SAN FRANCISCO - Lithium-ion battery maker A123 Systems Inc has a history of losses, is uncertain about its ability to generate positive cash flow -- and is the most talked-about company going public this week.
The initial public offering of the Watertown, Mass.-based company -- debuting under the name AONE -- may forecast the fate of the emerging energy storage sector, which many see as crucial to large scale adoption of renewable energy, and the opportunities in the electric vehicle market.
Industry experts and company executives are keeping a close watch on how A123's shares will be received on the Nasdaq stock exchange when it begins trading on Thursday, a year after it first filed its registration statement.
Everybody will keep an eye on it, said Michael Lew, analyst with research, banking and consulting firm ThinkEquity. It will help in raising the profile of the whole energy storage sector, specifically the lithium-ion battery space.
The stock market debut of A123, founded by scientists linked to the Massachusetts Institute of Technology, will show if the market has any appetite for green technology companies that are losing money, but have promise.
I think that an unsuccessful IPO could have a disastrous effect on the sector in terms of the financial community willing to place bets on other energy storage companies, said Dan Squiller, Chief Executive Officer of PowerGenix.
His rival startup makes nickel-zinc batteries for power tools, and scooters, and it aims to break into the electric vehicle market. Squiller does not have plans for an initial public offering.
A123's IPO is the first from a cleantech company this year.
U.S. and many global automakers are betting that battery technology will make electric cars the environmentally friendly transportation of the future, and the switch has drawn a wave of companies into the rechargeable battery sector.
The electric vehicle market is forecast to reach about 5 million cars in 2015, and provide a new market for rechargeable batteries that so far are mostly found in mobile phones and computer laptops.
A123 faces competition from established automotive suppliers, such as: Japan's Sanyo Electric Co Ltd, South Korea's LG Chem and U.S.-based Johnson Controls.
But A123 also serves the power tool market and is developing batteries for grid-scale power storage.
PROFITABILITY IS KEY
A123 aims to raise around $276 million with its IPO, which is being managed by Morgan Stanley and Goldman Sachs. It is set to price on Wednesday after markets close and already has raised its estimated price range by 23 percent to $10 to $11.50 per share.
The company's market cap could reach $879 million, assuming the midpoint of its expected pricing range, said Robert Brown, research analyst with Craig-Hallum Capital Group.
Some analysts and industry players caution that investors should not read too much into A123's fate in the public realm, especially over the longer term.
A123 will have to prove themselves in short order and show a path to profitability, said Michael Horwitz, cleantech analyst with Robert W. Baird & Co. Otherwise it could lose its luster quickly.
As a proxy for whether or not cleantech is successful, there are so many great companies that are also going to go public over the next few years, I wouldn't allow this one to sway my opinion of sector, he added.
Sanjiv Malhotra, chief executive of privately held Oorja Protonics, a Silicon valley methanol fuel cell startup, said profitability is key.
Profitability and market acceptance, those are the parameters that are going to create the Googles and Apples in the cleantech world, said Malhotra, who is also eyeing the electric vehicles market.
A123 posted a loss of $40.7 million, due in part to research and development costs, in the first half of 2009, but nearly doubled its revenue to $42.9 million, according to a filing with the U.S. Securities and Exchange Commission.
The company customers include carmakers: BMW, Chrysler and General Motors Co.
Some of the other green companies that are considered to be ripe for the IPO market include smart grid network firm Silver Spring Networks, electric carmaker Tesla Motors, solar panel maker Solyndra and solar thermal firm BrightSource Energies.
Certainly if (A123) works well, people will feel more confident about bringing other companies to market, Horwitz said. But Silver Spring could be very successful despite any success or failure that A123 might have.
Silver Spring has said it is considering going public but will not do so this year.
(Reporting by Poornima Gupta, editing by Leslie Gevirtz)