A123 Systems expects a first-quarter net loss of $125 million

Article by Christian A., on May 13, 2012

The A123 Systems Inc. expects to incur a net loss of about $125 million in the first quarter of 2012 – representing a 133 percent increase compared to the same period last year, according to a filing submitted by the company to the U.S. Securities and Exchange Commission. A123, which produces lithium-ion batteries, said that the recall of potentially defective battery packs had contributed to the loss.

The company was granted a $249 million grant from the Obama administration. As part of this program, some advanced batteries will be used. The cost of recalling the battery packs is about $66.8 million. Its quarterly loss is attributed to the recall as well as the "low factory utilization" of A123's plant in suburban Detroit, which the 2009 U.S. Energy Department grant helped pay for.

A123 Systems, which had its beginnings from laboratories at the Massachusetts Institute of Technology, estimates that it will achieve a first-quarter revenue of $10.9 million, about 40 power lower than the previous year. The spokesman said that further details will be unveiled on the May 15 conference call when A123 releases its fuller financial results. A123 informed the SEC that the low plant use contributed to the reduced gross margins on products sold since the anticipated cost savings related to volume production have yet to be realized. Other factors that added to the loss were expenses for research and development and engineering as well as the hiring of new employees.

In late March, A123 announced that it was replacing battery modules and battery packs that may fail because of a manufacturing defect. This had led to the shutdown of a Fisker Karma electric car while consumer watchdog Consumer Reports is being tested. Privately held Fisker is a major customer for A123. A123 was expected to display a loss of $51.6 million in warranty expenses from the replacement of battery packs and modules for the recall of products that have already been sold and delivered. The cost of repairing the products that are still in inventory but not yet shipped is about $15.2 million.

In April this year, A123 Systems and the U.S. Department of Energy inked a deal to extend the contract over a $249 million grant for a factory in Michigan. This meant that A123 now has until December 2014 to fully take advantage of this grant from the Obama administration to support advanced battery development as well as generate jobs in the US.

A123 was provided with the grant in 2009 and had until the end of 2012 to fully use it. A123 received a $127 million of the DOE grant at the end of 2011. A123 just had to match at least a portion of the money from the US government.

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