A123 Files “Going Concern” Notice

Lithium-ion battery maker A123 Systems Inc. (NASDAQ: AONE) has notified the US Securities and Exchange Commission that “there is substantial doubt on the Company’s ability to continue as a going concern.” A123 was hit with a field campaign to replace defective batteries that will cost the company an estimated $51.6 million.

A123 also took an inventory charge of $15.2 million related to potentially defective batteries manufactured at its Michigan plant. The company also amended its revolving credit facility earlier this month requiring all outstanding letters of credit to be cash collateralized at 105% of face value. In its filing the company noted:

Management is taking actions to raise additional capital to fund cash requirements and evaluating other strategic alternatives. The Company is actively engaged in discussions with strategic partners for substantial investments in the Company. In addition, the Company is evaluating various options to raise cash in the capital markets.

A123 is also trying to reduce costs and expenses, but that probably won’t help much. Aside from increasing competition, the demand for advanced lithium-ion batteries in electric vehicles just has not materialized. For example, A123 received a federal matching grant of $249 million to build a new plant to produce at least 500 megawatt-hours of batteries — enough to power 21,000 Nissan Leaf electric vehicles. The Nissan Leaf has sold only 12,000 units in the US in the last 18 months.

Shares in A123 are down -11.4% at $1.01 in a 52-week range of $0.82-$5.94.

Paul Ausick