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Can the clean technology industry produce billion-dollar corporations in New England?
A123 Systems Inc. is seeking to be the first to prove that it can.
The Watertown-based company, a maker of lithium ion batteries for electric vehicles and other applications, is on track to potentially break the $100 million revenue mark this year. But that’s still pretty far from $1 billion, and even farther from $1.5 billion, which CEO David Vieau recently said could be the revenue picture for A123 within a few years.
“Our confidence that A123 will become a very large company continues to increase,” Vieau said during the company’s earnings call in August, before stating that “if we look at our meaningful customer relationships, those customers project their demand in the year 2013 to an over $1.5 billion opportunity for A123.”
The staggering prospect underscores the optimism that many have for the cleantech industry. Supporters see cleantech as an engine for creating jobs and boosting the economy, and in New England — which has a presence on the national cleantech stage — this is especially true.
Advocates such as Vincent DeVito say the region is well-positioned for creating large cleantech companies in New England in the same way that large companies in IT and biotech have grown and thrived here. “The groundwork is there,” said DeVito, executive director of the Worcester-based Institute for Energy & Sustainability and partner at Bowditch & Dewey LLP in Boston.
At A123, however, a key part of the growth strategy has more to do with Michigan than Massachusetts. The company opened its automobile battery manufacturing facility in Livonia, Mich., in September. A second plant in the state, which will produce coatings for batteries, is expected to begin full operation next year in Romulus.
The 291,000-square-foot Livonia plant could produce vehicle batteries at a rate of 30,000 a year by the end of 2011, said Andy Chu, vice president of marketing and communications at A123, in an interview. That facility can be expanded as time goes on, Chu said.
During the earnings call, Vieau said an expansion of the company’s capacity from the expected 760 megawatt hours by the end of next year to 1,000 megawatt hours could get the company half way toward the $1.5 billion revenue mark. The expansion “could support revenue in the $600 to $750 million range,” he said.
Since the company will be supplying auto makers — Fisker Automotive and BMW are among the current customers — and depends on consumer adoption, much is out of the company’s control. In the risk factors section of its latest quarterly filing, A123 admits that “if the cost of these end-user products is too high, or the market for such end-user products contracts or fails to develop, the market for our batteries and battery systems would be expected similarly to contract or collapse.”
What A123 can control is the effort it puts into lowering production costs, which in turn will help keep down the cost of the electric vehicles and influence purchasing decisions, Chu said. “To achieve that large penetration, we need to get the vehicle cost and the battery cost down,” he said. He cites programs in a variety of areas, from materials, to cell design and manufacturing.
Logistically, of course, growing in size that quickly could pose major challenges, Chu acknowledged. But expanding staff, facilities and everything else that’s necessary “is well within our plan,” he said. “We’re not going to expand faster than we can handle,” Chu said.
Along with electric vehicles, A123 is seeking to ramp up its business making batteries that help stabilize the electric grid. The trailer-sized battery systems discharge power when needed to avert outages.
The grid battery business is based in Massachusetts and employs 55 people here. Based in Hopkinton, R&D and manufacturing for grid batteries is planned to move to a larger facility in Westborough next year, though some work will continue in Hopkinton, Chu said.
A123 expects the grid to eventually contribute 30 percent of the company’s revenue, Chu added, with 60 percent coming from transportation and 10 percent from consumer products.
While it’s not out of the question for A123 to see 15-fold growth within three years, that would be a “heckuva revenue ramp,” said Michael Lew, a research analyst at New York-based Needham & Co. Inc.
It’s possible the company could get there if it secures even one big-volume contract from a major auto maker. Though the company has pulled out of a project to supply batteries to Chrysler’s electric Fiat project, A123 says it is still working with the auto maker on another, undisclosed project. “All you need is the one (contract) that gets you there,” Lew said. “The next question is, with who? I’m still trying to figure that out.”
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