Wednesday, June 20, 2012

Still Waiting For A123 ($AONE) to Come Back to Reality

How lucrative is the market for replacing regular-old $100 lead-acid car batteries? Isn't that a bit of a comedown from electric vehicle batteries? A piece in the Boston Globe has this great quote that captures the absurdity of the announcement,

"Kevin See, lead analyst for the electric vehicles service at Lux Research Inc. in Boston, said it is hard to tell just how much A123’s advances in battery technology will help the firm. A large part of the problem, he said, is lithium ion batteries can cost three to five times as much as traditional ones. 'Nobody is going to argue that lithium ion can do more than lead acid does, but does it do enough to justify the increased costs?' See said. 'Is that benefit going to be big enough for an automaker to go from a cheap lead-acid battery to a significantly more expensive lithium ion battery?'"
Exactly. The company's media barrage, which was downright creepy (it seemed like employees were just reading scripted talking points on "podcasts" posted on the website), was vague and did not answer these relevant questions.

Meanwhile... the company has a market cap of over $200 million now, but the $162 million in 2015 notes are trading at around 30 and have a yield to maturity of over 40 percent!

The logical solution would be to deleverage the company by offering cash and stock to the holders in exchange for their 2015 notes. If the company had a fresh start with leverage, it would be much easier to pursue their dreams.

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