Electric car battery makers hit the skids

It’s not a good time to be an electric car battery maker. On Thursday lithium ion battery maker A123 Systems (s AONE) issued a going concern warning and saw its shares drop by close to 8 percent in trading.

The news isn’t a surprise to anyone that’s been following the company, which has been struggling to survive and sells its batteries to auto makers like startup Fisker Automotive. Earlier this month, A123 posted sharply lower revenues and losses for the first quarter of this year, and about two months ago it launched a program to replace batteries with defective cells. The replacement program cost the company dearly, including $51.6 million in warranty costs and an estimated $15.2 million for replacing defective batteries that were in its inventory.

A123 is far from the only battery maker that has struggled in recent months. Earlier this year, battery maker Ener1 filed for voluntary Chapter 11 bankruptcy, and was delisted from the Nasdaq. One of Ener1’s main customers was electric car maker Think, which also headed into bankruptcy.

As the Wall Street Journal points out in an extended article on Thursday, electric car battery makers were the recipients of significant government incentives, and yet the market for electric cars has moved more slowly than expected. The government funding partly created the over supply — and thus these struggles — because the electric car industry is still in an early stage.

A123 Systems received a $249 million matching grant from the Department of Energy to build factories to make at least 500 megawatt-hours of lithium-ion battery capacity per year — a far greater capacity than current demand for electric cars. Ener1 is the parent company of EnerDel, which back to summer 2009 received a $118 million grant from the DOE.

The Wall Street Journal writes:

Since 2009, the Obama administration has awarded more than $1 billion to American companies to make advanced batteries for electric vehicles. Halfway to a six-year goal of producing one million electric and plug-in hybrid vehicles, auto makers are barely at 50,000 cars.