Will car battery maker A123 Systems jump start the IPO market?
Filed under: Technology, General Electric , Motorola
A car battery maker based at the Massachusetts Institute of Technology is poised to jump start the market for initial public offerings (IPOs).
The company, A123 Systems (AONE), makes batteries for electric cars, went public Thursday morning at $13.50 a share, with the goal of raising $380 million. A123 -- which counts General Electric (GE) and Motorola (MOT) among its backers -- got started in an effort to commercialize nanotechnology research at MIT. And it's just won a $250 million grant from the federal government to build a production facility outside Detroit.
Regrettably, it suffers from one little problem: it is losing lots of money. Specifically, it lost $40 million in the first half of 2009 on $43 million in sales, and lost more than $80 million last year on sales of $68.5 million. It faces significant competition from companies in Asia -- including Korea's LG -- which beat out A123 for a contract to make batteries for General Motors' Chevy Volt.
Another problem that could turn out to be an opportunity is that A123's market is small. According to A.T. Kearney, the batteries A123 sells compete in a market that is expected to generate a mere $31.9 million in 2009 sales. But it is forecast to grow quickly to $21.8 billion by 2015 and $74.1 billion by 2020. We'll see.
I'd hesitate to buy this stock at the IPO price but with its backers making huge returns -- VC North Bridge Venture Partners' shares could be worth $121 million, GE's could be valued at $114 million, and Motorola's: $73 million. If A123's management could use the proceeds to help win more commercial deals, the company might become profitable. And the IPO could help revive interest in venture capital and IPOs.
It would be even better, of course, if the IPO could help generate the enthusiasm needed to create a network of industries growing rapidly to meet an enormous, unmet social need. In my view, the single most important hope for our economy is a revival of the kind of venture-backed technology-based innovation that's been missing in this lost decade.
Update. A123's IPO was a big success -- the stock closed up 54 percent at $20.78. I hope it can earn its way into that valuation.
Peter Cohan is a management consultant, Babson professor and author of eight books including, You Can't Order Change. Follow him on Twitter. He owns GE shares and has no financial interest in the other securities mentioned.
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Reader Comments (Page 1 of 1)
9-24-2009 @ 7:30PM
Davey Rockeyfeller said...
Well they have stiff competition from Asia and instead of buying the battery company maybe buying the lithium istead would be a better deal. If I was a Rockefeller I'd be buying up all the Lithium in the world and it's rare and control the next energy market along with copper for the wiring. Anyway oil will still be around for a log time,just more expensive and nasty to suck out. Then we have natural gas which is abundant supply right now and LNG terminals are being built, Qatar, Venezeula etc. have big plans and our own resources are good. Hmnnn....Big oil seems to like gas more than electric cars and oil still rules the globe.
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9-24-2009 @ 12:54PM
joan said...
I thought give the car makers fed money and they will buy american first! Guess not. A123 is a fine company and loosing money also because they expanded their production to the midwest - not China. Penalized by doing the right thing? I will buy their stock. We use their batteries in hobby stuff. They don't burn your home like LiPo's and give 30 times the energy verses 10-15 for LiPos. They have a good product. I have been to their R&D facility and seen the technology and use it. it is good stuff go to their web pages. They are not making China richer and providing jobs overseas. They are keeping the production and jobs at home. Thier IPO and company will make money of that I am sure.
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9-24-2009 @ 3:53PM
Dawg said...
Very good article on the state-of-the-art company, A123. It's odd that they lost out to LG of Korea earlier this year on the GM lithium battery contract. Think it had to do with the design package where LG's are more installation-friendly due to its symetrical shapes. Wonder when GM went bankrupt couple of months ago that the LG contract could be nullified? They should give a new contract to A123 to jump-start it. TARP money shouldn't support a foreign company. Also, let's hope A123 doesn't move to China though they plan to raise capital to build new plants here. Their technology is Chinese/MIT-based around which American capital is funding it.
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9-24-2009 @ 5:42PM
Tom said...
I AM SOOO SICK OF YOU PEOPLE THAT CAN'T SPELL LOSE.....NOT LOOSE OR LOOSING!!!!!
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9-25-2009 @ 4:28AM
H said...
Well to the guy that said lithium is rare... according to wikipedia it is as common as lead, I kno I researched all of this months ago... Also... A123 sold for $20 a share... as someone mentioned GM chose another provider... Phoenix Motors chose ALTI as a provider... and ALTI's stock sells for $1.30 compared to AONE $20 share price... but this always happens with IPOs... It will be $8 a share by the end of the year.. but still above ALTI's current price of $1.30... and why ??.... because of SMART cars.. and govt money.. and because the GE guy sits on the board. I think smart cars are ugly compared to Phoenix and TESLA and will not sell... I think A123 will be a money pit and this is it's climax.. at the very least, other li-ion producers will be a better risk.. if you couldn't tell I like ALTI.. they got money from the govt, just not from the DOE... and they got theirs in March while A123 had to wait.. So, you know... yeah.. IPO... nice pop for someone who could get away with flipping (the banks)
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9-25-2009 @ 10:42PM
J Lee Wei said...
Excellent article.
No doubt many who bought the AONE ipo are suffering buyers remorse today.
There are a few great buys in the lithium battery sector but AONE is not one of them.
The two best stocks to own right now are the excellent China Sun Group (CSGH.OB). Growing in a big way. Profitable. Debt free with serious cash in the bank.
A true gem.
Next?.........New Energy Systems Group, Currently CMTP.OB but about to get a symbol change in a matter of days.
This company is also profitable, growing fast and is sitting on 10 million in cash.
The CEO Fushan Li is a rising star in Chinese business and this company is being closely watched.
Both of these stocks are up big in recent weeks.
The hysteria related to AONE has driven more interest to CSGH.OB and CMTP.OB in the last few days.
Those are major winners.
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