November 11, 2009

Company Report
Reported Results

A123 Systems, Inc. AONE: $17.98

Hold Advanced Materials And
Nanotechnology
AONE: Believe Promising Outlook With Growing
Pains Ahead
THINK ACTION:
The company delivered solid 3Q09 results and confirmed the BMW supply Michael Lew
agreement. We believe the long-term outlook of A123 Systems is promising. 212-468-7011, mlew@thinkequity.com
However, we think the company is likely to experience growing pains as it Colin Volek
seeks to capitalize on what we view as the emerging market opportunities for 212-468-7039, cvolek@thinkequity.com
lithium-ion batteries. We maintain our Hold rating, and our per-share fair value
is $16. Changes Current Previous
Rating Hold --
KEY POINTS: FY10E REV (M) $141.0E --
BMW Supply Agreement In Place FY11E REV (M) $477.5E $477.6E
The details pertaining to the sole sourcing agreement for the BMW 3 and 5 FY10E EPS ($0.81)E ($0.84)E
Series were not disclosed. We believe that there is likely to be additional FY11E EPS ($0.80)E ($0.83)E
platform wins in the future as the company scales capacity—currently at 169
megawatt-hour (MWh). A123 is continuing to negotiate for the $233 million 52-Week High: $28.20
DOE loan from the ATVMIP (Advanced Technology Manufacturing Incentive 52-Week Low: $15.90
Program). The company had originally applied for $1.84 billion. Shares O/S-Diluted (M): 102.4
Market Cap (M): $1,841.2
Electric Grid, An Emerging Opportunity, In Our Opinion Average Daily Volume: NA
Payment was received from AES Corporation for 16MW of product previously Short Interest: 1.7%
shipped. In addition, the company has been approved by Southern California Debt/Total Cap: 4.2%
Edison for 32MW of product for deployment in wind farms. The timing of Net Cash Per Share: $4.61
shipments is still being negotiated. The electric grid presents a sizeable P/E (12-month forward): NM
opportunity, in our opinion. However, we believe that the pace of deployment is Est. Long-Term EPS Growth: NA
likely to be significantly slower than in automotive transportation; thereby, to P/E/G: NM
some degree, neutralizing any potential type of first-mover advantage into this Fiscal Year-End: Dec
market segment. REV (M) $ 2009E 2010E 2011E
Mar 23.2A 21.7E 95.4E
Outlook In Line With Expectations Jun 19.7A 30.6E 101.1E
A123 Systems reported 3Q09 revenue of $23.6 million (up 3% Y/Y) and an Sep 23.6A 39.0E 121.5E
EPS loss of $0.22 (after adjusting for shares issued during the IPO). The Dec 21.9E 49.7E 159.6E
upside to our $16.9 million revenue and $0.31 EPS loss forecasts was driven FY 88.4E 141.0E 477.5E
by better-than-expected revenue across the consumer, transportation, and CY NA NA NA
electric grid segments. The company's outlook for 4Q09 is in line with our FY P/S 20.8x 13.1x 3.9x
forecast of $21.9 million (down 7% Y/Y) with an EPS loss of $0.24. CY P/S 20.8x 13.1x 3.9x
EPS $ 2009E 2010E 2011E
Mar (0.33) A (0.22) E (0.24) E
Jun (0.35) A (0.21) E (0.24) E
Sep (0.22) A (0.17) E (0.19) E
Dec (0.24) E (0.20) E (0.13) E
FY (1.14) E (0.81) E (0.80) E
CY NA NA NA
FY P/E NM NM NM
CY P/E NM NM NM

Please see analyst certification (Reg. AC) and other important disclosures on pages 5-6 of this report.
 November 11, 2009
Company Report
Reported Results

VALUATION:
Our $16 per-share fair value is based on an Enterprise-to-Sales multiple of 8.3x our calendar 2010 revenue estimate of
$141.0 million. In our view, A123 Systems could financially benefit from the projected growing demand for lithium-ion battery
technology in various developing end-markets.

INVESTMENT RISKS:
Financial
A123 Systems operates in a growing applications market. The primary challenge for vendors is to maintain financial stability
in the long term, in our view. There is no guarantee that costs and expenses can be lowered enough to ensure that the
company's products will be affordable in the commercial and consumer marketplace.

Competitive
The composite supplier landscape is characterized by competition, with some vendors that have significantly larger asset
bases. There is no guarantee that A123 will be able to remain competitive in the changing landscape.

Geographic
A123 Systems is targeting multiple market segments for its advanced battery products. In each market, there is likely to be
government support for the increased usage of cleaner alternative energy sources. There is no guarantee that this will
benefit the company directly.

Intellectual Property
There is an ongoing litigation over the intellectual property involving the technology behind rechargeable lithium iron
phosphate-based batteries. There is no guarantee of a favorable outcome for the company.

A123 Systems owns or exclusively licenses 46 patents, with 200 patents pending in the U.S. or internationally. We note that
there is a significant lag time between patent applications and when they are published, which typically takes over a year.
During that time window, competitors may leverage the technology, as there is no patent protection. There is risk that the
protective measures in place are not adequate to protect intellectual property.

Customers
The company has several key customers that should facilitate the entry of A123's products into the marketplace. However,
the top three customers currently represent over 70% of revenues. A loss or deterioration of these relationships could be
extremely detrimental to the company.

Product
While we believe that the company's battery products are innovative, they may be considered disruptive. There are many
factors, including market hesitancy to accept disruptive technologies and commercial readiness that could lead to failure.

COMPANY DESCRIPTION:
A123 Systems is a supplier of high-power lithium-ion batteries for use in the portable power, transportation, and grid
services markets.

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A123 Systems, Inc. (AONE)
Summary of Quarterly Earnings & Forecast
December Fiscal Year, $ in millions
2008 2009E 2010E 2011E 2008 2009E 2010E 2011E
Revenues Growth (y/y)
1 Quarter $10.3 $23.2 $21.7 $95.4 1 Quarter 26.8% 125.5% (6.5%) 339.2%
2 Quarter 11.6 19.7 30.6 101.1 2 Quarter 3.1% 69.3% 55.2% 230.5%
3 Quarter 22.9 23.6 39.0 121.5 3 Quarter 165.2% 2.9% 65.4% 211.4%
4 Quarter 23.6 21.9 49.7 159.6 4 Quarter 77.9% (7.4%) 126.9% 221.2%
Total 68.5 $88.4 $141.0 $477.5 Year 65.7% 29.0% 59.5% 238.7%

Cost of Revenues COGS%

1 Quarter $11.8 $21.4 $23.1 $85.7 1 Quarter 114.6% 92.2% 106.3% 89.8%
2 Quarter 14.9 22.3 30.1 90.8 2 Quarter 127.8% 113.1% 98.4% 89.8%
3 Quarter 21.9 25.5 36.7 103.3 3 Quarter 95.6% 107.9% 94.2% 85.0%
4 Quarter 32.2 25.2 46.9 127.8 4 Quarter 136.0% 115.3% 94.4% 80.1%
Total $80.8 $94.4 $136.8 $407.6 Year 117.9% 106.8% 97.0% 85.4%

Research and Development R&D%

1 Quarter $7.0 $11.2 $13.0 $13.0 1 Quarter 68.0% 48.4% 59.9% 13.6%
2 Quarter 8.1 11.6 13.0 13.0 2 Quarter 69.5% 58.8% 42.5% 12.9%
3 Quarter 11.1 13.1 13.0 13.0 3 Quarter 48.2% 55.7% 33.3% 10.7%
4 Quarter 10.8 13.0 13.0 12.8 4 Quarter 45.7% 59.4% 26.2% 8.0%
Total $37.0 $49.0 $52.0 $51.8 Year 53.9% 55.4% 36.9% 10.8%

Sales and Marketing S&M%

1 Quarter $1.6 $2.0 $2.4 $10.5 1 Quarter 15.6% 8.5% 11.0% 11.0%
2 Quarter 2.0 2.2 3.4 10.6 2 Quarter 17.2% 11.4% 11.0% 10.5%
3 Quarter 2.1 1.9 4.3 12.1 3 Quarter 9.2% 7.8% 11.0% 10.0%
4 Quarter 3.1 2.4 5.5 16.0 4 Quarter 13.2% 11.0% 11.0% 10.0%
Total $8.9 $8.5 $15.5 $49.2 Year 12.9% 9.6% 11.0% 10.3%

General and Administrative G&A%

1 Quarter $4.1 $6.3 $5.9 $10.5 1 Quarter 39.9% 27.1% 27.1% 11.0%
2 Quarter 4.7 6.2 5.9 10.6 2 Quarter 40.6% 31.3% 19.2% 10.5%
3 Quarter 6.3 5.9 4.7 12.1 3 Quarter 27.6% 24.9% 12.0% 10.0%
4 Quarter 6.4 5.9 5.5 15.2 4 Quarter 27.0% 26.9% 11.0% 9.5%
Total $21.5 $24.2 $21.9 $48.4 Year 31.4% 27.4% 15.5% 10.1%

Operating Income (Loss) Op.Margin

1 Quarter ($14.2) ($17.7) ($22.7) ($24.3) 1 Quarter (138.1%) (76.2%) (104.3%) (25.5%)
2 Quarter (18.0) (22.6) (21.8) (24.0) 2 Quarter (155.1%) (114.6%) (71.2%) (23.7%)
3 Quarter (18.5) (22.8) (19.7) (19.1) 3 Quarter (80.5%) (96.4%) (50.5%) (15.7%)
4 Quarter (28.8) (24.6) (21.1) (12.1) 4 Quarter (122.0%) (112.5%) (42.5%) (7.6%)
Total ($79.6) ($87.7) ($85.3) ($79.4) Year (116.2%) (99.1%) (60.5%) (16.6%)

Other Income (Expense), net Other Income % of Sales

1 Quarter $0.3 ($1.1) $0.9 $0.6 1 Quarter 2.9% (4.5%) 4.2% 0.7%
2 Quarter (0.8) 0.4 1.0 0.2 2 Quarter (6.7%) 1.8% 3.1% 0.2%
3 Quarter (0.4) (0.1) 2.7 0.6 3 Quarter (1.8%) (0.4%) 7.0% 0.5%
4 Quarter 0.3 1.1 1.5 (0.2) 4 Quarter 1.3% 4.9% 3.1% (0.1%)
Total ($0.6) $0.3 $6.1 $1.3 Year (0.8%) 0.3% 4.3% 0.3%
Source: Company reports and ThinkEquity LLC estimates

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A123 Systems, Inc. (AONE)
Summary of Quarterly Earnings & Forecast
December Fiscal Year, $ in millions
2008 2009E 2010E 2011E 2008 2009E 2010E 2011E
Earnings Before Taxes PTI Margin
1 Quarter ($13.9) ($18.7) ($21.7) ($23.6) 1 Quarter (135.2%) (80.7%) (100.1%) (24.8%)
2 Quarter (18.8) (22.2) (20.8) (23.8) 2 Quarter (161.8%) (112.8%) (68.1%) (23.5%)
3 Quarter (18.9) (22.8) (17.0) (18.4) 3 Quarter (82.3%) (96.8%) (43.5%) (15.2%)
4 Quarter (28.5) (23.6) (19.6) (12.3) 4 Quarter (120.6%) (107.6%) (39.4%) (7.7%)
($80.2) ($87.4) ($79.1) ($78.1) Total (117.0%) (98.8%) (56.1%) (16.4%)

Taxes
1 Quarter $0.1 $0.1 $0.1 $0.1
2 Quarter 0.1 0.1 0.1 0.1
3 Quarter 0.1 0.1 0.1 0.1
4 Quarter 0.0 0.1 0.1 0.1
Total $0.3 $0.4 $0.4 $0.4

Net income (Loss) to Common Shareholders Net Margin

1 Quarter ($13.9) ($18.7) ($22.6) ($24.5) 1 Quarter (135.1%) (80.7%) (104.2%) (25.7%)
2 Quarter (19.1) (21.9) (21.7) (24.7) 2 Quarter (164.2%) (111.3%) (71.0%) (24.4%)
3 Quarter (19.0) (22.8) (17.9) (19.3) 3 Quarter (82.7%) (96.7%) (45.9%) (15.9%)
4 Quarter (28.5) (24.5) (20.5) (13.2) 4 Quarter (120.6%) (111.7%) (41.2%) (8.3%)
Total ($80.5) ($88.0) ($82.7) ($81.8) Total (117.5%) (99.5%) (58.7%) (17.1%)

Diluted EPS EPS y/y growth

1 Quarter ($0.28) ($0.33) ($0.22) ($0.24) 1 Quarter NM 17.7% (32.3%) 8.4%
2 Quarter (0.37) (0.35) (0.21) (0.24) 2 Quarter NM (5.0%) (39.1%) 13.5%
3 Quarter (0.35) (0.22) (0.17) (0.19) 3 Quarter NM (36.8%) (21.6%) 8.1%
4 Quarter (0.45) (0.24) (0.20) (0.13) 4 Quarter NM (47.3%) (16.2%) (35.5%)
Total ($1.47) ($1.14) ($0.81) ($0.80) Year 114.5% (22.7%) (28.9%) (1.2%)
Source: Company reports and ThinkEquity LLC estimates

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 November 11, 2009
Company Report
Reported Results

Important Disclosures
Analyst Certification
I, Michael Lew, hereby certify that all of the views expressed in this research report accurately reflect my personal views about the subject
securities and issuers. I also certify that no part of my compensation was, is, or will be directly or indirectly related to the specific
recommendations or views expressed in this research report.
I, Colin Volek, hereby certify that all of the views expressed in this research report accurately reflect my personal views about the subject
securities and issuers. I also certify that no part of my compensation was, is, or will be directly or indirectly related to the specific
recommendations or views expressed in this research report.

The analyst(s) responsible for preparing this report has/have received compensation based on various factors, including the firm's total
revenues, a portion of which is generated by investment banking activities.

ThinkEquity LLC makes a market in A123 Systems, Inc. securities; and/or associated persons may sell to or buy from customers on a
principal basis.

Rating History for: A123 Systems, Inc. (AONE) as of 11-10-2009

10/19/09
I:H
27

24

21

18

15

12
Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3
2007 2008 2009

Created by BlueMatrix

Rating Definitions
Effective October 7, 2009, ThinkEquity LLC moved from a four-tier Buy/Accumulate/Source of Funds/Sell rating system to a three-tier
Buy/Hold/Sell system. The new ratings appear in our Distribution of Ratings, Firmwide chart. To request historical information, including
previously published reports or statistical information, please call: 866-288-8206, or write to: Director of Research, ThinkEquity LLC, 600
Montgomery Street, San Francisco, California, 94111.

Buy: ThinkEquity expects the stock to generate positive risk-adjusted returns of more than 10% over the next 12 months. ThinkEquity
recommends initiating or increasing exposure to the stock.

Hold: ThinkEquity expects the stock to generate risk-adjusted returns of +/-10% over the next 12 months. ThinkEquity believes the stock
is fairly valued.

Sell: ThinkEquity expects the stock to generate negative risk-adjusted returns of more than 10% during the next 12 months. ThinkEquity
recommends decreasing exposure to the stock.

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 November 11, 2009
Company Report
Reported Results

Distribution of Ratings, Firmwide

ThinkEquity LLC

IB Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY [B] 119 65.70 9 7.56
HOLD [H] 56 30.90 2 3.57
SELL [S] 6 3.30 0 0.00

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