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.
I agree with the point of your post.
But the Challenger reference was unnecessary.
The real winners here are Morgan Stanley and Goldman Sachs. They managed to package a company that has never seen a profit and sell it to the public for 380 million dollars.
This company however has tons of competitors in Asia where companies have been making these types of batteries in cell phones and lap tops for years. This company is definitely a big gamble and I don’t think the potential payout is going to be as big as A123 is making it out to be.
I hope the illustration here isnt Columbia or Challenger ?
Cashing out is a smart play by A123 co-founder Rick Fulop.
BTW, the $249 million of taxpayer money for A123 was not an “investment”, it was a grant. No coincidence that A123 is located in Michigan, and that the big Democratic Party players pulled the strings. Read about it here:
http://ir.a123systems.com/releasedetail.cfm?ReleaseID=403090
How about a Harold Edgerton photo of a balloon bursting instead? The over the top stridency was an RF trademark and was irritating enough to turn me off of TTAC. TTAC’s tone is far more pleasant without it and now hopefully points can be made without tasteless and irrelevant metaphors like the one above.
Conveniently overlooked by the speculators buying this stock is that (as mentioned by RGS920) this is a company that has never made any money, and their largest customers are Black and Decker and Chrysler.
You don’t have to be Warren Buffet (long lost father) to understand the investing concept of “anything to do with Chrysler, run, run away as fast as you can…..”
I believe it’s WaterTOWN, not WaterFORD.
ptr2void: Right you are. Can you tell I’ve never been to Massachusetts? Text amended.
I wonder how long before someone starts a battery pack remanufacturing and recycling business. When a battery pack no longer meets specs and must be replaced, only some of the cells are no longer good. Remove the bad cells, replace them with cells that still have some serviceable life and sell the remanufactured battery pack at a significant discount.
Was that a water filled balloon? A very cool picture!
Yeah, the Challenger quip may have been uncalled for, especially in the eyes of anybody living in Central Florida and/or watching during that accident.
But it’s part of the culture, and if there ever were an “Epic Fail”, it would have been that launch; the result of many bad decisions and the ignoring of much data all culminating in one huge tragedy. Not quite a parallel with the article, but the point is understandable and is taken.
I read a little bit more about this company and the hype around the company is that electric vehicles are the wave of the future and that A123 could control a significant portion of the battery industry for new electric cars.
The cold reality is that currently A123 can’t produce batteries cheap enough for use in normally priced cars. A123 lost the contract with GM for producing the battery for the Volt. GM instead went with a South Korean battery company.
I guess the “hope” with this firm is that the goverment grant along with the influx of capital from taking the company public will allow them to produce lith-ion batteries cheaply enough to compete with the asian battery companies.
Nicely done Mr. N! Great piece of journalism – the kind you won’t see in the DBMSM (‘DB’ has several connotation here…).
@ RGS920 :
True but, there is a certain government led drive for “green jobs” that has me thinking this company is already too big to fail. Its amazing how quickly an unprofitable company can get into the black with a DOE loan here and an Al Gore led venture capital investment there. Sounds like a good investment to me.
Finally!
The only thing missing from the Eco/Green/Hybrid Bubble up to this point was an IPO frenzy. But thanks to A123 we finally have a mechanism for separating Global Warmists from their money, which is the quickest way I know to end a period of mass-delusion. It worked beautifully during the dot-com bubble.
As a next step, Toyota could raise a zillion bajillion dollars by spinning off the Prius brand as an IPO, and Barclays could create a Leveraged Carbon Tax Credit Exchange Traded Fund. The amateurs wouldn’t have a clue what they’re buying, but it would be a hell of a party while it lasts.
thanks to A123 we finally have a mechanism for separating Global Warmists from their money
LOL! Have you considered evil as a lifestyle?
“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.”
Quite the veiled threat, eh?
Unfortunately, we’re at the nexus of battery tech, and A123, though maybe not the preferred choice, is probably closest to being internationally competitive. In other words, I don’t agree with the implied endorsement of the government grants, but we (as a country) are behind in the most important ‘game’ of the century.
The loss of the lawsuit should result in a royalty agreement, thus keeping things rolling.
Oh, yeah, any Challenger disaster ‘humor’ will always be “too soon”.
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?
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.