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A123 Gets a Much Needed Boost
CNBC.com | August 11, 2011 | 02:55 PM EDT

This is one of those days when the folks at A123 can breathe a little easier. The company that makes battery cells and components for electric powered cars is celebrating a new contract with General Motors and a rebound in it's stock price.

It's welcoming news in a market where almost all stocks have been hammered over the last week. Especially true, in the auto sector where there are plenty of questions about the demand for next generation vehicles.

The deal with General Motors is significant. While neither company will release the value of the agreement, A123 has agreed to supply battery technology for GM as it expands production of electric vehicles.

What's important is that this contract is not for the Chevy Volt. Instead it's for a new electric vehicle platform GM will launch in the U.S. GM hasn't said when that vehicle will be launched, but you can bet it won't be long until we hear exactly what the motor company has planned.

The most important point is that this is another step in the slow but steady development of electric and hybrid electric cars in the U.S. and that A123 will be a critical player in that development.

With the automakers agreeing to new Corporate Average Fuel Economy (CAFE) standards that will ratchet up mileage requirements to 54.5 by 2025, the push for fuel efficiency is just picking up speed. Electric and hybrid electric cars will be a part of how automakers achieve the CAFE standards. The focus right now is on the engineering and research into getting more power out of smaller and lighter batteries for those electric cars.

For A123 investors, it's been a rough year. The stock is down more than 60 percent as skeptics start to question how quickly the electric vehicle market will pay off. We're still a ways from seeing a huge ramp up in demand, but the GM contract with A123 shows there is progress.

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