A123 Lifts Off

Edward Niedermeyer
by Edward Niedermeyer

Lithium-ion battery maker A123 Systems launched its IPO yesterday, and by end of trading its shares had soared over 50 percent making it the second biggest IPO of 2009. Founded on nanoscale electrode technology that emerged from MIT, the Watertown, MA-based firm counts BMW, Chrysler, SAIC and Delphi among its automotive customers (not to mention DeWalt power tools and other non-automotive clients). Despite its impressive customer list, Automotive News [sub] notes that A123’s heady IPO is “reminiscent of the frothy IPO market of a decade ago, given the company has never made a profit.” And a lack of profit isn’t the only issue facing A123. Bloomberg reports that in the midst of its IPO, A123 is trying to resolve a patent suit by the University of Texas and Hydro-Quebec alleging A123 designed its batteries around technology developed by the U of T’s John Goodenough. Which could mean post-launch Challenger, er, challenges.

The University of Texas suit alleges that A123 is “building its business on infringing products,” by basing their batteries on Goodenough’s “pioneering” work on iron-phosphate cathode materials. Any battery based on iron-phosphate technology, the suit claims, is an infringement of patents derived from Goodenough’s research.

In SEC filings, A123 admits it would have to pay “substantial damages” if it loses the patent case.

In addition, an adverse ruling could cause us, and our customers, development partners and licensees, to stop, modify or delay activities in the United States such as research, development, manufacturing and sales of products based on technologies covered by these patents.

And yet A123’s co-founder Rick Fulop claims, “we have a strong business model and don’t see this as a major issue.” Meanwhile, it’s not just “frothy” IPO gamblers who stand to lose out if A123 loses its patent case. The Department of Energy has invested $249m in A123, as part of its EV stimulus grants. And though the DOE isn’t expecting that money to be repaid, there will be a huge opportunity cost if A123 sees its business plan nuked by a patent ruling against it. Which raises a troubling issue with the whole approach of government funding of these kinds of advanced technologies that was summed up by MD Element Partners’ David Lincoln in the NYT. “Overall the stimulus is very good but I do worry about the government skewing the market, picking winners and losers,” he said. Especially if they pick winners who are actually losers.

Edward Niedermeyer
Edward Niedermeyer

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  • Ronnie Schreiber Ronnie Schreiber on Sep 26, 2009

    A few points. A123 already has production facilities in Asia. They're building a production facility in Michigan as well. The SEC filing about "substantial damages" is just to protect the corporate officers from lawsuits and Sarbanes Oxley stuff. Like shaker said, if A123 is a going concern the patent litigation will be settled because everyone wants to make money. Batteries look like they're going to be big biz, I don't see why it's a bad thing for American companies to be a part of that. A123 seems to be the leading US company at this time. Altair Nano is maybe a step or two behind. Also, Caterpillar's Firefly spinoff is doing some very cool things with lead acid batteries that may promise performance equivalent to Lithium based cells. I don't think that A123 is in the same class as Zap or Eestor, which have the whiff of vaporware or stock/investment schemes about them. Every business has to start somewhere and I don't think A123's deal to supply Black & Decker should be pooh poohed. The fact is that battery powered tools are a very big market and B&D is not exactly a mom & pop operation. Supplying a company like B&D allows A123 to get their production lines going and create some kind of revenue stream to fund their entre into the automotive world. Also it seems to me that car guys like the B&B should be supportive of a company like A123, which is involved in racing on a couple of levels. They sell batteries to radio control and scale model hobbyists but they also work with full size electric drag racers. The positive reaction by investors to A123's IPO just means average investors want to be like Warren Buffett, who owns a big chunk of BYD. Folks want to get in on the electric car craze on the ground floor. Will it be a bubble or a vital economic sector? One never knows. Who could have predicted Nintendo's wii from Bushnell's Pong? Or the iPhone from Apple's first computer?

  • Don1967 Don1967 on Sep 28, 2009
    The positive reaction by investors to A123’s IPO just means average investors want to be like Warren Buffett, who owns a big chunk of BYD. Folks want to get in on the electric car craze on the ground floor. In that case "folks" need to do their homework. Warren Buffett made his fortune investing in established businesses, not by speculating on crazes. BYD is an investment. It has an established profit stream supplying batteries to Nokia, Motorola, Samsung and LG, plus huge growth potential for the future. And it was available for a reasonable price. A123 is a story at this point, and not a very good one at that. It has yet to turn a profit despite government grant revenues, it faces serious risks due to the patent case, and it is trading at irrationally exuberant prices. It is perfect for speculators with money to burn, but probably the last place you will ever find Mr. Buffett.
  • Dukeisduke Womp womp.
  • FreedMike China's whining about unfair trade practices? Okay.
  • Kwik_Shift Hyunkia'sis doing what they do best...subverting expectations of quality.
  • MaintenanceCosts People who don't use the parking brake when they walk away from the car deserve to have the car roll into a river.
  • 3-On-The-Tree I’m sure they are good vehicles but you can’t base that on who is buying them. Land Rovers, Bentley’ are bought by Robin Leaches’s “The Rich and Famous” but they have terrible reliability.
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