A123 Systems: A Matter of Demand

Updated with closing share price.

The success of A123 Systems ( AONE), which had an extremely successful IPO this week, will depend on how big the market for electric-car batteries will be and how much competition the company faces.

On the end-user side, data show that the number of EV (electric vehicle), HEV (hybrid electric vehicle), PHEV (plug-in hybrid electric vehicle) models with an annual production run of at least 20,000 vehicles will grow from 19 models in 2009, to more than 150 models in 2014, and more than 200 models in 2019.

In addition, estimates for the global lithium-ion battery market for automotive application in EVs, PHEVs and HEVs are $31.9 million in 2009 growing to $21.8 billion by 2015 and $74.1 billion by 2020.

After spending most of the day in negative territory, shares of A123 managed to close higher, finishing at $19.63, up 3 cents, or 0.15%, following a debut Thursday that saw the shares rise more than 50%.

A123 uses proprietary nanoscale material technology developed at and licensed from the Massachusetts Institute of Technology. It is also has its 215 employees for R&D on new generations of this core nanophosphate technology. A123 recently developed an ultra high-power battery for the Vodafone McLaren Mercedes team that provides more than 10 times the W/kg (watt hours per kilogram) as compared to a standard Prius battery.

Clearly, the market potential of lithium-ion batteries for automobiles is huge. But cost is a critical factor, and, as they are a new product, so is durability. In a report released in January 2009, the U.S. Department of Enegy pointed out that the current cost of Li-based batteries is approximately a factor of 3-5 too high on a kWh (kilowatt hours) basis for HEVs, and two times too high for HEVs. Also, the ability to attain a 15-year life, or 300,000 HEV cycles, or 5,000 EV cycles are unproven and anticipated to be difficult.

A123 Systems competes in the Li-ion battery space with companies such as Advanced Battery Technologies ( ABAT), Altair Nanotechnologies ( ALTI), China Sun Group ( CSGH), Ener1 ( HEV), Hong Kong Highpower Technology ( HPJ), and Valence Technologies ( VLNC).
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A123 Systems, with its lithium-ion technology, also competes with advanced lead-acid battery (lead carbon) producers like Axion Power International ( AXPW.OB), C&D Technologies ( CHP), Enersys ( ENS) and Exide Technologies ( XIDE).

Let's not forget the NiMH (nickel metal hydride) battery. ECD Ovonics ( ENER) has licensed its battery technology to every major manufacturer of NiMH batteries, all 35 of them. It's a market projected to be $1.23 billion for HEVs in 2011 compared with a $320 million market for automotive Li-ion batteries.

Robert N. Castellano, Ph.D, is President of The Information Network, a leading consulting and market-research firm for the semiconductor, LCD, HDD and solar industries. Castellano is internationally recognized as one of the leading experts in these areas. He has nearly 25 years of expertise as an industry analyst. Castellano has provided insight on emerging technologies to many business and technical publications, including Business 2.0, BusinessWeek, The Economist, Forbes, Investor's Business Daily, Los Angeles Times Magazine, The New York Times, USA Today and The Wall Street Journal. He is a frequent speaker at conferences and corporate events. He has over 10 years' experience in the field of wafer fabrication at AT&T Bell Laboratories and Stanford University before founding The Information Network in 1985. He has been editor of the peer-reviewed Journal of Active and Passive Electronic Devices since 1985. He is author of the book "Technology Trends in VLSI Manufacturing," published by Gordon and Breach. His book "Solar Cell Processing" was published in 2009 by Old City Publishing. He received his Ph.D. in solid state chemistry from Oxford University.

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