Deutsche Bank analyst doubts A123 Systems’ ability to raise capital

Article by Anita Panait, on March 31, 2012

An analyst at Deutsche Bank said that A123 Systems Inc. may not be able to raise fresh cash and could lose contracts related to a recent recall of defective packs sent to customers. Dan Galves, a New York-based analyst at Deutsche Bank, wrote in a research note that $55 million that the company estimates will cost to replace the flawed battery packs and modules "represents a severe impact" on cash reserves. Galves wrote in its research note that they no longer have enough confidence that AONE, A123 Systems’ trading symbol, could bring in sufficient capital without massive equity dilution, and/or continue to bring in new transactions.

Galves cut his rating to hold from buy today. Galves noted that recent quality issues could raise concern on the company’s capacity to produce at high volumes, adding that this could lead to either customer defections or difficulty in getting new deals. A123 announced this week that it commenced manufacturing replacement modules for customers like Fisker Automotive Inc., and will deliver them this week. A123 said that the defective batteries came from its Livonia plant in Mich.

The Waltham, Mass.-based company said that the faulty calibration of one of the four welding machines at Livonia plant resulted to the misalignment of a component in some cells, which could cause electrical short and lead to either premature failure of the battery or decreased performance and battery life.

David Vieau, A123's chief executive, said in a statement that their customers have been very supportive and still recognize the company has an enabling and high-quality technology. Vieau expressed confidence that the company could acquire necessary funding, as it has demonstrated in the past.

Topics: a123

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