IPO fuels prospects of battery makers

The company raised about $380 million in its initial public offering of stock, well above its original estimate of a minimum of $250 million. The offering was being scrutinized by other venture-backed companies that had delayed going public as they rode out the recent economic downturn.

In the hours before its shares debuted on the Nasdaq stock exchange, A123 had raised its asking price to $13.50 from its original estimate of $8 to $9.50. Shares began trading at $17.

“It’s going to give us the capital that we need to expand the business, and it’s going to provide comfort to our customers,’’ said A123 chief executive David Vieau. A123 makes batteries using lithium ion technology, which produces the power and quick recharging times necessary to make electric vehicles practical.

Yesterday’s impressive showing on the Nasdaq allayed past concerns from customers on whether A123 had the “firepower we needed to scale up our battery,’’ Vieau said. “And we just demonstrated that we do.’’

At least a portion of the money raised will be used to match government funding the company recently received, including a $249.1 million stimulus grant from the Department of Energy to build a manufacturing plant in Michigan.

A123 Systems has gained prominence as interest in advanced battery technology for electric vehicles and other purposes has grown, spurred by last summer’s ghastly oil prices and growing concerns about global warming and energy independence. The company’s initial public offering was considered by competitors and analysts to be a bellwether for the future, as companies expand production of lithium ion products to power everything from cordless power tools to cars to components of the nation’s electric grid.

Economic development advocates have pursued the growth of a high-tech battery industry in Massachusetts, home to A123 and Boston-Power Inc. of Westborough, which also makes lithium ion batteries. Christina Lampe-Onnerud, chief executive of Boston-Power, called yesterday’s performance of A123 shares “an incredible endorsement’’ of the sector.

“Our industry just got a huge boost,’’ Lampe-Onnerud said. She added that Boston-Power has no specific plans for going public but will keep the option open.

Bruce Harrison, an automotive consultant at the economic forecasting firm IHS Global Insight in Lexington, said the industry’s success as an alternative power source for cars depends on several factors. “One, the cost has to come down for these batteries,’’ Harrison said.

Secondly, he added, the technology has to improve to the point where a battery-powered vehicle “operates similarly to the way an internal combustion engine does - meaning, you can get 300 miles out of them [before recharging].’’

One of A123’s main challenges will be to increase production, Vieau said, which will require boosting the company’s manufacturing capacity in the United States. A123 has received more than $600 million in government loans, grants, and other incentives, including the grants to fund construction of its Michigan plant, and it has partnership agreements with seven car companies around the world, including Chrysler.

The success of the public offering, Vieau said, helps put the company “on the playing field’’ with global battery industry leaders such as LG Chem in South Korea.

“We’ve competed toe-to-toe and we’ve won significant contracts,’’ Vieau said. “We view the impact that this technology can have on climate change and energy independence as significant.’’

As the company grows, Vieau added, he expects it to remain based in Massachusetts, which he said has a superior pool of talent. “We do anticipate that with the success we’ve been enjoying, that we will be expanding our [local] operations,’’ he said.

Although poised for growth, A123 has a recent history of losses. In the first six months of this year, the company reported $43 million of revenue but lost more than $40 million.

And there’s also competition. A123 lost out on a high-profile contract to power the planned Chevy Volt, an electric vehicle. That business instead went to LG Chem. And Johnson Controls Inc. in Milwaukee also has received significant government funding to expand its advanced battery technologies and manufacturing.

Charles Gassenheimer, chief executive of New York company Ener1 Inc., parent of A123 competitor EnerDEL in Indiana, said he thinks the high-tech battery industry should be able to support several leaders. A.T. Kearney, a management consulting firm with offices in Boston, estimates that the global lithium ion battery market for automotive applications will be $31.9 million in 2009 and will grow to $74.1 billion by 2020, according to a government filing from A123.

“I think there’s going to be room for four or five winners in this game. It’s not a monopolistic opportunity,’’ said Gassenheimer.

The question, he added, is whether the advanced battery industry is ready for prime time. “You’re asking for a tremendous amount of breakthrough and the political pressure - not just from the US, but globally - is suggesting that all of this needed to happen yesterday,’’ he said.

The industry, he added, is in its “awkward teenage phase,’’ where the technology has been proven but still needs additional development to become widely used.

Erin Ailworth can be reached at eailworth@globe.com.