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Fisker Supplier’s Future in Doubt

The battery supplier for Fisker Automotive Inc.’s luxury hybrid sedan is facing significant losses over the next several quarters that could put it out of business.

Waltham, Mass.-based A123 Systems Inc. is fighting cash shortages, an inventory of defective products and a flurry of negative press in recent months. The challenges have come as its lithium-ion battery packs have been linked to two separate problems affecting Fisker’s flagship Karma and other vehicles.

The latest developments “raise substantial doubt on the company’s ability to continue,” A123 said in regulatory filing this week.

Management is trying to raise additional capital and reduce cash used for operations and investments as it “evaluates other strategic options,” according to the filing. A123 gave no assurances it would be able to secure such financing on favorable terms or successfully reduce costs.

The most recent problem with its batteries surfaced in February when a Karma died after 200 miles of drive time during a test run by Consumer Reports, sparking a frenzy of criticism from industry bloggers, company watchers and some politicians who have been critical of government subsidies to the clean technology sector.

The “latent manufacturing defect” that apparently caused the troubles was traced to a Livonia, Mich., plant run by A123.

Not all of the Karmas that have been sold are equipped with a battery from the Michigan plant, Fisker’s global communications director Roger Ormisher told the Business Journal at the time. He said about 15% of models sold through March, or some 96 vehicles, received A123 batteries from its plant in South Korea.

Fisker was one of five customers affected by the faulty battery, A123 Chief Executive David Vieau said in a conference call with analysts after the incident.

The mishap cost A123 $51.6 million to replace battery modules and packs that may be defective, as well as $15.2 million to replace defected inventory, according to the filing.

This was Fisker’s second manufacturing problem associated with A123’s batteries.

In December the supplier warned of a potential coolant leak from misaligned hose clamps that led to the recall of 239 Karmas—and more bad press.

That problem has been fixed, according to the Anaheim-based automaker.

Fisker chose A123 as its battery supplier in January 2010, ending a one-year deal with New York-based Ener1 Inc., which filed Chapter 11 bankruptcy earlier this year. Ener1 received a $118.5 million grant from the U.S. Department of Energy in August 2009.

Shares of A123 were down more than 7% in afternoon New York trading to a market value of about $139 million. Shares dipped below $1 dollar on Thursday after the filing and are down nearly 48% this year on the Nasdaq, reaching an all-time low of 82 cents on May 21.

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