Battery maker A123 Systems in financial trouble

A123 Systems battery packAfter a massive recall of defective battery packs, battery maker A123 Systems expects to lose money for the rest of this year. Despite high-profile contracts with Fisker, whose Karma sedans were the victims of the defective batteries, and General Motors, the Massachusetts-based company is in financial trouble.

A123 had to recall batteries installed in the Karma twice. In December 2011, 239 of the luxury cars were recalled because of the potential for fire-starting coolant leaks. The cause of the problem was a badly-placed hose clamp in the A123-assembled battery pack.

The second, more public, recall started when a Karma owned by Consumer Reports died during testing. Fisker and A123 determined that a defect in the battery pack caused the car’s onboard electronics to shut it down. In a filing with the Securities and Exchange Commission, A123 said replacing the defective Karma batteries had cost $51.6 million, and that the company was spending an additional $15.2 million to replace other batteries built at its Livonia, Michigan facility.

The Michigan plant was built using a $249 million grant from the U.S. Department of Energy. When it opened in 2010, A123 described it as “the largest lithium ion automotive battery production facility in North America.” Production has been suspended due to the recall.

“The Company expects to continue to incur significant net losses and negative operating cash flows over the next several quarters,” the filing said. A123 incurred a net loss of $125 million in the first quarter of 2012, and says that all 2012 revenue will be below projections. Nonetheless, the company said in a statement last week that, “Our customer pipeline continues to be strong in all of our target markets.”Chevy Spark front three-quarter gray background

General Motors had chosen A123 to supply batteries for its Chevy Spark EV before the recent Fisker recall. Despite A123’s financial difficulties, GM still plans to use its batteries in the Spark.

The company worked with Chrysler to develop an electric version of the Fiat 500, but that partnership ended in 2010. The 500 EV’s batteries will instead be made by SB LiMotive.

A123 also builds batteries for the BMW ActiveHybrid 5 and ActiveHybrid 3 at a different plant in China. The company also makes batteries Navistar and BAE Systems, and for non-vehicle applications like power grids.

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