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Further Thoughts On AONE’s GM Deal

Last week A123 Systems (AONE) shot up 45% after the announcement of the company’s battery deal with General Motors (GM). The deal is unequivocally good for AONE. However, few substantive details have been released beyond the following -

  • After a lengthy process that had become agonizing for AONE’s stock price, GM’s testing of AONE’s battery chemistry at the former’s lab in Warren, Michigan finally came to a positive conclusion.
  • The contract will involve a program that is intended to rise to ‘tens of thousands of battery packs annually’.
  • No detail was given with regard to which of the planned GM vehicles AONE’s battery packs will be used in.
  • They will not be used in any future version of the Volt.
  • Micky Bly, the GM executive in charge of the company’s electric vehicle program, only stated that “GM is committed to offering a full line of electric vehicles – each of which calls for different battery specifications”.
  • The battery packs will be ‘ready for a 2013 vehicle launch’.
  • When GM will actually launch the related vehicle model was left undisclosed.
You can read our original article on the issue here.
Which model the battery packs will be used in and where the program really fits in GM’s BEV / PHEV strategy is of course critical to assessing the value of the deal.
From that perspective, much of your view of the issue here will depend on your view of which types of lithium battery-based vehicles you think will meet with actual consumer demand. Of course, you could take the view that the end demand simply will not be there. 
However, my own view is that there will be a relatively contained market for pure EVs – but one capable of sustaining decent production for a Tesla (TSLA) for example. However, consumers seem likely to deal with range anxiety by buying plug-in hybrid EVs of some description. Certainly, that seems to be Toyota’s (TM) view. It of course has the upcoming pure EV RAV4. However, the company’s key strategy appears to be based on moving the Prius platform out into the PHEV market with a cheaper, 13 mile lithium battery pack to augment its hybrid technology.
From that point of view, I would rather see a dedicated lithium battery pack manufacturer secure a deal related to a PHEV rather than a pure EV.
AONE has of course other customers such as the Fisker and the PHEV Karma. Neverthless, the deal with GM is where the real volume can potentially come from.
Unfortunately, the single sole hint we’ve had seems to be that AONE’s deal with GM is for an undisclosed pure battery EV model. The deal with GM is no doubt outstandingly good for AONE. However, it still leaves a bet on the stock not just a bet on the adoption of lithium battery technology in general but a bet specifically on the pure EV market for now.

Disclosure: I have no positions in the stocks mentioned. Having recently taking profits in Tesla, I may re-establish a position in the stock in the period ahead.