Battery Makers Are In the Hot Seat

The fires reported by General Motors (NYS: GM) earlier this week were just the latest in a string of bad news for battery makers. It has also left battery manufacturers scrambling to reassure customers that their chemistry is safe.

Valence Technology (NAS: VLNC) released a press release reiterating that its batteries were safe and GM and LG Chem are working hard to try to find the root cause.

Before we get too worked up about a battery fire a week after a crash test, I will point out that new technologies often have hiccups like this and since it doesn't appear to be immediately dangerous to drivers it shouldn't be a long-term problem. As a former research and development engineer who started an inadvertent fire or two, I have confidence they'll solve the problem.

But maybe, just maybe, the Chevy Volt fire will be good for A123 Systems (NAS: AONE) . The Volt battery is made by LG Chem, a Korean company that won the contract over A123 when the company was in its infancy. If A123 can prove to have safer technology, this could help it win contracts in the future.

Pink slips at A123 Systems
For now, A123 has to deal with its own problems of slower-than-expected demand and mounting losses. That has forced the company to lay off 125 workers at its plant in Michigan. The company says the layoffs are temporary, but the way things are going right now, who knows if they'll ever come back.

This isn't the end of the world
The battery fire is bad news for everyone from A123 Systems to Tesla Motors (NAS: TSLA) and Toyota (NYS: TM) . As these companies try to overcome high costs and uneasy customers, every bad news story is bad for the industry. But I don't think this is what will determine the success or failure of electric cars. For that we have to look at consumer demand, which simply isn't strong for EVs right now. That's more important than a fire that will leave the headlines in a week or two.

Interested in reading more about A123 Systems? Click here to add it to My Watchlist to find all of our Foolish analysis on this stock.

At the time this article was published Fool contributor Travis Hoium does not own an electric vehicle and does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.Motley Fool newsletter services have recommended buying shares of General Motors and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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efrain

The demand for electric cars can be greater if the cost were not so high. I personally would love to buy the Tesla model S but right now I'm unable to afford it. However, if there was a 25 to 30 thousand dollar Tesla model I would buy in a heartbeat. Electric cars will take off and are far more efficient than gasoline powered ones and so the future really has no choice once gas prices hit 10 dollars a gallon.

November 30 2011 at 7:10 PM Report abuse rate up rate down Reply