A123 Systems—the battery maker that’s central to the Obama administration’s efforts to establish an advanced battery industry in the United States and to greatly increase the number of battery-powered vehicles on the road—announced today that it lost $258 million in 2011, compared to $152 million in 2010. In spite of the loss, the company remains optimistic, predicting lower operating and capital costs and a 45 percent to 89 percent increase in revenue in 2012. But hitting those targets will depend on more consumers buying electric vehicles, and so far, demand has been lower than A123 expected.

Things initially looked good for A123 in 2011. Revenues increased from $18 million in the first quarter to $64 million in the third quarter, as the company sold batteries to Fisker Automotive for the Karma extended-range electric sedan. But later in the year, the Karma was delayed, and Fisker stopped ordering batteries from A123, with the intention of using up the batteries it had already ordered. That left much of A123’s factory idle.

On top of that, A123 ran into production problems that decreased yields in the fourth quarter of 2011, and it had to deal with costs for repairing battery systems for the Karma and another heavy-duty battery pack made for BAE Systems.

A123’s revenues dropped to $40 million in the fourth quarter last year, and the company expects revenues to fall still lower this quarter, returning to the level from the first quarter of last year, erasing the temporary gain it had from the Fisker deal and other contracts.

A123 did, however, point to some good news on its earnings call today. It said that because of several new production contracts, it won’t rely on any one company for more than 15 percent of its revenue. By one analysis, Fisker accounted for 30 percent of the company’s revenues last year, before it stopped buying batteries. A123 also expects to sell more batteries for use on the electrical grid than it planned, which partially offsets disappointing electric-vehicle sales.

A123 expects revenues to be low until the fall of this year, when, it says, production will ramp up for cars from several automakers, including Fisker, the Chinese automaker SAIC, BMW, and the truck and bus manufacturers Via, Smith, and BAE Systems. A123 also expects to sell batteries for the GM Spark, a new electric vehicle. It has signed contracts to produce batteries for several more vehicles in 2013; and it will install several battery systems for the grid this year.

Although grid sales are increasing, A123’s success will still depend largely on whether the new electric cars sell. So far, the signs don’t look good. Sales of the electric vehicles have been slower than automakers predicted, and GM recently announced it was temporarily halting production of the GM Volt due to lack of demand. 

A123 will also face competition from other battery makers who will continue to improve their technology. But it says it will announce new technology this year that will help it compete.

One new market for A123 may prove a boost, however. A123 may benefit from selling more batteries for micro-hybrids, which use small batteries to assist a gasoline engine. Such cars are far less costly than electric vehicles and are therefore likely to sell in higher volumes.