Is Fiat and Chrysler's Pullback on Electric Cars Bad News for A123 Systems?

Includes: AONEQ, FCAU
by: Greentech Media

By Michael Kanellos

Fiat (FIATY.PK), the new owners of Chrysler, has apparently pushed back the effort to release an electric car, according to Reuters. Fiat has scrapped the Dodge Circuit, a two-seater electric sports car, as well as a plan to make a fleet of 220 electric and hybrid cars. The Department of Energy gave the company $70 million in grants in August to develop that fleet. Not sure if we get the money back.

The Envi electric car group has been absorbed into the regular car making group, Reuters said.

That could be bad news for battery-maker A123 Systems (AONE). A123 lost the deal to supply batteries to General Motors for the Volt earlier this year (although the two companies publicly vowed to remain friends). The Chrysler deal in April helped A123 rebound. The battery maker subsequently pulled off a successful IPO.

Will the changes at Fiat/Chrysler hurt? It's hard to say, but it's not great news. On one hand, Fiat and Chrysler still plan to come out with electric cars. Lou Rhodes, who headed up Envi, will head up electric car development for Fiat and Chrysler.

On the other hand, it sounds like electric cars are going to come out of the combined company later and at a slower pace. Chrysler earlier said it wanted to have an electric car out by 2010. On Friday, Fiat CEO Sergio "Marchionne told reporters and analysts electric cars would only represent "one to two percent" of Chrysler's sales by 2014, equivalent to less than 60,000 vehicles," Reuters wrote. The company is considering a delivery van in the U.S. Will they put some out in 2010 or will it be later? Hopefully more clarity comes next week.

"Until the [battery] storage gets resolved, I think electric vehicles are going to struggle," Marchionne was quoted as saying.