DETROIT - A year ago, battery-maker A123 Systems Inc. celebrated the hiring of its 1,000th employee in Michigan. Now, at least one analyst says the company born in a Massachusetts Institute of Technology lab could be broke within four months.
The prediction comes three years after the company received a $249 million U.S. Department of Energy grant and $125 million in State of Michigan tax incentives aid.
"We're getting closer and closer to that every day," said Theodore O'Neill, a Wunderlich Securities analyst who follows A123. "Nothing that they've announced so far is enough to keep the doors open."
The company declined to comment for this report.
A123 has been hurt as demand for electric vehicles has not hit any sort of stride because of moderating gasoline prices, limited access to recharging stations and motorist fears of being stranded in battery-only, plug-in vehicles.
As well, engineering and manufacturing costs for the product have not come down as expected. The company also had to recall defective batteries this spring, costing it money and reputation.
The company's revenues have been declining each quarter, and it posted a $125 million loss for the first quarter.
The company had access to nearly $100 million in cash at the end of May, SEC filings show, and it raised $10 million through the sale of securities in early July. But it's burning through about $22.5 million per month, according to Wunderlich's estimates.
"They've got sufficient cash to make it to the middle of October by our calculations," O'Neill said. "They need a repeatable, large-scale customer in order to keep things running."
A123, which also makes batteries for electric grid storage, is based in Waltham, Mass., but employs about 780 workers at plants in Romulus, Mich., and Livonia, Mich., and at a research and government solutions division in Ann Arbor, Mich.
On July 19, 2011, CEO David Vieau, Energy Secretary Steven Chu, Wayne County Executive Robert Ficano, and Michigan congressmen _ U.S. Sen. Carl Levin and Reps. John Dingell and Sander Levin _ gathered in the Romulus factory to trumpet the hiring of employee No. 1,000.
But since then, demand for electric vehicles using its lithium-ion battery packs has been much weaker than optimists, especially those in the Obama administration, expected. And this past spring, A123 recalled battery packs delivered to Fisker Automotive that had been made on a faulty machine at its Livonia plant.
Fisker, which gets all of its batteries from A123, said it's sticking with the battery maker.
"All startups have their hurdles to overcome," Fisker spokesman Roger Ormisher said in an email. "We have confidence in their ability to overcome short-term challenges."
If A123 slips into bankruptcy, the company could shed debt and reorganize or, in a likelier scenario, sell off its assets to a competitor, which could continue to run the plants. O'Neill said a sale or merger is possible.
Right now, it needs cash. The Michigan Economic Development Corp. awarded A123 a $100 million incentive that the company has not yet tapped. Under the terms, the money can be paid over four years starting after the 2012 tax year. So the company could receive up to $25 million next year, although it might have to repay some of that money if jobs are cut or moved. When A123 launched its Michigan plants, it was counting on a rapid reduction in production costs from technology improvements. But costs are stubbornly high, and electric vehicles are too expensive for many consumers.
Russell Hensley, a Detroit-based consultant of McKinsey, estimates battery costs would decline from $560 per kilowatt-hour to $200 by 2020 and as low as $160 by 2025, making electric vehicles competitive with traditional engines.
A123's customer base has grown to include BMW, Tata Motors, Geely and General Motors, which expects to buy from A123 for the electric version of its Chevrolet Spark minicar. Still, A123 has acknowledged that it must diversify away from a reliance on electric vehicles.
"As a company, we're not focused on EVs because we have seen a pullback in the marketplace," Jason Forcier, vice president of A123's automotive solutions group, said in June. "Focusing on those other customers, that's really what's going to be driving the company going forward."