Battery maker A123 posts big losses

A123 Systems (s AONE) was supposed to be a success story about an innovative U.S. battery company, but it has struggled to live up to that expectation. The lithium-ion battery maker on Tuesday posted lower revenues and greater losses for the first quarter of this year, about two months after it launched a program to replace batteries with defective cells.

The Massachusetts company reported losses of $125 million, or $0.87 per share for the first quarter, compared with losses of $53.6 million, or $0.51 per share in a year-ago period. A123 generated $10.9 million in revenues, a 40 percent drop from $18.1 million in the first quarter of 2011.

A123 makes battery cells and packs primarily for electric cars and energy storage systems, and it competes with both startups and large, established lithium-ion battery makers, many of them in Japan and Korea. The company said Tuesday it has hired an outside adviser to figure out a new financial strategy, a move that has helped to boost its stock price by over 6 percent to $0.97 per share in recent trading. The company’s share price had previously fallen by 39 percent since late March, when it announced that it would start replacing battery packs with defective cells made at its Livonia, Mich., factory,

The company’s recent mistake has cost it dearly. The replacement program involved $51.6 million in warranty costs during the first quarter and another estimated $15.2 million for replacing defective batteries that were in its inventory, the company said last week.

The defective cells could cause battery packs to fail. In fact, the flaw led to a shut down of a Fisker electric Karma during testing by Consumer Reports, Bloomberg reported.  Back in December Fisker recalled 239 Karmas over faulty batteries made by A123 Systems. Fisker told Bloomberg that A123 was replacing battery packs that powered the Karma. A123 is a shareholder in Fisker.

A123 had to shut down production at its factory temporary and said it’s figured out the problem that caused the defective cells. The company built the factory in 2010 with a $249.1 million grant from the federal government. The company went public in 2009 to great fanfare, with its shares opening at $17 per share and closing at $20.29 per share on the first day of trading.

“We are gradually restarting production in a controlled manner consistent with our commitment to improve our manufacturing processes and quality, and have started shipping replacement products to impacted customers,” said David Vieau, A123’s CEO, in a statement Tuesday.

The battery maker said it expects to generate $145 million to $175 million in revenues in 2012, down from a previous forecast of $230 million to $300 million.

Photo courtesy of A123 Systems