For some time already the Wunderlich analyst has been skeptical about the expected pace of electrical vehicle adoption and the ramp in the lithium ion battery makers' operations.
Inherent in the A123 Systems downgrade on Monday is Wunderlich's modeling of a slower ramp in the electrical vehicle business in both the U.S. and Europe. As a result, the Wunderlich analyst sees no choice for A123 Systems but to head back to the capital market to raise more money by early 2012 at the latest. The analyst is forecasting a cash balance for A123 Systems of less than $10 million by the end of 2012.The Wunderlich analyst wrote in his A123 downgrade on Monday, "The major car makers are unsure how U.S. drivers will use electric cars and which option will be most popular is a big unknown, so until then or until the manufacturers are forced to by law, the ramp will be halting and slow. This will lengthen the time it takes for A123 Systems to turn profitable and will almost necessitate another capital raise in late 2011 or early 2012." Wunderlich lowered its A123 Systems price target to $6 from $9. A123 Systems shares were down 7.5% on Monday morning and its average daily trading volume of 2 million shares had been surpassed in morning trading. Year-to-date, A123 Systems shares are down 65%. There has been lots of press garnered of late for electric cars with the debut of the Chevy Volt and the Nissan Leaf. In addition, major fleet buyers representing some of the biggest corporate brands in the U.S. have been talking up electric car purchases. This fall General Electric (GE - Get Report) announced a five-year electric car fleet purchase plan, beginning with the Chevy Volt. GE is an original financial backer of A123 Systems, though A123 Systems does not have its battery technology in any existing commercial car. The Volt is powered by Asian battery maker Compact Power, an affiliate of LG Chem.