Dan Galves, an analyst at Deutsche Bank, downgraded A123 Systems from “buy” to “hold” as he believes the company will struggle to raise funds following a massive recall.
AutoNews.com said A123 recently announced that it had started building replacement modules for its recalled batteries supplied to Fisker. The company estimates the recall could set it back by US$55m. Galves said that this could have a severe impact on its cash reserves.
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Galves said, “We no longer have enough confidence that AONE (A123) can raise sufficient capital (without massive equity dilution) and/or continue to augment their book of future business. Recent quality issues may lead to concerns over AONE’s ability to manufacture with quality at high volumes, potentially leading to customer defections or at least difficulty in procuring new contracts.”
David Vieau, A123’s CEO said, “Initial customer response has been supportive as they recognise that we have an enabling and high-quality technology. We have demonstrated our ability to strengthen our liquidity through strategic partnerships, and believe we will be successful in fulfilling any necessary funding required to continue the growth of the company.”
In early March, General Motors announced it would purchase batteries from the company for its Chevrolet Spark that use a less volatile chemistry compared to LG Chem batteries used in the Volt.
Fisker recalled 329 Fisker Karmas just after its launch due to the defective A123 batteries.
According to Vieau, the cost of replacing the defective batteries will “require us to adjust our fundraising strategy”.
Galves said that the company would need to raise at least $50m additional capital “in the short-term”, which would be challenging due to weak first-half results and concerns of long-term profitability, among others.
The company, however recently received a $249.1m grant from the US energy department under a programme that supports construction of plants for electric vehicle and hybrid vehicle battery production in the US.
A123 also says it has a pending loan application with the department under this programme. The company estimated that it could borrow around $233m from the programme.
