Another Auto Deal Sets A123 Systems Up for Disappointment

Electric vehicles are again making some rumblings ahead of the North American International Auto Show, which starts next week. Bob Lutz, formerly an executive with General Motors and Ford, will be announcing new trucks, vans, and SUVs from VIA Motors. And A123 Systems (NAS: AONE) has announced it will be supplying batteries for the new vehicles.

Shares of A123 rallied on the news, but are investors getting ahead of themselves?

VIA's market isn't your traditional tree-hugging market, like the Chevy Volt or Nissan Leaf went after. And it isn't going after the high-performance market Tesla Motors (NAS: TSLA) seems to have a hold of. Instead, it is marketing trucks and SUVs, normally marketed for their horsepower and toughness. If electric vehicle sales aren't going well to wealthy, environmentally conscious folks, what makes them think men with a little dirt under their fingernails would want an electric vehicle?

Another bust for A123 Systems
I've chronicled A123's struggles at the hands of Fisker Motors for the last year. Fisker's slow ramp -up has thrown a wrench in A123's financial plans and has some of us wondering out loud if the company can survive.

Another deal with another automaker may be positive for A123, but I'm still not convinced the company is worth investing in. Electric vehicles have proven to be a disappointing segment of the market and hanging your hat on anyone but Tesla right now is a risky proposition.

Not a good time to take the plunge
Ford, Nissan, and GM are all getting into electric vehicles, but none has had much success so far. A123 Systems and other battery makers could benefit if they do, especially after signing a deal to provide batteries to the Chevy Spark, but sales have been so bad I would stay away from battery makers.

Do you have thoughts on A123 Systems? Leave them in our comments section below and click here to add the company to My Watchlist, and My Watchlist will find all of our Foolish analysis on its stock.

At the time this article was published Fool contributor Travis Hoium 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.The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of General Motors, Tesla Motors, and Ford Motor. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. 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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