By Eric Wesoff
A123 (Nasdaq: AONE) had a rocky 2011. 2012 is turning out to have its challenges as well.
The lithium-ion battery maker just announced "a field campaign to replace battery modules and packs that may contain defective prismatic cells produced at A123's Livonia, Mich. manufacturing facility," according to a release. The "defect has been discovered only in some prismatic cells" built at the firm's Livonia facility.
A123's batteries are used in the Fisker EV and this defect is what has caused Fiskers to malfunction in a recent Consumer's Report test, according to Bloomberg.
Although the lithium-ion battery firm has made some strides in utility-scale energy storage, the company faces a number of challenges with its Fisker Automotive business, as well as rising losses amidst warranty issues and production hiccups. This recall will not help matters.
About a year ago, VC investor Vinod Khosla spoke to about 300 energy storage experts at the annual Energy Storage Association (ESA) meeting and predicted that A123 would not be around in ten years. He cited lithium's volatility and inherent safety issues. That was less satisfying for the audience (which included A123).
The A123 "campaign" will have a price tag of $55 million, spread out over several quarters. A123′s shares are down 11.71 percent to $1.50.
Here's a recap of some of A123's recent activity:
A12 pre-announced its fourth quarter 2011 results and issued its 2012 guidance recently:
- Revenue for the final quarter of 2011 is expected to be approximately $40.4 million, below consensus estimates.
- Net loss in the fourth quarter looks to be approximately $85.0 million, an increase from the loss of $63.7 million in Q3
- The company chose not to invest in a recent round of financing for the extended range luxury automaker Fisker.
- Contributing to net loss were warranty charges of $10.6 million related to repairs for one customer and costs associated with repairing battery packs for another customer.
- Also contributing to losses was $10.1 million in greater-than-expected scrap rates for the quarter.
- A123 has requested a 15-day filing extension for its annual 10-K -- no reasons were provided.
- The company looks for revenue in 2012 to be in the range of $230 million to $300 million.
On a positive note, A123 just won a new hybrid bus contract in India with Tata Motors (NYSE:TTM) for large battery packs. According to Jeff Osborne at Stifel, the battery packs are in the 12-kilowatt-hour range and margins are expected to be better in the bus business than the automotive business, with volumes starting in the hundreds and potentially growing into thousands of units in late 2012 and 2013. The company also noted that over the past three months it has been awarded five contracts representing 17 megawatts of grid business.
As Jeff St. John has reported:
A123 Systems may be struggling with the automotive battery business, but it's making some strides on grid energy storage, announcing several projects in December that show how large-scale lithium-ion batteries can help the power grid. A123 announced an 11-megawatt energy storage project to back up a wind farm that Sempra Energy plans to build on the Hawaiian island of Maui. A123 is also supplying 32 megawatts to AES Energy Storage to provide frequency regulation and wind power smoothing in West Virginia.
Another project with Massachusetts utility NSTAR is a 2-megawatt pilot that A123 will own and operate to serve ISO New England's frequency regulation market under the grid operators Alternative Technology Regulation (NYSE:ATR) pilot program.
A123's project with Hawaii's Maui Electric Co. is aimed at supplying a different set of energy storage functions. The battery array will be installed at a substation serving the high-end resort community of Wailea, and will be able to supply 1 megawatt-hour of energy storage, both to reduce peak load by as much as 15 percent and to smooth voltage and improve power quality, said Chris Reynolds, Maui Electric's operations superintendent.
Grid energy storage is still cost-prohibitive in all but a handful of edge cases, but it's also expected to be increasingly important as intermittent wind and solar power take a larger role in power generation.