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Battery Wars: A123 Systems Pitches in With Tesla Motors Rival

When battery maker A123 Systems held its IPO last year, in what became the largest stock offering of 2009, its success largely rested on the promise of a strong future in the electric car market.

Yet it also wasn't clear that A123 had much of a market to rely on, at least at home. While it struck a deal with Chinese company SAIC to develop battery systems, A123 had not only been passed over by General Motors for its upcoming Chevy Volt, but also, it appeared, by the startup darling Tesla Motors, which makes the high-powered Roadster.

Tesla recently confirmed that it plans to buy its future batteries from Panasonic. So there's a bit of sweet revenge to A123 announcing today that it will not only supply the batteries to Tesla's arch-rival Fisker Automotive, but will also make a $23 million investment in the company. (In an extra coincidence, Fisker plans to build its cars in an old GM plant.)

A123 beat out one of its own rivals, EnerDel, for the deal, but the compelling story is really Tesla and Fisker. Early last year, Tesla brought a highly publicized lawsuit against Fisker's eponymous founder for allegedly stealing trade secrets. An arbitrator ultimately ruled against Tesla.

Both car startups have received substantial loans from the U.S. Department of Energy, around a half a billion dollars each -- although again, Fisker took the edge. Tesla, though, can at least claim to be actively selling cars, and it's a somewhat better-known company.

In part because of their rivalry, Fisker and Tesla have grown to be emblematic of the entire electric car startup community. Their real battle will be with giants like GM, Nissan and Toyota, but the rivalry will at least be good for bringing attention to all parties involved, including A123.

Incidentally, Ener1, the parent company of EnerDel, made a similar investment / business deal some time back with Think Automotive. So there is something of a battery trend here -- though their technology may be well developed and reliable, the battery companies may be finding that they also need to foster electric car startups to have a market for the products.