The Week of Proof for A123 (AONE, CBAK, ABAT, CSGH, BRK-A, GE, QCOM, MOT, AB, PG)

A123 Systems Inc (NASDAQ: AONE) is still likely going to be one of the highlights of trading activity for the week, but the valuation is all based on the future rather than on the performance of the past.   The maker of lithium-ion car batteries turned out to be the second best IPO of 2009 in the United States, so the company’s execution from here is paramount.  That is what a 50% gain on the first day will do for you.   The deal was for 28.1 million shares at $13.50, although it opened at $17.00 and it never went below $16.56 in the aftermarket.

While a highlight is one thing, A123 has competition and its losses are off the chart.  China Bak Battery, Inc. (NASDAQ: CBAK) and Advanced Battery Technologies, Inc. (NASDAQ: ABAT) are in the space but have far less hype.

China BAK Battery has a $237 million market cap and generated $245 million in 2008 revenues.  Advanced Battery Technologies has $263 million market cap and had $45 million in 2008 revenues.  China BAK Battery lost money, but Advanced Battery Technologies is actually profitable.  Wall Street and Main Street still have no real clue about when A123 will really be profitable.  China Sun Group (NASDAQ: CSGH) is currently in the testing phase of lithium iron phosphate.  That happens to be what gives A123 such a valuation boost.

As we have noted, Warren Buffett and Berkshire Hathaway Inc. (NYSE: BRK-A) may be the real winner here with his stake of BYD in China..  A123 has an impressive lineup of stakeholders here with  General Electric Co. (NYSE: GE) holding an 11.7% stake, North Bridge and Sequoia from the VC world, Qualcomm Inc. (NASDAQ: QCOM) has a 7.6% stake and Motorola Inc. (NYSE: MOT) has a 6.9% stake.  AllianceBernstein Holding L.P. (NYSE: AB) and Procter & Gamble (NYSE: PG) are also listed under the investors of the company.

A123 is still in the mix between making batteries for cars and for handheld devices. It seems as though BYD is still in the lead and these other Chinese battery companies still seem interesting as a result of the valuation.  The premium is in for A123, so now it has to prove itself.

JON C. OGG