Is the battery maker A123 Systems’ electric-car play starting to stall?
The Waltham company recently cut its revenue forecast for 2011 by about 20 percent and laid off a few hundred employees at its Michigan factory after one of its biggest customers, electric-car maker Fisker Automotive, unexpectedly reduced the number of batteries it had ordered from the company.
Fisker was recently cut off from hundreds of millions in federal funds because it failed to meet the terms of its government loan.
While company officials say A123 is already diversifying its business, it remains dependent on the electric-car business; sales to the transportation sector accounted for nearly 60 percent of its revenue in the first nine months of 2011, according to A123 financial statements.
A123’s troubles are emblematic of the struggle of the nascent clean-technology industry, which currently relies on government subsidies as it labors away at developing commercially viable products.
A123’s troubles are emblematic of the struggles of the clean- tech industry.
In addition to Fisker’s misfortune, at least two other alternative energy companies that received hefty financial backing from the Energy Department are in bankruptcy: Beacon Power Corp., a Tyngsborough energy storage company that sold its factory to repay the government $39 million; and Solyndra, a California solar panel manufacturer that is under investigation and owes the United States more than $500 million.
For now, the Obama administration remains a strong proponent of clean-technology companies. In the budget plan he released Monday, the president requested $588 million to help the industry fulfill his goal of having 1 million electric cars in use by 2015.
Moreover, a recent outside review of the two main Department of Energy loan programs to clean-energy companies found that the government’s potential losses, while still hefty, have lessened over time, to $2.68 billion. (A123 received substantial public aid, but the company says it has fulfilled the terms of those obligations so far.)
But the Solyndra case and other failures are likely to heighten scrutiny of Obama’s proposals, as they provide more ammunition to critics who have questioned the wisdom of Washington funding specific companies with taxpayer dollars.
Fisker said it is raising private money and moving forward with the rollout of its first vehicle, the Karma, but some analysts question whether the company will ever get the remaining $330 million or so in funding from the Department of Energy.
“Everyone that I’ve talked to is pretty certain that the DOE loan is not coming’’ back, said Theodore O’Neill, an analyst with Wunderlich Securities who follows A123 and has been monitoring the Fisker situation. He said the Obama administration is “politically boxed in’’ by the troubled loans, and if the federal money does not reappear, “that croaks Fisker and that croaks A123.’’
A123 is most well known for making super-efficient, long-range, lithium-ion batteries that many view as essential to the emerging electric car market.
But chief executive David Vieau said A123’s business is broader than the auto industry. It has been increasing sales of giant batteries that utilities use to store electricity from the power grid, or for use as backup power systems for telecommunications data centers.
“We’ve hedged our bets with activities in other spaces,’’ Vieau said, “and we’re quite comfortable that our business in the grid and commercial spaces is growing rapidly.’’
Just last week, A123 announced a multi-million dollar deal to sell six batteries to Northern PowerGrid, an electricity distribution network operator in the United Kingdom.
In the third quarter of last year, A123 reported sales to power grid companies of $20.5 million, up more than 240 percent from the same period last year. Its transportation-related revenue grew roughly 260 percent over the same period, to $34.5 million.
Dan Galves, an analyst at Deutsche Bank, said the importance of any one customer to A123 will be reduced significantly in future years, as the company launches new business with General Motors and other transportation and grid customers.
“The takeaway is that this is a significant setback - but temporary,’’ said Galves, whose firm provides investment banking services to A123. “We still see this company as having done very well in terms of carving out a position in the advanced lithium-ion battery market.’’
Still, the Fisker setback stung. When the California automaker said it would build fewer cars and cut its orders for batteries, A123 lowered its revenue expectations for 2011 by $45 million, to $165 million to $180 million. It also laid off about 125 employees and 200 noncontract workers at its plant in Michigan. The company has 350 employees in Massachusetts and 2,400 overall and reported a $19.6 million loss in the third quarter of last year.
After losing the Fisker business, A123 raised $23.5 million from investors, which it will use to finance its growth.
Fisker spokesman Roger Ormisher said his company is not counting on the Department of Energy’s support and has been raising money - roughly $860 million over the past several months - so that it can continue to make cars. Last week, the company laid off 26 workers at its Delaware plant.
Energy Department officials, meanwhile, said they have not ruled out providing Fisker with the rest of the loan.
“The department is working with Fisker to review a revised business plan and determine the best path forward so the company can meet its benchmarks, produce cars, and employ workers here in America,’’ said spokeswoman Jen Stutsman.