Shares of lithium-ion battery maker A123 Systems Inc (AONE) surged higher Tuesday following news that the company has broken through with its efforts to create a battery capable of operating in extreme heat and cold.
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CEO David Vieau said:
We believe Nanophosphate EXT is a game-changing breakthrough that overcomes one of the key limitations of lead acid, standard lithium ion and other advanced batteries.
AONE says it expects to start producing battery cells that include the technology in the first half of 2013.
In late May, AONE warned of a possible bankruptcy after mounting losses and difficulty raising funds. From the filing:
There is no assurance that the company will be able to obtain such financing on favorable terms, if at all, or to successfully further reduce costs in such a way that would continue to allow the company to operate its business.
One of the primary reasons AONE is in financial trouble is the company's defective battery problem from its Livonia, Michigan, plant. AONE was forced to replace the batteries at a cost of $67 million. However, due to the exciting new technology, the defective battery issue looks to be behind AONE.
Prior to Tuesday, short interest in AONE was 23.6 million shares, or 23.5% of the float. It is likely that at least part of Tuesday's surge higher is short-covering. However, it remains likely that the short interest is still high.
While the technology breakthrough is certainly good for the company, I would not buy AONE on the surge higher. The company still needs to raise more capital and it could come in the form of a secondary. If AONE pulls back on a secondary offering, I would consider buying as a speculative play.