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
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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.
  • Ajla "Gee, wonder why car (as well as home) insurance rates are much higher in places like Florida..." Severe weather is on the list but even if a benevolent genie reverted the climate to circa 1724 I think FL would still have high cost. Our home insurance rates have increased 102% since 2021 and I don't think weather models account for that much of a change in that period. Florida's insurance assignment of benefit regulation meant that it had ~80% of the country's of the insurance lawsuits on ~12% of the nation's claims and litigated claims can be expensive to insurance companies. The state altered some regulations and is having some success on getting more companies back, even with the severe weather risks, through relatively bipartisan efforts. With car insurance just beyond the basic "Florida" stuff, the population increase of the past few years is overwhelming the roads. But, I think the biggest thing is we have very low mandated car insurance levels. Only $10K personal injury and $10K property damage. No injury liability needed. And 20% of the state has no insurance. So people that actually want insurance pay out the nose. Like I commented above my under/uninsured coverage alone is 2.5x my comprehensive & collision.
  • Juan Let's do an 1000 mile drive and see who gets there first.
  • Eliyahu CVT needed for MPG. Outback is indeed the legacy of, err, the Legacy.
  • Gayneu I can comment on these. My wife always thought the Minis were "cute" so I bought her a used 2005 (non-S, 5 speed) for one of her "special" birthdays. She loved it and I kinda did too. Somehow a hole developed in the transmission case and the fluid drained out, ruining the car (too expensive to fix). A local mechanic bought it for $800.We then bought a used 2015 S (6 speed) which we still have today (80k miles). Her sister just bought a used S as well (also manual). It has been a dependable car but BMW-priced maintenance and premium gas hurts for sure. I think the earlier generation (like in the article) were better looking with cleaner lines. The 2015 S rides too stiff for me (Chicago roads) but is a hoot on smooth ones. It does seem to shift weird - its hard to describe but it shifts differently from every other manual I have driven. No matter how hard I try, so won't let go of her Mini.
  • Crown Seems like they cut some cylinders too.A three cylinder...where are they planning on selling that??