After reading the passage, what is the current situation, the strategic management, and what are the internal and external factors?

CASE A123 Systems: A New Lithium-Ion Battery System for Electric and Hybrid Cars Alan N. Hoffman Bentley University Company Background A123 systems was founded in 2001 by Dr. Yet-Ming Chiang, Dr. Bart Riley, and Ric Fulop using proprietary nanophosphate technology built on new nanoscale ma- terials initially developed at the Massachusetts Institute of Technology.' In 2005, A123 transformed its business by developing a new, high-powered, faster-charging lithium-ion battery system using the nanophosphate technology. Lithium-ion batteries are an advanced technology that have one of the best energy-to-weight ratios on the market and have a slow loss of charge when not in use. In 2005, A123's main business was the commercial market for its batteries. Black and Decker Corporation used these lithium-ion batteries in its Dewalt and VPX brand of power tools. Lithium-ion batteries provided users with increased levels of power and runtime, at a similar or less weight than the traditional corded power tools. In 2006, A123 Systems was granted a $15 million development contract from the United States Advanced Battery Consortium (USABC) in collaboration with the U.S. Department of Energy (DOE). This contract was for the development of its nanophosphate technology for hybrid electric vehicles. A123 Systems then partnered with General Electric and Ballard Power Services to develop high-voltage battery modules for use in emission-free, energy- efficient transit buses. These new batteries are smaller than existing battery packs currently The author would like to thank Greg Keller, Ben Davis, Jason Brooks, Felix Lim, and Will Hoffman for their research and contributions to this case. Reprinted by permission of Dr. Alan N. Hoffman, Dept. of Management, Bentley University, 175 Forest Street, Waltham, MA 02452, USA. 6-1available for heavy-duty commercial use.' One of the companies that used this new battery was Daimler Buses North America in its Orion VII diesel-electric hybrid bus. The Orion VII was deemed a great success and passed the 3000 units sold mark in 2009, which was consid ered a great success for A123 and hybrid electric vehicles in general.* A combination of external forces such as increasing oil prices and a desire for consum- ers to be greener has increased the demand for hybrid vehicles in the consumer market. In 2007, A123 took significant steps toward developing its hybrid electric vehicle business. A 123 entered into a partnership with Cobasys to introduce lithium-ion batteries into the automotive market. A 123 also entered into an agreement with GM to use their batteries in the Saturn Vue Plug-in Hybrid development program and to co-develop a lithium-ion battery for the Chevrolet Volt." In 2008, A123 Systems entered a partnership with General Electric and Norwegian car manufacture Think Global to develop and supply lithium-ion batteries for Think's new electric crossover SUV. A123's automotive portfolio includes relationships with major global automotive companies such as BMW, Chrysler, Renault/Better Place, and Delphi/Shanghai Automotive Industry Corporation for passenger vehicle models; and Daimler, Magna Steyr, and BAE Systems for heavy-duty transportation vehicles." These joint ventures, partnerships, and strategic alliances have strengthened A123's position in the transportation market. A123 Systems is also in the electric grid market. A123 developed a lithium-ion battery system named the Smart Grid Stabilization System (SGSS), which helps power plants manage fluctuations in demand that are less expensive and more responsive than traditional methods. The SGSS can respond to changing power needs in milliseconds to ensure power plants are running efficiently and emitting less pollution while optimizing their power output. A123 Systems currently designs, develops, manufactures, and sells rechargeable lithium- ion batteries and battery systems for the transportation, electric grid, and commercial markets. While they're still involved in all three businesses, A123 Systems has evolved over the past four years. Comparing the total product revenue from 2007, 2008, and 2009, the consumer market has dropped from 93%, to 76%, to 26%, while the transportation market has risen from 7%, to 19%, to 59%, and the electric grid market has grown from 0%, to 5%, to 15%. A123 is shifting away from the consumer market because it has now matured and is focusing on the transportation and electric grid market that has a much larger growth potential. This trend continued through 2010. On September 24, 2009, A123 Systems announced its IPO on the NASDAQ global market at a price of $13.50 per share. Its shares reached a high of $23.46, but it is now just under $5.00. A123 also received a $249 million grant from the DOE and a $100 million tax credit from the state of Michigan to help build a manufacturing plant in Livonia. This plant was to open on September 13, 2010 and would allow A123 to meet the growing demands of its battery and battery systems. 10 Strategic Direction The company's focus on innovation and attracting highly educated employees has allowed it to remain on the forefront of this developing industry. A123's joint ventures, partnerships. market. and strategic alliances have strengthened their position in the transportation and electric grid The vision of A123 Systems is to combine its portfolio of products that use nanophos- phate technology with strategic partner relationships in order to address the next-generation energy storage solutions in the transportation, electric grid services, and consumer markets." Their goal is to use nanotechnology to create the next generation of batteries."? The world is focusing on ways to eliminate its dependency on fossil fuels and A 123 believes they will help this goal become a reality.New Lithium-Ion Battery System for Electric and Hybrid Cars 6-3 The A123 Systems objective is to utilize their materials science expertise, battery and battery systems engineering expertise, and manufacturing process technologies to provide advanced battery solutions. A123's Competitors A123 Systems has a different set of competitors in each of its three product groups. In the transportation industry, its competitors are Panasonic, LiMotive (Bosch and Samsung), Automotive Energy Supply Corporation, Johnson Controls-Saft Advanced Power Solutions, Toshiba, Kokam (Dow Chemical), Hitachi, Ltd., LG, GS Yuasa, Sony, Lithium Energy Japan, EnerDel Inc., Valence and MES-DEA S.A. In the electric grid industry, its competitors are Saft, Altairnano, NGK Insulators Lid, Prudent Energy, Beacon Power Corp. In the consumer market, its competitors are Panasonic, Sony, Samsung, LG, Valence, and E-One Moli Energy Corp. 13 A123 Systems faces stiff competition for all of its product lines. If some of the larger competitors were to merge through an acquisition or takeover, this could change the competi- tive landscape and make it very difficult for A123 to compete. Barriers to entry in the lithium-ion battery business are high. The largest barrier is the proprietary knowledge needed to develop and manufacture this type of technology. Every company in this industry has protected their intellectual property and manufacturing processes with patents, trademarks, and keeping their knowledge as trade secrets. * Other barriers to entry are brand recognition and visibility, economies of scale in manufacturing, and the access to strategic partners and distribution networks."While barriers to entry are high right now, it is possible for new technology to come along and turn the entire industry on its head. A123 Systems is very dependent on transportation manufacturers and electric grid pro- viders. There are multiple lithium-ion battery solutions for their products and if A123 does not meet their demands, they could switch to another provider. There are also a limited number of customers who make up a significant portion of A123's revenue, and the loss of one of those customers could be crippling to their business. 16 Government Programs Although lithium-ion batteries have been around in the consumer goods markets since the early 1990s, the industry as it relates to the transportation market, of which A123 is resting much of its future hopes upon, is in many ways still in its embryonic stage, and the products are still heavy and cumbersome. For example, the lithium-is battery pack used in the Chevy Volt is six-feet, nine-inches long and weighs nearly 400 pounds according to Larry Burns, a former vice-president of research and development at GM. 17 Perhaps the most influential of the external factors that currently and will continue to affect A123 Systems and its industry peers will be the support that these companies receive from government programs in the form of grants, loans, and incentives. In A123's case, be- cause they have yet to be a profitable company, whose cost of goods sold have historically exceeded the selling price of their products since 2007, the company is, without exaggeration, nearly fully reliant on government funding to operate their business. A123 hope to participate in US Government Programs that stimulate investment in the domestic battery field. This intention is one of their core strategies necessary for success. Clearly, the company is not shy when it comes to signaling their heavy dependence on political opportunities. There are quite a few federal and state government programs of which A123 has elected to be a part of: American Recovery and Reinvestment Act (ARRA): When President Obama took office in early 2009, one of the first pieces of legislation that was pushed through with the help of a Democratic