you have no real knowledge of our product offerings or our pricing structure.

Please tell us your pricing structure? You don't put it out on your website, Why? But other EVers have received quotes and found them wanting..

Sep 25 09:09 AM

[John Petersen:]

Moon Kil and Ari5000, I have a hard time thinking of a 28 million share offering as a limited subscription or small float. A123 does face the same challenges that all of the new battery developers face but with capacity utilization rates in the 35% range (169 million wh of capacity vs. 27.6 million wh of sales in 1H-2009), rapid revenue growth and a post grant capitalization in the $1 billion range, I have nowhere near the issues with A123 that I have with lesser lithium-ion battery developers. A123's a class act and very well financed. That's important in my book. It's also done a good job of managing expectations with respect to short-term profitability. They've clearly said it's going to take a couple years which means that disappointment is a long way off.

jerrydd, I know you think the sun rises and sets on EVs but I'm growing weary of your willingness to get as nasty with my readers as you do with me. Seeking Alpha is an investment site that focuses on companies people can invest in. Rants about the wonders of EVs are neither relevant nor appreciated. If you don't have specific comments about products from companies that are publicly traded in the US, I wish you would take your encyclopedic knowledge elsewhere.

Sep 25 10:26 AM

[Don Harmon:]

Jerry, we do not publish our pricing for the same reasons you won't find pricing on websites for A123, Altairnano, Kokam or Valence.

We make complete packs that can be grouped to make larger systems like 10Kw. Our new 15Ah Cell is what goes into each of the individual packs with a VMS and data ports for diagnostics. We don't sell individual cells and neither does A123, Altairnano, or Valence. Our large format cells are the most powerful on the market. When you compare to Sky you will see their cells are different in that they are large format but low C-Rates and they do not offer a BMS or any diagnostic capabilities. They don't have a very good warranty and no major EV carmaker would touch them.

EVers as you call them are mostly small enterprises who are looking for the cheapest LiFePO4 products on the market. LiFeBATT is priced very close to A123 & Valence, and like them, we specialize in OEM markets. However, you can buy our individual packs (like Valence) where you cannot buy a standard A123 individual battery pack. A123 is a much larger company and has deep pockets (recent IPO) and can afford to sponsor Bill's Killacycle so that's why you see exposure there to racing.

LiFeBATT sponsored two bikes in the TTXGP race on the Isle of Man this year and you can find video on You Tube if you wish to look ? Here are a few links:
www.youtube.com/watch?...
www.youtube.com/watch?...

EV Components serves the DIY market and they offer Headway 10Ah Cells which are slightly smaller than our new 15Ah Cell. We also make a 10Ah Cell and will soon be introducing a 25Ah Cell. We make two versions of each - one an Energy type and two a Power type for different applications.

Don Harmon

Sep 25 10:35 AM

[Don Harmon:]

The Wall Street Journal's take on all this: blogs.wsj.com/venturec...

I must agree with Mr. Onan that if the govt. is going to continue to issue grants they should spread the wealth out to more entreprenurial companies and not just back the same old big names.

Sep 25 05:18 PM

[MRTTF:]

I was wondering what you battery-level costs were in $/Wh. It's all well and good to throw out cell-level numbers, but that is the cheapest part of a pack. They have the benefit of mass production and full automation. Please included parts, labor, etc in your cost analysis.


On Sep 25 09:09 AM jerrydd wrote:

> On Sep 24 01:17 PM Don Harmon wrote:

Sep 26 12:18 AM

[John Petersen:]

Don, I too am a big believer that government can get more bang for the buck by funding entrepreneurial companies, but the ARRA battery manufacturing grants and the ATVM loan program were a hard fit for small companies because of Congressionally mandated matching fund and creditworthiness requirements. Even A123's grants and loans were effectively contingent on their ability to get the IPO done. Any time you get to big numbers and big matching funds requirements, the big boys are the only people who qualify. While there were two small ARRA battery grants for lead-acid technologies controlled by entrepreneurial companies, the named grant recipients were the manufacturing partners instead of the technology companies. That's why they were identified as "Exide with Axion" and "East Penn for the Ultrabattery."

There's a bill in the Senate that I'm watching closely because it will provide between $550 and $590 million of grants per year over the next five years for "research, development, demonstration and commercial application of advanced vehicles and related technologies." The language used in the new legislation is nowhere near as restrictive as the ARRA and ATVM language and my sense is that the DOE will have a lot more leeway if the new program is adopted.

Sep 26 12:57 AM

[Don Harmon:]

That is where it gets confusing and where I suspect Jerrydd gets his numbers from. First of all he's quoting a cell level price, and a very low C-Rate cell at that. Hybrid = High Charge / discharge application.

Second, Jerrydd's $/Wh price does not include all the rest of the components required to deliver a quality Hyrid pack or battery system so it's not a reasonable benchmark to consider. The more expensive items that you refer to would include:

Fireproof Case
BMS (Battery Management System)
Cooling Systems
Pack Assembly
Connection Cables
Pack Testing
Shipping Costs
Warranty
Diagnostic Software
etc.

Then there is also the volume issue i.e. how many battery systems are comprised of this order?

On Sep 26 12:18 AM MRTTF wrote:

> I was wondering what you battery-level costs were in $/Wh. It's all
> well and good to throw out cell-level numbers, but that is the cheapest
> part of a pack. They have the benefit of mass production and full
> automation. Please included parts, labor, etc in your cost analysis.
>

Sep 26 10:41 AM

[MRTTF:]

My personal favorite is the weight tolerances on the cells he linked to. +/-100g !? Anything below 6 or 7kg and that is >1% varience in weight at the cell level. Our larger format cells have on the order of +/- 10g tolerance on cells that weigh ~1kg.


On Sep 26 10:41 AM Don Harmon wrote:

> That is where it gets confusing and where I suspect Jerrydd gets
> his numbers from. First of all he's quoting a cell level price, and
> a very low C-Rate cell at that. Hybrid = High Charge / discharge
> application.
>
> Second, Jerrydd's $/Wh price does not include all the rest of the
> components required to deliver a quality Hyrid pack or battery system
> so it's not a reasonable benchmark to consider. The more expensive
> items that you refer to would include:
>
> Fireproof Case
> BMS (Battery Management System)
> Cooling Systems
> Pack Assembly
> Connection Cables
> Pack Testing
> Shipping Costs
> Warranty
> Diagnostic Software
> etc.
>
> Then there is also the volume issue i.e. how many battery systems
> are comprised of this order?
>
> On Sep 26 12:18 AM MRTTF wrote:

Sep 26 11:34 AM

[Don Harmon:]

MRTTF: I saw that on the PDF Spec. sheet and have no idea how that makes any sense + what is the Max. continuous discharge on these cells anyway? They look like 3C rated cells to me which would explain the low price anyway on the raw cells.

In any case no serious Hybrid car maker would use these - they are strictly sold to the DIY market and even then have to be made into a complete pack or battery system.

This is why we don't sell individual cells!

Sep 26 12:14 PM

[John Petersen:]

Don and MRTTF, as near as I can tell Jerry is into pure EVs without recuperative braking or any of the other bells and whistles that make tier one OEM requirements such a challenge. I don't disrespect his views or his capabilities, but I do think that we sometimes get into apples and oranges discussions.

Sep 26 12:27 PM

[Don Harmon:]

That's true, John. We often get into apples & oranges in the Lithium-ion world, because first of all there isn't a "gold standard" and there are many different chemistries all under the "Lithium" flag. True most of the cells are made largely by hand in Asia and the quality of powder or polymer varies considerably to start with. This is why people always ask us why our prices are so high which they really aren't if you are comparing apples to apples.

It's like comparing the price / lb. of beef trying to compare price / kWh of Lithium batteries. It depends on whether you are quoting the price of the cow or the price of the various cuts of meat you find in the grocery store's meat section. The quality differences with battery systems are vast and spread out over a wide range of performance characteristics. At the top of the high end EV Lithium-ion product spectrum you find comanies like A123, Altairnano, Valence, EnerDel, LiFeBATT and Quallion as American based companies with Saft, Kokam, LG Chem, BYD, ThunderSky as foreign based companies. Then there are a raft of super players all of whom are supposed to be entering the EV market soon with their version of Lithium-ion like Sony, Panasonic, Samsung, Toshiba, etc. So the whole field gets crowded quickly and it's hard to sort out the wheat from the chaffe.

But, that is just part of what makes this sector so fascinating and fun to be involved in. Where I see the future, and where I want to take LiFeBATT, is to become a tier one Lithium-ion battery Developer/Mfg more along the lines of Apple vs. Dell. When we release a total "plug & play" systems product it will be top of the line and have all the bells & whistles the market wants plus it will be as "bullet-proof" as we can make it. No, it won't be cheap and no you won't be able to put a $ / kWh price on it that compares to what simple cell makers quote.

Like my father always said about his business which was selling high end spray paint finishing equipment and system - this is not like selling razor blades and condoms!

Don Harmon

Sep 26 03:45 PM

[Advill:]

Just to add a little bit of "salt" in the comments, attached you will find a couple of links related 1 to Zenn cars (ZNN) who is the main beneficiary of EESTOR technology in the automobile sector, and another of a company John never comment of that is Maxwell, this company has signed a contract for a "micro "HEV gadget base in superconductors thats deserves lecture and comment of this forum (from my point of view).

The other one is about Zenn strategic decisition of abandoning the car manufacturing ( a wise one) and focus instead in the production of the specific main train parts with EESTOR technology to supply big cars manufacturers ( as Bosch or Delco)...or AXPW .

Regards

cleantech.com/news/504...

www.marketwire.com/pre...

Sep 27 04:53 AM

[Advill:]

Forbes as usual with it particular point of view has also an interesting article in A123.


www.forbes.com/2009/09...=

regards

Sep 27 05:04 AM

[John Petersen:]

Advill, I'm a bit of a skeptic when it comes to EEstor but I've been spending a lot of time doing my homework on Maxwell, which has a deep roots in Canton Fribourg where I live. I've not written much about Maxwell in the past, but that will change soon. For the last few weeks, A123 was the top story, but it should calm down now that the IPO is over. My current plan is to update my company identification, classification and tracking lists next week, and then turn to Maxwell once I get back from Sandia's EESAT conference where I'll be giving the luncheon speech on October 6th.

Sep 27 07:09 AM