A123 Systems goes public with a splash

Investors snapped up shares of A123 Systems in their debut Thursday, showing a willingness to overlook millions of dollars in losses and make a bet that next-generation battery technology will propel the cars and trucks of the future.

Watertown, Mass.-based A123 Systems makes lithium-ion batteries, the technology chosen to power General Motors’ highly anticipated electric car, the Chevy Volt. A123 lost out on the contract for the Volt but was picked to build batteries for Chrysler’s next generation of electric cars.

Founded by Massachusetts Institute of Technology scientists, A123 lost more than $40 million in the first half of this year. But with the government pressuring automakers to build more fuel-efficient automobiles, investors obviously feel there is money to be made as companies compete to be the suppliers of the next power source for sedans, crossovers and pickups.

A123 Systems Inc. said its lithium-ion battery will provide more power, last longer and operate more safely than other batteries.

The company has been contracted by Chrysler and in August received a $249 million grant from the U.S. Department of Energy, yet critics note the company has never made money and say the clamor for A123 shares is misguided.

Still, it was among the most lucrative first-day IPO’s this year on a percentage basis, trailing only software company OpenTable Inc. A123’s shares gained $6.79, or 50.3 percent, to close at $20.29.

A123’s technology is similar to that used in laptops and cell phones, which use a lot less power but have still run into problems.

Last year, computer makers recalled 100,000 laptop battery packs made by Sony Corp. because of overheating related to lithium-ion cells. Making the same batteries for cars would require even more power and generate more heat.

“So you end up packing a reactive metal, which is lithium, in a flammable substance very, very close together,” said Don Hillebrand, director of the Transportation Research Center at Argonne National Laboratory. “You can do this, and you can do it safely, but it requires a more expensive manufacturing process.”

The payoff could be huge.

The global lithium-ion battery market is expected to jump from $31.9 million this year to $21.8 billion by 2015 and to $74.1 billion by 2020, according to business consulting firm A.T. Kearney.

A123 raised $380 million Thursday, selling 28.2 million shares of common stock at $13.50 each.

In addition to the Energy Department grant, A123 has secured $350 million in private capital from investors including General Electric Co. It also landed $100 million in refundable tax credits from the state of Michigan to build a plant.

David Vieau, A123 Systems’ president and chief executive, said the company’s batteries use MIT technology that achieves a balance between power, life span and safety. The batteries can be shaped and linked to fit into different types sized vehicles, he said.

“Height and clearance, for example, on a Jeep, is quite a different problem then if you’re in a two-seat sports car or if you have a minivan,” Vieau said.

The nickel-metal hydride batteries used now in cars like the Toyota Prius must still be paired with a combustion engine. Hydride batteries can give you short bursts of power. Lithium’s advantage is that it can store more energy, but because it’s more delicate, heat continues to be a problem.

A123 Systems shares are trading on the Nasdaq Global Market under the ticker symbol “AONE.”