While the company started the year off well, it was forced to recall batteries it had produced for Fisker Automotive, and it was a very expensive recall. Additional losses followed.

Industry watchers say A123 has been hampered by more than the recall and losses, though. Some point to the company's production overcapacity and its inability to fire up its diversification strategy to get a serious foothold in the energy storage market.

A123 started out with a bang, raising $378 million in its initial public offering in 2009. It also received a $249 million grant as part of a federal program to develop advanced lithium-ion batteries, the Reuters report said.

That grant and A123's current condition are sure to renew criticisms of DOE's grant and loan guarantee programs for renewables and smart grid technologies, particularly in the wake of the bankruptcy filings of solar panel maker and loan guarantee recipient Solyndra in September of last year and Abound Solar late last month.

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But A123 appears to be optimistic. The company also said Friday it will raise around $9 million by selling shares to current institutional investors and expects to get another $30 million after it meets cash on hand requirements. The company also has said it anticipates a positive cash flow sometime in 2013, and that it will hire about 400 new employees to meet growing demand in other business lines.

And its introduction of a new lithium-ion battery technology, the Nanophosphate EXTâ„¢, last month may help. The company says the new battery is lighter, longer-lasting and doesn't require a heating or cooling system.

But the announcement is still bad news for a sector that has already been struggling.

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