Market mauls A123 as it recalls defective battery packs

A123 Systems (Nasdaq: AONE) announced today that it will replace battery modules built at the company’s Livonia, Michigan factory, because they may contain defective prismatic cells.

 

A123 Systems (Nasdaq: AONE) announced today that it will replace battery modules built at the company’s Livonia, Michigan factory, because they may contain defective prismatic cells. The company has traced the problem to a miscalibration in an automatic welding machine, and has already begun building replacements, which it plans to begin shipping to customers this week. This opportunity may cost A123 as much as $55 million, which the company says it will fund over the next several quarters.

CEO David Vieau: “Recently, A123 has discovered that some prismatic cells made in our Livonia facility may contain a defect which can result in premature failure of a battery pack or module that includes a defective cell. We have isolated the root cause of the defective cells and we are confident that we have pinpointed the source of the defect and corrected it. As a result of engineering analysis and testing, we believe this is not a safety issue…We are working to get replacement packs and modules to impacted customers as quickly as possible. It is important to note that this defect has been discovered only in some prismatic cells manufactured at our Livonia facility. Prismatic cells produced at another A123 facility are not impacted. Further, the cylindrical cells we make at our facilities in China for a number of other transportation programs, as well as the majority of our grid energy storage systems and commercial applications, are also not affected by this defect.”

Is this a major crash for A123, or just a crack in the windshield? The answer may depend on whether you follow the headlines or add up the numbers. The largest user of the prismatic cells from Livonia is Fisker Automotive, a company with which A123 has a close relationship, and which is sure to remain in the media spotlight throughout this election year. The stock market didn’t dig today’s news – AONE is down almost 15 percent as we post – any more than it did Fisker’s shelving of its Project Nina a few weeks ago.

On the other hand, Fisker is far from A123’s only customer. The company is supplying batteries for much less famous vehicles around the world, including Daimler buses and Smith Electric Vehicles’ delivery vans. Buses and trucks may not be as sexy as controversial sports cars, but they are likely to offer higher production volumes and more stable revenue streams.

A123 recall info: Livonia Prismatic Cell Field Campaign

 

Image: A123 Systems