Another Reason for Electric Cars to Worry

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Shares of A123 (NAS: AONE) are trading 10% lower this morning after it announced plans to correct potentially defective prismatic cells being made in its Michigan plant. The maker of advanced lithium ion batteries for electric vehicles is confident that it has identified the problem, but the cost of replacing the affected customer modules and packs will result in a roughly $55 million hit over the next few quarters.

Before today's hit, A123's stock was already trading 87% below its $13.50 IPO price of three years ago. Consumers have been slow to take to electric cars. To make matters worse, A123 hasn't been able to find its way into the few electric cars that are gaining any kind of traction.

When General Motors (NYS: GM) temporarily halted production of Chevy Volt vehicles after selling just 1,023 Volts in February -- well below its original 2012 target -- it wasn't A123's fault. A123 also wasn't to blame when the Volt garnered negative press surrounding its battery-pack woes.


When some of Tesla's (NAS: TSLA) batteries started to fail, it wasn't A123 behind those bricks, either.

Sidestepping some of the niche's more prominent speed bumps may seem to be good news on the surface, but A123's public exposure has been limited, given slow rollout of customers, including Fisker Automotive and VIA Motors. A deal with GM to provide battery packs for the all-electric Chevy Spark is promising, but that car won't hit the market until next year.

This would seem to be a great time for electric cars. Gas prices continue to inch higher, and federal tax rebates are being dangled before drivers to help offset some of the higher price tags associated with electric vehicles.

However, the post-subsidized price of lithium ion batteries remains high. The publicized failures also aren't helping this promising space regain its juice.

Hit the road
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At the time this article was published Motley Fool newsletter serviceshave recommended buying shares of General Motors and Tesla Motors. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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