Summary:

Is A123 Systems a company that is good at announcing deals but can’t profit from them? After cutting its 2011 sales forecast last Friday, A123 on Monday announced a licensing deal with Japan’’s IHI, which will make a $25 million equity investment in A123.

Ray Lane's Fisker Karma

Lithium ion batter maker A123 Systems seems to be a company that is good at announcing deals but can’t seem to profit from them. After cutting its 2011 sales forecast on Friday, due to lowered volumes from partner EV maker Fisker, the lithium-ion battery maker on Monday announced a licensing deal with Japan’s industrial equipment maker, IHI, which also agreed to make a $25 million equity investment in A123.

The battery maker wants to be a major player in the electric car market, which has yet to take off. Like many of its peers, it also has jumped into the energy storage business hoping that the need for storing solar and wind power in countries such as the U.S. and China will present great opportunities (and perhaps with a more near-term payoff than what electric car market offers).

Neither markets provide a quick profit, so A132 has struggled since it made its debut on the Nasdaq and became the largest IPO of 2009. Its shares closed at $20.29 on the first day of trading. But A123′s shares have been trading at the $3-$4-per-share range in recent months.

A123 plans to release its third-quarter earnings later this week on Nov. 9. For the first six months of this year, the company posted losses of $109.06 million on sales of $54.45 million. IHI’s equity investment provides much-needed capital as A123 tries to establish itself in a market filled with large and established technology developers and manufacturers.

IHI deal

Through the licensing deal, IHI wants to develop battery systems for passenger and commercial electric cars in Japan. IHI makes a variety of industrial equipment, including superchargers and turbochargers (for cars), boilers, natural gas storage tanks and diesel engines for ships. A123 believes it will be able to reach Japanese automakers through IHI’s relationship with them, so it’s making IHI the exclusive provider of its battery systems for the transportation market in Japan.

Although IHI serves as a gateway into the Japanese market, whether A123 can really grab much market share is a big question. Japan is a premier developer of lithium-ion battery technology and home to some of the world’s largest lithium-ion battery suppliers. Many Japanese automakers have their own lithium-ion battery research program, joint ventures with battery makers or their own battery manufacturing plants. Toyota has a battery joint venture with Panasonic, Nissan with NEC, and Honda with GS Yuasa. Mitsubishi also has a joint venture with GS Yuasa and has bought batteries from Toshiba as well.

Massachusetts-based A123 first linked up with IHI in 2009, when both companies announced a marketing agreement to sell batteries to IHI’s customers.

A123, which built a factory in Michigan with the help of a $249 million federal grant, has buoyed its share prices at times with links to big automakers. There was the deal with General Motors’ Spark, announced last month. A132 touted its tie with GM without naming the car model back in August. The manufacturing volume for the Spark will likely be small. GM rolled out its must touted Chevy Volt late last year and vowed to sell 10,000 of it this year. The automaker sold 5,003 Volts by the end of October.

A123 vied for a supply deal for GM’s Chevy Volt but lost that competition to LG Chem’s Compact Power because Compact Power’s technology was more suitable and the it’s a larger manufacturer than startup A123.

A123 also has a supply deal with Fisker Automotive and invested in the California electric car startup. Fisker has delayed the launch of its Karma a few times and only began to deliver the car to customers this past summer. Last Friday, A123 lowered its 2011 revenue forecast to $165-$180 million from $210-$225 million because of an unexpected cut in battery orders from Fisker.

The battery maker also has deals with BMW and China’s Shanghai Automotive Industry.

Photos courtesy of A123 Systems, GigaOm

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