A123 Systems Building Stake in Auto Sector

LIVONIA, MI – Advanced lithium-ion battery maker A123 Systems Inc. expects the automotive sector to comprise up to 70% of its annual revenue as soon as next year, and anticipates a production agreement with General Motors Co. for the 2014 timeframe.

A123 Systems, which also makes lithium-ion batteries for stationary use, lost a bid to supply the ’11 Chevy Volt extended-range electric vehicle, due this year, to South Korea’s LG Chem Ltd. and its Compact Power Inc. subsidiary in Troy, MI.

“We’re pretty confident,” says Jason Forcier, vice president of automotive solutions at A123, pointing to $1.5 billion of expected business and 40 programs currently in development.

The company claims its auto-industry contracts include development projects with GM and Chrysler Group LLC, on top of supply contracts with BMW AG, Daimler AG, Fisker Automotive, Eaton Corp., Navistar International Corp. and Shanghai Automotive Industries Corp.

“We’re doing extremely well in heavy duty truck and bus (and) I’d say we have the No.1 position there,” Forcier tells Ward’s on the sidelines of an event here to launch production at its new manufacturing facility.

“We’re working with all the major global OEMs on the passenger car side of the business. There just aren’t many programs sourced, but there are more coming in 2014-2015 timeframe.”

Watertown, MA-based A123 recently backed out of an electric vehicle program with Chrysler, citing competitive reasons.

A123 Systems posted second-quarter revenue of $22.6 million, up from $19.7 million in like-2009. Automotive currently accounts for about 50% of that total.

Micky Bly, who heads development of electrified vehicles at GM, confirms A123 Systems is among several battery makers vying for a production agreement with the auto maker and values the current development contracts with the supplier at about $2 million. Bly declines to elaborate about the product under development.

Forcier also sees potential for additional business in the coming secondary-use segment, where a battery is remarketed for other applications after its life inside a vehicle expires. Some analysts say scant evidence exists for a profitable business case in the segment.

“We would disagree,” Forcier says, citing A123 Systems’ No.1 position in the grid-electrification space.

“We have more megawatts installed than any of our competitors, globally speaking, so we understand the use case on the grid side very, very well and we absolutely think there is a secondary use application there.”

Forcier also says A123 Systems currently is working with a number of its business partners on secondary-use applications. He sees significant interest from fleet operators interested in leasing batteries.

Expect an announcement as soon a year from now regarding a plan to bridge A123 Systems’ fleet customers with its grid customers.

Forcier expects the average price of a Li-ion battery in plug-in electric vehicles to halve from $10,000 today to around $5,000 within four years on the strength of greater sales volumes and technical advancements.

A host of dignitaries attend today’s event, including U.S. Department of Energy Secretary Steven Chu, Michigan Gov. Jennifer Granholm, Sens. Carl Levin and Sander Levin, and President Obama called in from Washington to congratulate A123 Systems.

The supplier invested $300 million in the facility, leveraging a $249 million grant from the DOE just a year ago. A123 Systems also received $125 million state incentives.

Obama, who is urging auto makers to put 1 million EVs on U.S. roads by 2015, called battery manufacturing “an industry that will be central to the next generations of cars.”

A123 Systems’ 291,000-sq.-ft. plant spans the productions process, from research and development to final assembly of complete packs ready for vehicle integration. A second plant in nearby Romulus focused on coating comes on line during the first half of 2011.

Chu tells Ward’s more federal money remains available for auto makers, suppliers, and research groups to help move the U.S. into the No.1 position globally in battery development and manufacturing, including some $10 billion in loans to retool factories for advanced propulsion vehicles.

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