Following the high-profile recall of $55 million worth of battery packs used in electric vehicles such as the Fisker Karma, battery producer A123 Systems is reportedly facing dire financial conditions.
In fact, based on comments and official recommendations from a Deutsche Bank analyst outlined in a Bloomberg report, A123 may have trouble raising the capital needed to deliver on its orders without "massive equity dilution." The analyst, Dan Galves, described the cost of the recall as an event that "represents a severe impact" on the company's cash reserves.
Galves also officially dropped his "buy" recommendation for A123, changing it to "hold." The analyst explained his changes in detail, "Recent quality issues may lead to concerns over AONE's ability to manufacture with quality at high volumes, potentially leading to customer defections or at least difficulty in procuring new contracts."ť
Although a Fisker Karma was the unfortunate recipient of the faulty battery pack that turned out to be the precursor to the entire recall, the start-up automaker is far from being the only one which either currently uses, or plans to rely on A123 for batteries in their vehicles. General Motors, for examples, has inked a deal with A123 and has confirmed intentions to use A123-produced batteries for the Chevrolet Spark EV, as well as for the upcoming Cadillac Converj.
Not to be left out, Chrysler had previously signed a deal with A123 to use their batteries in the 500 EV, but apparently dodged a bullet two years before it was figuratively fired when the automaker decided at the last minute to end the deal.
Regardless of Chrysler's involvement, the reliance of multiple automakers for batteries from A123 begs the question - will any or all of these automakers be forced to inject cash into A123, or will the automakers go elsewhere if the company goes belly up?