Deutsche Bank analyst Dan Galves says the estimated $55 million required by Massachusetts-based A123 Systems Inc. to fund the recall will have a “severe impact” on its cash reserves.
“Recent quality issues may lead to concerns over [A123’s] ability to manufacture with quality at high volumes, potentially leading to customer defections or at least difficulty in procuring new contracts,” Galves said, as reported by Bloomberg.
Only weeks after deliveries of the US$107,850 ($104,100) plug-in hybrid Fisker Karma sports car started in the US late last year, the California-based carmaker was forced to issue a recall to repair A123’s battery packs.
A faulty welding machine led to a misalignment of components in some of the battery cells, which has the potential to short circuit the battery, decrease its performance, or lead to a permanent failure.
The defect caused the Karma to break down during a Consumer Reports test earlier this month, embarrassing the start-up manufacturer with global coverage of the sports car on the back of a tow truck.
A123 is set to start shipping the first replacement battery modules to customers this week.
A deal between A123 and General Motors could help the battery maker out of its tight spot. In August 2011, the two agreed to a deal that will see GM use A123’s advanced “nanophosphate” lithium-ion batteries in its future vehicles, potentially including the Chevrolet Spark EV and a production version of the Cadillac Converj.