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Fisker Switches to Batteries from A123, Which Also Makes an Investment

In an unusual development, a down-to-the-wire Fisker Automotive (which is racing to market with a charismatic plug-in hybrid car) has replaced its battery partner, Indianapolis-based EnerDel, and has signed a deal with Massachusetts' A123 Systems. The battery company also agreed to invest up to $23 million in Fisker "in order to establish a strategic relationship with the car company."

In a telephone interview, A123 President Dave Vieau said that it was his understanding that Fisker "was not meeting its current expectations with its supplier. That relationship isn't going forward; it's now broken off. We'd talked with Fisker from time to time over the last year and a half, engaged with their management, and reached a agreement to make an investment in the current financing round."

A123 will supply the luxury Karma, due at the end of this year, and the forthcoming Nina, a smaller and much more affordable iteration of similar technology. The short schedule for the Karma means A123 will have to hustle to meet deadlines. "It is certainly an aggressive program, yes," said Vieau. "But we're basically building the product off standard modules, so we'll be able to move relatively quickly."

The size of the Karma's battery pack has not yet been finalized, Vieau said. But he said that the A123 pack would meet the Karma's goal of 50 miles of all-electric range. The car, which will offer a whopping 403 horsepower, goes from zero to 60 in six seconds and tops off at 125 mph. Very few journalists have driven it yet.

In a statement, Fisker and Ener1 said they "remain open to exploring future business relationships pertaining to other potential Fisker programs." In an email, Fisker spokesman Russell Datz said, "It came down to timing. We have a lot of confidence in EnerDel's technology but our schedule is very aggressive. We have a good relationship and are open to working with them on future products."

Charles Gassenheimer, CEO of Ener1 (EnerDel's parent) said that an investment in Fisker was not a likely option for his company, though Ener1 did make an $18 million equity investment in Norwegian carmaker Think (and now owns 31 percent of that company). "I can only invest shareholders' money in companies that we determine are a strategic fit with us," he said. "We are not an investment fund."

EnerDel's arrangement was announced last May, around the time it launched its new lithium-ion battery factory in Indiana. The loss of that contract is a blow that at least in the short term has affected the stock price, though Ener1 has other contracts with Think, Volvo, the Japanese postal service and Nissan (a research deal). Think is building an EV factory in Elkhart, Indiana for cars that will use EnerDel batteries.

Reactions to the switch were mixed. Deutsche Bank Equity Research said, "While we are disappointed by this near-term revenue loss, the change to our model is inconsequential to our view of Ener1's appropriate valuation. In fact, we see the decision to walk away from the Fisker production as a sign of Ener1's confidence in its ability to secure additional business, as well as prudent, given Ener1's limited liquidity."

But the Motley Fool opined that it isn't too sanguine about Ener1's financial position. "This company is burning cash every quarter. EnerDel did win a $118.5 million stimulus grant, but it needs to match that funding one for one. Where will the money come from if the company doesn't snag a big DOE loan like A123 and Fisker have?"

Gassenheimer responds via email to Motley Fool: "We have always been crystal clear that we would raise equity capital when needed to match the loans and grants. We don't believe we need to raise 100 percent of the match at once." Three weeks ago, Ener1 raised $20 million in equity capital from the Japanese trading house Itochu, which now holds slightly under five percent of Ener1. Gassenheimer said Itochu "may be prepared to increase that equity stake in the future as we continue to execute on our plan."

Back at A123, the company has signed a lease on a 300,000-square-foot facility in Romulus, Michigan to complement its similarly sized plant in Livonia. A123 secured a $249 million Department of Energy grant last December, and it's using much of the money to expand its auto-based business in Michigan. A123's recent IPO raised $400 million, Vieau said, adding that A123's total investment in North American expansion totals $900 million.

A123's stock price hit $20 a share shortly after its stock started trading in September, and it's slightly above that now.

A123 has supplier relationships with BMW, Daimler, Chrysler and Fisker. For BMW, it may be a supplier to the company's Project i series of electric cars, but Vieau did not confirm that.