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A123 Spins Off Energy Storage Venture, Drops Chrysler Project

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Lithium-ion battery maker A123 Systems (s AONE) quietly cultivated a new energy storage venture and set it loose as an independent company. A123 CEO and President David Vieau and Chief Financial Officer Michael Rubino revealed in a call with shareholders late Tuesday that the startup, dubbed 24M Technologies Inc., was recently spun out of A123 with venture capital financing and a plan to develop what Vieau called advanced non-traditional lithium-ion based storage technology.

A123 has high hopes for the new firm as a “very significant long term play,” with a system that combines aspects of lithium-ion and flow battery tech. Flow batteries are similar to large fuel cells but generally use large storage tanks full of electrolytes and pumps that circulate the solution through the system.

A123 declined to disclose the size of its ownership stake in the new venture, but Vieau confirmed that A123 will be a stockholder and board member, and expects to maintain a close relationship with 24M over time and work with the startup on commercial deployment.¬†Toward the “latter part of decade,” A123 expects to see 24M’s low-cost energy storage technology deployed “principally for the grid,” and for other applications as well.

Vieau did say that 24M’s early development work was completed within A123, and “subsequently improved upon at MIT” (where A123 got its start). When the project started “to show some real merit, with the MIT developments and multiple patents on top of the early patents,” A123 began wondering how it could “get enough really focused management time on this, and how do we get enough funding associated with this thing to really make it move forward quickly and aggressively in the marketplace?”

A123, meanwhile, said it expects electric grid services to make up slightly less than the previously estimated 30 percent of its business going forward. In today’s call, A123 revealed that it has a grid project in the works with a new customer using A123’s energy storage systems in conjunction with wind power. Additionally, A123 announced today that its existing partner AES Energy Storage has ordered 44 megawatts of its so-called Smart Grid Stabilization Systems for deployment in several projects by the end of 2011.

A123, which has invested in plug-in hybrid vehicle startup Fisker Automotive and is supplying battery packs for the upcoming Fisker Karma, said today that it expects as much as 60-70 percent of its sales to come from the transportation sector, with more business coming from heavy duty vehicles (such as bus and truck projects with Daimler (s DAI), Eaton and Navistar) than previously anticipated.

The company also said it has recently been selected by an unnamed major automaker as the sole development partner for an as-yet unannounced electric vehicle platform, according to Vieau, who expects the project to result in a production supply agreement.

Vieau also said today that the battery maker has withdrawn from Chrysler’s electric vehicle development program. Last year, Chrysler named A123 as the supplier for at least the first generation of plug-in vehicles in its now-scrapped ENVI lineup, and earlier this year said it would launch an A123-powered electric version of the Fiat 500 minicar.

A competing vendor emerged, said Vieau, who was “willing to buy the business below current market price in a program which has significantly diminished in scale from our earlier expectation.” In other words, a competitor came in with what A123 considered a low-ball bid for a job that the battery maker decided wouldn’t be worth it at those margins.

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