Electric Car Battery Stock Soars

A123 Systems (NASDAQ:AONE) Soars For No Rational Reason

Written by Brian Hicks
Posted June 13, 2012

Yesterday, A123 Systems (NASDAQ:AONE) shot up more than 50 percent after announcing it had developed an improved lithium-ion cell that can cut costs of electric cars.

While I've always been a big supporter of this company (wishing them the best), as an investor, I can't help but to wonder what happened yesterday.

Just a couple of months ago, the company began replacing defective battery packs at a cost of $51.6 million. This helped the company report a record loss of $125 million for Q1, 2012. The company even had to issue a “going concern” statement.

Last month, when shares closed below $0.90 the company had long-term debt of $161 million compared to a market valuation of $129.3 million. To put that in perspective, when the company went public, it debuted at $13.50.

Now don't get me wrong. The company's announcement of its technological breakthrough should not go unnoticed. But neither should the fact that this company is still dealing with $51 million in battery replacements, foreign competitors that continue to maintain a significant manufacturing cost advantage, and of course, bankruptcy concerns.

Sure, technological breakthroughs are great. They're important, and they've been produced by plenty of other companies that no longer exist today. That's the reality. Personally, I do hope A123 comes out on top when all is said and done. But it's going to be a long, tough ride. And I just don't see any rational justification for a 50% pop on an announcement of a technological breakthrough from a company that's barely treading water right now. In fact, I honestly wouldn't be surprised if the company went belly up by the end of the year. I hope I'm wrong on that, but it doesn't look good.