China Firm to buy A123

[MichaelM]

Given that A123 did not have the cash or credit required to purchase the materials needed to manufacture the batteries for the Spark EV, one wonders if G.M. encouraged Wanxiang to make this deal.

I must have missed this one in the news. Do you have a source?

[MichaelM]

How A123 handled the recalls was good. However, their problem is in engineering the solution - in blending cells from the welding machines, which need calibration over time. The risk is one machine going out of spec, all product is doomed. This is where their operations management needs to get fixed, quality checks tightened, etc.

All cell makers use cells from multiple production lines. It's standard practice, actually. Out of all the things that can go wrong in cell manufacturing, having a cell welder go out of cal. will most likely never happen again at A123.

Michael - do you work for AONE? I think in the past you replied to other A123 posts.

I'm not an A123 employee. I own no A123 stock and have no financial interest in the company.

We really don't know how a company can operate as they did and expect to survive. Did they bet the farm on getting the Volt contract, lost it and then floundered hoping that the continued growth would happen organically?

No. Look at the publicly-available information (I suggest starting with the A123 website - Investor Presentations). The Volt program battery sourcing was set in 2008, and announced in 2009 (if memory serves). IF the Volt were an A123 program, even at full volume its portion of A123's business would be incapable of either making or breaking the company. Their list of contracts / companies, particularly in automotive, is as good as it gets.

All EV battery makers -- repeat all -- are suffering from reduced expectations and reduced EV volumes.

Their prices are indeed the highest of the top-end cells (Kokam, LG Chem, etc.)

I believe you would find a different opinion from their competitors.

Livonia was/is supposed to make Spark EV systems - is that still happening?

Still happening.

Many employees at A123 say the company is top-heavy and seeing executives giving themselves substantial raises in February while at the same time overseeing an enormous recall, layoffs and light workload was off-putting.

Light workload? Sez who? THAT's the person who needs to be fired! Every A123 person I've ever met sweats blood for that company. The workload at A123 is pretty huge -- both for people in the office, and people in the plant (working on recall replacement volumes).

The management team in Livonia is one of the leanest in all automotive. The management team signed agreements to stay on -- come heck or high water. Pretty much everyone could have gone elsewhere, for more money, but the A123 team has a large number of True Believers.

Where I see things going... More and more of A123 moves to China. They close Livonia and move lines to China. Mass stays on as a R&D arm (did you see the enormous R&D expense in the 8-K - $21M R&D alone! - you don't ramp R&D while sales are getting hammered.) but cuts back to essential partner research and tightens up. The only way to make A123 viable is to run it with serious expense reduction and cut labor costs. Sales in 12Q2 were less than 1/2 the sales in 11Q2. That isn't good.

A123 started their serious volume production in China and moved to (not from) the United States. Look for Livonia to stay open, and supply all the production pouch cell needs for all customers.

Considering that battery R&D is hugely expensive for all companies, look for research costs to stay high if A123 expects to remain competitive.

What, you think the battery business is easy?