A123 Systems Inc. told investors that it has enough cash to fund operations for just the next five months. It’s a shocking development for the battery maker, which used to be a leading green technology firm. This makes the problems more difficult in a sector that’s already struggling and long on government loans.
The Obama administration gave the company a $249 million grant as part of a program to develop advanced lithium ion batteries. In documents filed with U.S. regulators, the company said that it "expects to have approximately four to five months of cash to support its ongoing operations" according to its recent monthly spending average.
Its shares declined by nearly 11% even with A123's announcement of moves to increase $39 million. Previously, A123 has raised concerns about its viability because of expected sharp losses over the next several quarters. Analysts said that they weren’t surprised about the warning. CRT Capital Group analyst David Epstein said that the stock and warrants proceeds of $9 million that the company anticipates from its July 5 offering could provide the firm with another half month or so of runway.
A123's problems are reminiscent of what the U.S. electric-vehicle industry has been experiencing in its infancy as it deals with lower-than-predicted demand. In addition, it’s a steep reversal of A123's wealth since 2009, when it raised $378 million in an initial public offering and its stock increased by 50% during its first day of trading on the Nasdaq. The White House said in 2010 that A123 meant to hire 3,000 people for its two Michigan plants. Presently, A123 has about 780 plants in southeast Michigan.