13 Comments

Summary:

Battery maker A123Systems and plug-in car startup Fisker Automotive, which announced a new partnership on Thursday, seem like natural dance partners. Each exists as an outsider in an entrenched industry, they’re both gearing up for a ramp up in 2011 and they share one mega backer — […]

Battery maker A123Systems and plug-in car startup Fisker Automotive, which announced a new partnership on Thursday, seem like natural dance partners. Each exists as an outsider in an entrenched industry, they’re both gearing up for a ramp up in 2011 and they share one mega backer — the U.S. government.

But as Jason Forcier, VP of Automotive Solutions for A123 put it to us in an interview today, “We’re not a VC company — we’re a battery company.” So why did A123 pledge to invest $23 million in the firm in addition to supplying Fisker its battery systems and collaborating with the startup on its next-gen vehicle? Here’s two reasons: The electric vehicle market is so nascent and filled with incumbents that building up a relatively early stage player could help the battery maker succeed. And cozying up to Fisker as it develops a new plug-in model could provide valuable lessons that may help it win more contracts down the road.

Grow the Market

First off, by putting up the capital for Fisker at this point, A123 can use its status to help the startup raise the additional investment it needs to access the Department of Energy’s conditional loan and hit its production targets (at least 15,000 vehicles per year by 2012 and eventually up to 100,000 units per year), and potentially become a big customer for the battery maker. Forcier told us that A123’s planned investment (a combination of cash and stock) will be part of a much larger fund raising round — more than double A123’s contribution — that’s still in the works. He said part of A123’s thinking in the move was to “help galvanize the round by bringing our reputation to it.”

A123 has generated a lot of excitement on the public markets on the bet that the nascent market for plug-in vehicles will take off, and carry A123 with it. But as it stands now, while A123’s revenue has grown in recent years, it has never turned a profit. So after losing one battery deal (for General Motors’ Chevy Volt) to battery giant LG Chem and seeing another one (for Chrysler’s lineup of electric vehicles, now significantly scaled back) dissolve, A123 has taken a step that could help build demand for its products.

A123 isn’t alone in these circumstances. Ener1, whose subsidiary EnerDel was in the running for the Fisker battery deal, provided Norway’s Think (one of its key customers) with a $5.69 million bridge loan and $30 million line of credit to help keep it afloat.

Fisker does not find itself in the precarious financial circumstances that Think was in when Ener1 threw it a lifeline, but it does need a hefty amount of capital. Fisker spokesperson Russell Datz told us today that A123’s planned investment will help the startup meet the equity requirements of its loan agreement with the Department of Energy.

Close to Home

In addition to financial support, Fisker also needs parts from U.S. suppliers that will allow it to deliver on its performance and production promises (the DOE expects more than 65 percent of the components for the Karma, based on cost, to come from domestic companies). That’s a short list of potential suppliers when you’re looking at batteries for tens of thousands of vehicles — the industry giants do their battery manufacturing mainly in China, South Korea and Japan.

Forcier described Fisker as being “in a bind” late in the third quarter or early in the fourth quarter of 2009, needing to land a supplier “that could meet their standards and ramp-up plan.” A123 will be able to meet Fisker’s 2010 production needs with a prototype assembly line, said Forcier, and a high-volume line will be up and running in Livonia, Mich. by the end of the year to handle larger scale production in 2011 and beyond.

As part of the deal announced Thursday, A123 will also have a chance to get more involved in the process of developing a vehicle start to finish than it has in the past, and potentially more than some competitors are able to do with other automakers. Forcier said working with Fisker on a brand new model designed “from the ground up” to be a relatively affordable plug-in vehicle will provide A123 with lessons about how to cut costs, which it can then use to win deals with other customers.

Who’s Next?

We don’t think that A123 is about to go on a buying spree, snapping up stakes in battery and electric car ventures. But Forcier said the company may make additional investments down the road. Many companies have “great technology, but they’re looking at the path A123 has had to go down,” said Forcier, and seeing that taking promising tech through to commercial scale manufacturing “requires a lot of capital.” A123Systems raised some $200 million or more over the eight years before its blockbuster IPO.

According to Forcier, some of those companies could win A123’s backing (see our list of 20 startups in this space) if their tech can help A123 increase energy density and drive down battery costs.

Related GigaOM Pro report (sub. req’d):How EV Battery Startups Can Cross the Valley of Death

You’re subscribed! If you like, you can update your settings

  1. Hard to believe that the best battery technology in the world can’t find a large auto partner.

    Most of the big name automakers have established 50/50 joint ventures with mature electronics companies. Toyota/Panasonic, Nissan/NEC, Ford/Sanyo, GM/LG. It’s the only hope auto makers have of retaining any margin in the new ear of EVs when the single most expensive component in a car will be the batteries (not the ICE mechanicals).

    If you’re an auto maker without any interest in battery manufacture you will soon be reduced to having steel stamping as your core technology. It’s musical chairs and A123 is looking like it’ll be left standing!

  2. Nick From Montreal Friday, January 15, 2010

    The problem for A123 is that they cannot compete with cheaper Chinese battery companies. Their products may be the best in the world, but they have to find a way to make it less expensive. That’s the real challenge.

  3. Earth2Tech Week in Review Sunday, January 17, 2010

    [...] Why A123 Threw Down for Fisker & Who’s Next: Why did A123Systems pledge this week to invest $23 million in Fisker Automotive in addition to supplying  battery systems and collaborating with the startup on its next-gen vehicle? Here’s two reasons. [...]

  4. [#SmartGrid #スマートグリッド] リチウム電池の未来に対する大きな懸念を示す記事 « Ippei Suzuki’s Blog Friday, January 22, 2010

    [...] to rescue Th!nk Global from bankruptcy and A123 invested $23 million in Fisker Automotive so that Fisker could satisfy the 20% matching funds requirement for a $529 million DOE loan. In my experience, the first round of rescue financing for a key [...]

  5. A123 is a great company. They are on the cutting edge of battery technology. Hopefully they will continue with outstanding designs as battery technology improves.

  6. Oh by the way check out http://www.green-garage.com and msuecocar.com for some innovative ways that A123 batteries are being used.

  7. A123Systems: “Record Year,” But Tests of Scaling & Profit Lie Ahead Wednesday, March 10, 2010

    [...] least some of that capacity will be used to supply batteries for startup Fisker Automotive’s upcoming plug-in hybrid vehicles.) To put [...]

  8. Fisker & DOE Loan Delays Deal Blow to Quantum Monday, March 15, 2010

    [...] notes that the startup’s $115 million private equity financing round earlier this year (kick-started by an investment from battery supplier A123Systems), allowed “activities under the Fisker Karma program…to ramp up significantly near the [...]

  9. Milestone: First Stimulus-Backed Electric Vehicle Ready to Roll Thursday, May 13, 2010

    [...] VP of Automotive Solutions Jason Forcier told us earlier this year that the battery maker is on track to have a high-volume line up and running in Livonia, Mich., by [...]

  10. Why A123 Threw Down for Fisker & Who’s Next « Josie Garthwaite Sunday, June 6, 2010

    [...] — the U.S. government. I interviewed A123′s VP of Automotive Solutions, Jason Forcier, for this Earth2Tech piece analyzing why the battery maker pledged to not only supply Fisker with battery systems and [...]

Comments have been disabled for this post