A123 Inks GM Battery Deal But Still Is a Powerless Stock

Shares of A123 Systems (NASDAQ: AONE ) are up 18% in the past few days on news
that the company reached an agreement with General Motors (NYSE: GM ). The deal
means A123 Systems, which makes rechargeable lithium ion batteries for electric
cars, will be the supplier for General Motors production facilities not just
for the much-hyped Chevrolet Volt, but the Chevrolet Spark EV expected to hit
markets in 2013. But investors should be wary. For starters, the electric
vehicle market is anything but a sure thing and consumer demand is questionable.
And most importantly, AONE stock has been eviscerated as the company has been
bleeding cash and struggling to achieve broader success. A GM partnership alone
might not save A123 Systems from becoming yet another green dream of a company
that never made things work on the cold reality of Wall Street. On the plus
side, AONE has seen revenue more than double from 2007 to fiscal 2010 from $41
million to $97 million. And battery sales to General Motors will mean even
bigger revenue to come as the company becomes a major supplier. But sales are
different than profits. The fact is that A123 Systems never has turned a profit
in any of those years. In fact, it hasnt turned a single quarterly profit since
2007. That's an ugly track record. The theory is that high-tech start-ups like
this can afford to lose money for a few years before finding its footing. Amazon
(NASDAQ: AMZN ) famously went public with the admission it would not be
profitable for five years, and now its a powerhouse of e-commerce and one of the
most successful dot-com stories on Wall Street. But electric vehicles are not
the Internet. It's unrealistic to think that internal combustion engines will
be wholly replaced by EVs and AONE batteries anytime in the next decade and
perhaps even in any of our lifetimes.