Earlier this week, A123 Systems — the exclusive battery supplier to the upcoming electric variant of the Chevrolet Spark — has expressed “substantial doubt” about its viability as a “going concern” due to the firm’s expectations of burning through cash and steep losses over the next several quarters.
In 2009, the company received $249 million from the Obama administration as part of a program to stimulate battery development. That year, A123 also went public (NASDAQ ticker symbol AONE).
But losses stemming from the company’s recall of defective batteries used in the Fisker Karma plug-in hybrid have put a strain on the business; the company’s recall is expected to cost the company approximately $67 million while pressing it to rebuild its entire inventory. The defect in its battery was found earlier this year when a Karma failed while in the hands of Consumer Reports magazine.
A123, which is now looking to raise additional funds and explore “other strategic alliances” has contracts with GM (Spark), BMW (3- and 5-Series hybrids), and Fisker (Karma).
Additionally, an A123 battery was at the root of the explosion at GM’s Warren Tech Center in April, although the unit was exposed to severe testing procedures.
The GM Authority Take
Some analysts question whether A123 will be able to effectively meet its contractual supply obligations to General Motors in providing the automaker with batteries for the Spark electric. Meanwhile, others wonder whether General Motors will instead simply buy the struggling battery maker outright — thereby creating an in-house battery division.
As of this writing, A123 has a market capitalization of $139.65 million, which likely seems like pocket change for GM. A123’s stock finished May down $0.27, or 22.13 percent, to 0.950 per share.