For the nine months ended September 30, 2011, transportation revenue was $71.2 million, up from $30.2 million in the first nine months of 2010. Electric grid revenue was $20.6 million, up from $11.2 million in the first nine months of 2010. Commercial revenue was $12.9 million, up from $12.8 million in the first nine months of 2010.

21 automotive programs. Click to enlarge.

Transportation. Sales into the transportation market remains the mainstay of A123’s current business, although the grid opportunity is scaling rapidly. (CEO David Vieau called the grid business “lumpy” in the earnings call—i.e., it comes less evenly, and in big chunks.)

A123 Systems is currently sourced or in production in 21 vehicle programs, ranging from starter batteries to electric vehicle packs. Fisker represents the company’s largest current automotive business; last week, A123 revised its 2011 revenue guidance downward based on a reduction in fourth-quarter orders from Fisker Automotive as that company balances inventory levels from all suppliers for the Karma plug-in hybrid electric vehicle. (Earlier post.)

In the call, A123 said that is has moved to vehicle-level validation with GM for the battery pack for the recently announced Spark EV (earlier post), and that it expected to complete vehicle validation by 2012. While Fisker will continue to be a large revenue contribution in the next few years, the company said it anticipated that GM would be at a similar level in 2013.

Cost reduction in the 20Ah cell. Click to enlarge.

Cost reduction. Reducing costs, especially on its 20 Ah prismatic cell which is dominating production going forward, is important for improving the financials. A123 Systems has reduced its cost nominally by 20% from 2nd to 3rd quarters of 2011, through better capacity utilization, improvement in supply base and yield improvement. There remains much more work to be done to hit the targeted cost goal for the fourth quarter of 2012.

At an Analysts’s Day presentation in September, the company had outlined 8 discrete cost centers focused on reducing the costs of its cells: cathode, anode, separator, electrolyte, other mechanical, cell assembly, coating, and freight & duty.

Roadmap for pricing and margin improvement. Click to enlarge.

Largely through increasing volume, A123 anticipates a 70% reduction in cathode cost by 4Q2012. Likewise, the company is targeting a 40% reduction in anode cost from increased supplier volume and improved supplier plant utilization, the introduction of a low-cost additive, and improved foil costs through supplier dual sourcing. Assembly plant utilization is also a key area, and one that was hampered by the reduction in Fisker business for 4Q, especially after A123 had ramped up to meet the anticipated demand.

Beyond the next few years, A123 looks to introduce new cell materials, chemistries and architectures that will further drop the cost of its cells.

Usable energy. Future cost reductions aside, A123 has been emphasizing the usable energy in a Li-ion battery pack as a key metric in assessing battery costs, rather than the widely used metric of cost per kWh. The usable energy yielded by a battery packs can have a significant impact on battery costs for full battery electric and plug-in hybrid electric vehicle applications.

A123 is claiming that, for comparable life for comparable performance, based on its materials and chemistry it offers a wider State of Charge (SOC) range than do other battery systems, Jeff Kessen of A123 told Green Car Congress in an earlier interview.

If you have an oxide cell, then your top voltage is around 4V or higher when totally full. At that level of voltage, most electrolytes in Li-ion batteries are suffering degradation. But with our nanophosphate, you have a lower voltage to start with. Even when it’s topped off, at a really full battery, it’s not a voltage where the electrolyte starts to fall apart. Not only can we go high [SOC], but we can stay up at high SOC without a problem.

On the low [SOC] side, usually you are constrained by how much power you can get. The power of every battery falls off as you go down in SOC; you get to the point where it is perceptible to the customer, and you don’s want to discharge below that. The advantage of our chemistry is that our voltage is very flat—at 90% SOC it’s almost the same as at 10%—and so when you have a very flat voltage curve, if you want a certain amount of power, you draw the same current at 90% as at 10%, whereas if you have an oxide battery with declining voltage, the further you draw down, the more current you require, and you end up with an diminishing return. Because we have a very flat voltage curve, you can discharge much deeper, much closer to zero.

—Jeff Kessen

Other 3Q financials. Within total revenue, product revenue was $59.6 million, a 214% increase from $19.0 million in the third quarter of 2010, and a 102% increase from $29.6 million in the second quarter of 2011. Services revenue was $4.7 million, compared to $7.3 million the third quarter of 2010, and $6.8 million in the second quarter of 2011.

During the third quarter of 2011, product shipments were 67.7 MWh, an increase of 328% compared to 15.8 MWh in the third quarter of 2010 and 59% compared to 42.6 MWh in the second quarter of 2011. On a year to date basis, product shipments were 124.6 million watt hours, an increase of 182% compared to 44.2 million watt hours for the first nine months of 2010.

Gross loss was ($19.6) million in the third quarter of 2011, compared to a gross loss of ($3.1) million in the third quarter of 2010, and a gross loss of ($17.5) million in the second quarter of 2011. Gross margin improved to negative (30.4%) in the third quarter of 2011 from negative (48.2%) in the second quarter of 2011.

Net loss was ($63.7) million, or ($0.51) per common share, based on 126 million weighted average common shares outstanding in the third quarter of 2011. This compared to a net loss of ($43.7) million in the third quarter of 2010, or ($0.42) per common share, based on 104.7 million weighted average common shares outstanding, and to a net loss of ($55.4) million in the second quarter of 2011, or ($0.44) per common share, based on 124.5 million weighted average common shares outstanding.