Wednesday, June 13, 2012

If $AONE is So Great, Why Isn't Anyone Buying the Bonds?

We've written in the past about AONE, the battery maker with cheap bonds and expensive stock. Last night, there was a puff piece in the New York Times about a battery "breakthrough" by the company:

"A123 is now hoping that the new technology it is unveiling Tuesday, called Nanophosphate EXT, will help it enter new markets. The company says the new electrolyte chemistry eliminates the need for heating and cooling in extreme temperatures. That would avoid the addition of costly and heavy temperature-management equipment and prolong the life of the battery.

The technology could be used to produce batteries for telecommunications equipment, military vehicles and hybrid gas-electric cars that employ start-and-stop engine systems. It also could yield batteries that could be used to replace the millions of ordinary lead-acid batteries in cars currently on the road.

'It’s a hedge against the market for electric vehicles,' Mr. Vieau said.

The company is hoping that the promise of the new technology will help persuade investors to back a $50 million convertible debt offering by the company."
The puff piece was followed up by a media barrage from the company. All with the same vague "Nanophosphate EXT" story, and very very light on details like economics and cost.

Some issues that have so far gone unremarked: a hedge against electric vehicles seems to mean an acknowledgement that the business of making EV batteries isn't working, and this is an attempt to buy time. Also, how lucrative is the market for replacing regular-old $100 lead-acid car batteries? Isn't that a bit of a comedown? 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, as often happens, the little price blip following the announcement attracted the attention of the daytraders who turned it into a momentum plaything.

There were 35 million shares traded, but only two bond trades on TRACE for less than $200k total. Someone forgot to tell bondholders to be excited!


petertm said...

I have enjoyed ur blog for quite a while and although i have traded equities for 30+ years i have not traded many bonds and need some info to do this trade. How do i get the bond cusip # as i cannot find it on the AONE website or the annual report and IB does not support converts?

Anonymous said...


Anonymous said...

petertm said...

Thanks a lot for the info! Any thoughts on the best place to trade bonds?

CP said...

It's hard for retail. You could try interactive brokers.

petertm said...

IB does not let u trade any converts.