A123 Systems Has a Short Circuit

It's going to be another disappointing quarter for one of the highest profile battery makers in the market. A123 Systems (NAS: AONE) revised revenue guidance for the full year to $165 million to $180 million from a previous guidance of $210 million to $225 million.

This is a long-running trend for A123 Systems, which has come up with excuse after excuse for why customer demand isn't coming in as expected. The bottom line is that the bet the company made on batteries was probably too big and too early.

The partnerships A123 has built are definitely impressive and may pay off eventually. Fisker, GM (NYS: GM) , and Smith Electric have all chosen A123 to provide batteries for their vehicles, but the ramp in demand is slower than expected. Fisker in particular has disappointed A123 time and time again.

The story isn't exclusive to A123 Systems. The build-out of battery capacity began at a fevered pitch when manufacturers began leveraging Department of Energy money to expand. A123 got a $249 million DOE grant and Ener1 got $118.5 million to build capacity in the hope that economies of scale would bring down costs and make electric vehicles more competitive.

But electric vehicles have suffered from a chicken-and-egg conundrum of weak demand and high costs. Costs won't fall until demand picks up and demand won't pick up until costs fall. So Nissan, Ford (NYS: F) , GM, and Fisker make grand presentations of their electric vehicles and watch consumers look at them as novelties instead of a viable alternative to gas-powered vehicles.

Up to this point, Tesla Motors (NAS: TSLA) has been the only manufacturer to have demand outpace supply, something that will be put to the test when the Model S is released to a mass audience.

The lower guidance for A123 Systems doesn't come as a huge surprise to those following the industry. I pointed out recently that chasing the mass market is a risky bet for companies like A123 that don't have the balance sheet to make mistakes. Shareholders who have hung on have found that out the hard way.

Right now A123 Systems and Ener1 are against the ropes while smaller rival Valence Technology (NAS: VLNC) stays afloat on a smaller production base. A123 will have to see demand pick up soon to fill capacity and considering the constant delays I am starting to wonder if demand will ever pick up.

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At the time thisarticle was published Fool contributor Travis Hoium does not have a position in any company mentioned and does not own an electric vehicle. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of Ford Motor and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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