June 13, 2012

A Boost For Electric Cars

Michael Crumbliss for redOrbit.com

A new advance has been made in battery technology that will improve the performance of electric cars.

A123 Systems developed as a start-up at the Massachusetts Institute of Technology. The company makes batteries for Fisker Karma, the BMW hybrid 3- and 5-Series cars and GM's all-electric Chevy Spark due in 2013. On Tuesday A123 announced advances that will allow lithium ion batteries to perform in extreme high and low temperatures. This will eliminate heating and cooling systems that drive up the price of the batteries, and thus the price of the cars.

The technology is called Nanophosphate EXT, and could potentially increase the adoption of the struggling company's rechargeable batteries, analysts said. And A123 needs the boost. The high cost of lithium ion batteries has held back their large-scale adoption.

Shares of the company shot up 61 percent to $1.67 on Tuesday on the Nasdaq. Nearly 26 million shares of the company were traded by 1730 GMT, 17 times their ten-day average volume.

A123 said the ability to work in a wider range of temperatures and the lower costs will create new opportunities for its products in the transportation and telecommunications markets.

The heating or cooling systems account for 10 to 20 percent of the total cost of the lithium ion battery, said Stifel Nicolaus analyst Jeff Osborne, citing the Electric Power Research Institute.

"A123 has struggled to-date to execute as a volume manufacturer and make the significant reductions in its manufacturing cost structure that will allow the company to sell its products at a profit," Osborne said.

The company plans to begin production of batteries based on the new technology in the first of half of 2013. The timing is good for A123. Their batteries have had quality issues, and the company needs sales given the amount that must be spent on research.

Needham analyst Michael Lew said, "They have to sell more products. And they cannot afford to stumble again, like the quality issues in the past."

Stifel analyst Osborne said the company will need to raise an additional $75 million by the fourth quarter of 2012 and another $200 million in 2013 to fund its ongoing operations.

"Funding remains the biggest risk to A123's equity," said Osborne.

A123 Systems is a start-up leading the way in a complex new technology, which is always a tough road. This advance in battery technology points to a strong future.