What's A123 Actually Worth? It's Anyone's Guess

Yesterday I mentioned some of this week's IPOs. While the mortgage IPOs are floundering today, lithium-ion battery maker A123 (AONE) is up 43% from its offering price this morning of $13.50. Keep in mind that the offer price was initially going to be between $8-9.50, then $10-11.50, and finally boosted to $13.50 - and the amount of shares offered was boosted by over 10%. There was huge demand among investors for a piece of this action.

From the S-1, the company is nowhere near profitable - note that cost of goods sold exceeds goods sold!

click to enlarge

The shares are currently trading at $19.85 -->> that means the valuation has increased nearly 130% since the earlier estimates of the offer price.

How much should this thing trade for, considering there's no profits? According to the filing, there's about 96 million shares outstanding, pegging the company's value at $1.92 billion, or 27 times this year's $70 million in expected sales (It's closer to $1.5 billion if we exclude yet-to-be exercised options). Total insanity, unless you buy into management's estimates of future sales:

According to A.T. Kearney, the global lithium-ion battery market for automotive application in HEVs, PHEVs, and EVs is estimated to be $31.9 million in 2009. A.T. Kearney projects that this market will grow to approximately $21.8 billion by 2015 and $74.1 billion by 2020.

If A123 takes 20% market share of the estimated $22 billion in 2015 revenue, that could mean $4.4 billion in sales for the firm. A price-to-sales of 2 (not warranted, but they'll get it due to investor mania over "green" anything) would lead to a market value of $9 billion, or 373% higher than where we're at now.

And how does the company get there? By government-mandate of course!

"Based on a moderate drive for change influenced by increasing governmental regulation, emerging powertrain technology, changing consumer demand and OEM product strategies toward more fuel efficient vehicles."

The projection from A.T. Kearney for an increase in the lithium-ion market of 68,000% percent by 2015 is pretty ridiculous. Buyer beware.

The most entertaining aspect of this story will be the initiation reports by the investment banks that participated in the IPO. Expect lots of "we weight the DCF valuation 10% and the peer valuation 90%" pie-in-the-sky nonsense.

Disclosure: No position

Comments

[john s. gordon:]

another dot com bubble forming?
it's anyone's guess.
> jack

Sep 25 08:43 AM

[AirBoss:]

A123 storage density nicely buffers the time of day seasonality of residential, commercial and remote wind and solar generators.

Sep 25 09:09 AM

[Zenfar:]

Well at least it will be a useful bubble. The dot.com bubble provided us with the global Internet which has a huge benefit to society. Also many strong companies remain for the dot.com era, Amazon, Ebay, and of course Internet search really is valuable just ask Google. An alternative energy bubble would also have huge benefits for the world and the USA. So I am all for it.

Long AONE, QTWW, ASTI, XIDE, HEV, CPST

Sep 25 09:52 AM

[Doug Korthof:]

Ahh, A123! Yet another "miracle battery" that will solve world peace, the common cold, and bad manners!

Yet if you look at the cost of production, it's about $2400/kWh, about 20 times what lead-acid costs, and about 5 to 10 times what the standard, proven EV battery is, NiMH.

That's just taking the revenue plus losses and dividing by total kWh sold -- mostly not for cars; there are about 100 plug-in Prius, running OK so far. But it's an expensive conversion even at a price that is less than the cost of production.

So if the battery on the Toyota RAV4-EV, 30 kWh, were Lithium, it would be $50,000 in mfg. cost, while CARB judged NiMH as too expensive at $9,000 RETAIL.

Lithium is unproven in EVs; so far, NO CAR, except for the excellent but
niche-market Tesla.

NiMH and lead EVs are running every single day; I'm about to drive one right now.

So if the Oil-Auto companies were serious about building all those EVs they have promised, they'd use cheaper, proven batteries, ones that already work in EVs that are running today.

Putting all the money on unproven Lithium is setting EVs up for a big failure, when the economics of Lithium become apparent and all those supposed Lithium EVs are lying around in need of expensive battery replacement.

Can Aone meet its sales targets?? Unlikely, imo.

Sep 25 04:25 PM

[bartpr:]

li-ion will have a place in hybrid vehicles but it is overstated at this point. john petersen has explained it will not be a cost driver in storage and plug in vehicles, because of the high initial cost of the batteries and their rplacement cost. also, the range of the plug in is limited. and what about the cost to recharge. more electric power will be needed. is this going to come from coal fired power, and its pollution cost. i am not interested in this speculation.

give me a cost competitive alternative.

Sep 26 06:43 AM

[Variant_530:]

Lithium like oil is a commodity and exists in a finite supply, a supply of which is not owned or controlled by the U.S. Most of the extractable lithium exists in Peru and the projections of this mine clearly state that they cannot meet the lithium demand should it become a mainstream vehicle battery component.

Sep 26 11:18 AM

[Mad Hedge F...:]

tbg The spectacular debut of the IPO for A123 Systems (AONE), a maker of high powered, quick recharging lithium ion phosphate batteries using advanced nanophoshate technology, put a great shining spotlight on a sector I have been harping about all year (search my data base for “Butch Cassidy” by clicking here at www.madhedgefundtrader... ). The initial price talk was at $8, the IPO came out at $13.50, and the first day of trading took it up to a meteoric 43% to $19.20 on the first day! I had a flashback to the dot.com boom. Where are the gold flecks on the sushi, my free IPO hat, and the vodka luge? The fact is that this is an industry that is going to be huge in the next 20 years. The market for lithium ion batteries, which offer a 4X improvement over ferrous oxide predecessors in energy stored per unit of weight, is expected to grow from $32 million this year, to $74 billion by 2020. That is no typo; I really did leap from millions to billions. Their use is expected to spread from cell phones, to the electric car industry, to endless other applications. We are still in the ground floor elevator of the Empire State building. But outside of a few stocks like Chile’s Sociedad Quimica Y Minera (SQM), there have been few ways in which an investor can get involved in the lithium space (see my call to buy the stock in February before its healthy 60% move up at www.madhedgefundtrader... ). So when a small company like A123 opens a window, the investors dog pile in. Watch this space. Lithium could be the new crude, and companies like A123 could become the next Exxon (if Exxon doesn’t become the next Exxon). Kiss up to your long neglected broker and try to get in on the next allocation.

Sep 26 10:54 PM

[Derek Stivers:]

I've been using their batteries for three years now. First in DeWalts 36v power tools, and then in RC applications. I've been waiting for this company to go public ever since. They have a fast recharge rate(charges to ~95% in only 15 minutes), "safe" lithium technology, not to mention that they weigh 35-55% of any comparable NiMH or Lead Acid battery. Weight, safety, and time-to-charge are HUGE factors in automotive applications, and this company has them all covered. No, they are not making any profit now, but the potential is there. It is a gamble, but the with the push toward so-called "clean" energy, some risks can be factored out. I'm already in. I missed the IPO that I've been waiting for(missed their filing), but I did get in at $18.995/share for a 35%+ gain. This article is exactly on track with what I'm pondering now. I was hoping they'd be about at $30/share by the end of this quarter, but need to rethink this due to how fast they've gained already.

Good thoughts Jones.

Oct 03 02:54 AM

[Derek Stivers:]

Oh, and their racing department(123Racing), holds the land speed record for an electric motorcycle. That's got to mean something right?

Oct 03 02:56 AM

[jrbrown:]

Where did you get the cost of production figure? Can you see their sales in kWh/year?


On Sep 25 04:25 PM Doug Korthof wrote:

> Ahh, A123! Yet another "miracle battery" that will solve world peace,
> the common cold, and bad manners!
>
> Yet if you look at the cost of production, it's about $2400/kWh,
> about 20 times what lead-acid costs, and about 5 to 10 times what
> the standard, proven EV battery is, NiMH.
>
> That's just taking the revenue plus losses and dividing by total
> kWh sold -- mostly not for cars; there are about 100 plug-in Prius,
> running OK so far. But it's an expensive conversion even at a price
> that is less than the cost of production.
>
> So if the battery on the Toyota RAV4-EV, 30 kWh, were Lithium, it
> would be $50,000 in mfg. cost, while CARB judged NiMH as too expensive
> at $9,000 RETAIL.
>
> Lithium is unproven in EVs; so far, NO CAR, except for the excellent
> but
> niche-market Tesla.
>
> NiMH and lead EVs are running every single day; I'm about to drive
> one right now.
>
> So if the Oil-Auto companies were serious about building all those
> EVs they have promised, they'd use cheaper, proven batteries, ones
> that already work in EVs that are running today.
>
> Putting all the money on unproven Lithium is setting EVs up for a
> big failure, when the economics of Lithium become apparent and all
> those supposed Lithium EVs are lying around in need of expensive
> battery replacement.
>
> Can Aone meet its sales targets?? Unlikely, imo.

Oct 05 08:43 AM