A123 Systems Company Analysis

Introduction

A123 Systems, Inc. (A123) is a U.S. based company headquartered in Watertown, Massachusetts. The company develops, manufactures and sells lithium-ion rechargeable batteries and battery systems for the transportation, consumer, and electric grid markets. The batteries are made in several forms such as cells, modules and systems depending on the final application. A123 is vertically integrated to a large extent: the company designs and manufactures its own electrodes, cells, modules and complete battery systems. This structure allows delivering high quality products and incorporating customer requirements at all levels of the manufacturing process.

The company was founded in 2001 by Dr. Yet-Ming Chiang, Dr. Bart Riley and Ric Fulop. At the center of the company lies the proprietary nanoscale technology that was based on Massachusetts Institute of Technology (MIT) research. In 2009, A123 Systems went public. The proceeds from the Initial Public Offering (IPO) were directed toward the manufacturing facilities expansion and to fund additional research and development. In 2010, the company opened the largest lithium-ion battery manufacturing plant in North America, in addition to its existing plants in China and South Korea.

A123 Systems competes in the lithium-ion batteries industry. The industry is at the end of the introductory stage, according to our team's estimation. Many of the companies competing in this industry have never been profitable, including A123. In 2010, the company announced a net loss of $152.9 million (Hoover's Company Records, 2011). However, the company is going through a period of rapid growth incurring significant expenses as it transitions from prototype to volume production. Most of A123's growth is tied to growing hybrid and plug-in electric vehicles and electric grid storage markets. Battery sales for transportation applications grew by more than 350 percent in 2009 over 2008, while sales to the electric grid storage market grew by around 280 percent during the same period, according to Hoover's company records (2011).

Major functional areas

Marketing: The company's products include batteries of various sizes and forms as well as modules and battery systems. There are four types of batteries being sold depending on the energy capacity. Also, A123 sells seven types of battery systems that are comprised of cells and modules that are connected in various configurations. A123 markets and sells its products to other businesses through a direct sales force. Sales personnel are assigned to serve specific market segments, which are transportation, consumer and electric grid. The company created special business focus groups that target these markets. For example, the Automotive Solutions Group serves transportation market, whereas the Cell Products Group and the Energy Solutions Group serve consumer and electric grid markets consequently. In the transportation market, the sales are focused on the automotive manufacturers either directly or through tier 1 suppliers. In this case, tier 1 suppliers are businesses that develop and manufacture hybrid systems where a rechargeable battery is one of the components. A123 is working with automotive companies directly to educate them on benefits of the company's products. A123 created several partnerships with tier 1 suppliers in order to develop highly functional integrated solutions using the lithium-ion batteries. In the electric grid market, sales are made directly through the sales force.