On April 6th, Chrysler LLC announced the creation of a strategic alliance whereby A123 Systems, Inc. will become a primary battery supplier for Chrysler's planned line of plug-in electric vehicles. This is a huge step toward rebuilding America's domestic battery manufacturing infrastructure and both companies should be congratulated. The next steps I see in my murky crystal ball are finalization of A123's pending IPO coupled with an announcement that A123's $1.8 billion loan request under the DOE's Advanced Technology Vehicle Manufacturing Program has been approved. If the foundation has been properly laid, it will all come together very quickly.

I've been following A123 since it first filed its SEC registration statement. While the IPO was delayed by last fall's market implosion, its team stayed the course and announced plans to build a $2.3 billion battery manufacturing facility in early January. To help pay for the planned facility, A123 applied for a $1.8 billion loan under the DOE's Advanced Vehicle Technology Program. In an earlier article that focused on the ATVM loan requests from A123, Ener1 (HEV), Tesla Motors and Integrity Automotive, I questioned how those requests could be approved without proof that the applicants would have willing buyers for their products. Yesterday's announcement provides a clearer picture of the negotiations that have been going on behind the scenes for months.

Thirty years ago, Michael Milken popularized the use of letters that said Drexel Burnham Lambert was "highly confident" financing could be arranged on specified terms if the underlying business transaction could be negotiated. These letters then formed the basis for negotiations between sellers, bankers and other necessary parties. My guess is that A123 and Chrysler have used the same mechanism quite effectively. If I'm right, the Chrysler release is just the first piece falling into place and the others will quickly follow.

From a securities regulatory perspective, A123 is almost done with its IPO filings. The registration statement went through three rounds of staff review and comment last year and was basically ready to go by late November. Updating the registration statement to include year-end financial information and disclose the terms of the agreement with Chrysler and the terms that have presumably been negotiated with the DOE should be fairly simple. So the only critical timing issues seem to be a final DOE decision, a registration statement amendment and a road show.

This is great news for the energy storage sector because like I said last August, there is nothing like a high-profile IPO road show to draw market attention to energy storage in a new way and mark the beginning of a major upward trend in a basic industry that's been undervalued for years. It should be a fun spring after a dismally hard winter.

In addition to the visibility boost I think the Chrysler – A123 alliance will bring to the storage sector, there may well be a second tier of good news for other manufacturers of energy storage devices. The ATVM program allocated $22.5 billion to major manufacturers and set aside another $2.5 billion for loans to "small automobile and component manufacturers" that have fewer than 500 employees. While I originally questioned whether A123's loan request was part of the large manufacturer allocation or the small manufacturer set aside, it's now clear that A123 has been joined at the hip with Chrysler for months. Therefore, I think it's safe to assume that the $2.5 billion set-aside for small manufacturers will remain intact. While I remain skeptical about how the small company applicants will be able to meet the stringent business viability requirements I discussed in my earlier article on the ATVM loan program, it is entirely possible that similar behind the scenes negotiations are already in process on other ATVM loan requests.

While the Chrysler – A123 alliance will almost certainly spark a tidal wave of interest in the energy storage sector, I think it's important for investors to remember that the best opportunities are often found in the least glamorous stocks. The energy storage sector is a target rich environment that does not have a single ‘silver bullet’ technological solution. The root causes of the challenge include:

• Storage needs that range from watt hours to megawatt hours or even gigawatt hours;
• Discharge needs that range from seconds to hours or even days;
• Cycling rates that range from infrequent (e.g. back-up power) to intense (e.g. recuperative braking);
• Cycle depths that range from very shallow (e.g. engine starting) to very deep (e.g. fork lifts);
• Technological improvements that are usually incremental gains instead of disruptive advances;
• Products that require huge inputs of high value or exotic raw materials;
• The need to carefully analyze costs and benefits for each potential storage application; and
• The sheer immensity of the current and potential market for energy storage products.