At the time of its introduction A123 Systems's nano-enabled technology for lithium-ion batteries was heralded as a breakthrough technology that would bring electric vehicles (EVs) one step closer to wide commercial adoption.
This rosy scenario started to reveal its thorny side when questions arose about whether Li-ion battery technology—nano-enabled or otherwise—could really meet the requirements of EV propulsion.This doubt was referred to by none other than U.S. Energy Secretary Steven Chu at the United Nations Climate Change Conference in Cancun in 2010.
With Ener1--another lithium-ion battery maker--filing for bankruptcy earlier this year, the market for nano-enabled Li-ion batteries for EVs needed some encouraging news.
Unfortunately, it did not get it this week with news that A123 will need to replace batteries used by electric sports car maker Fisker Karma among others. The recall will cost A123 Systems US $55 million.
It does not appear that there is any intrinsic problem with the batteries. Instead, one welding machine was calibrated incorrectly, resulting in a misalignment of some components in a battery cell. The problem can cause a break in the battery's electrical insulation and a potential short circuit, according to David Vieau, A123’s CEO.
While an unexpected $55-million manufacturing cost presents a problem, one can imagine that $249 million the company received from the federal government to build the plant in the first place should take some of the sting out of this unforeseen outlay. But it is probably the sagging demand for EVs that poses a far more worrisome problem for companies like A123 across the entire EV value chain.
For instance, Fisker Karma, one of the automobile manufacturers impacted by this battery manufacturing snafu, reported a net loss of $85 million this month in its fourth quarter on revenue of $40.4 million.
David Vieau may be correct in saying that problems like this manufacturing hitch are not totally unexpected in a new industry. However, this new industry may be facing a far more fundamental problem: not enough people want to buy the products they enable.