Advanced battery firm A123Systems, which maintains a research and government solutions operation in Ann Arbor, is trailing its competitors in the emerging market for battery production contracts, an industry expert told Bloomberg.

A123 CEO David Vieau told investors this week that the firm had dropped a battery contract with Chrysler due to the project's "diminished" size. But A123 said it had reached a deal with another automaker for a different production contract and is making progress on contracts in China.

"A123's partner momentum is strong and growing," Vieau said in a statement.

But A123 needs to make strategic improvements to beat competitors like Johnson Controls and LG Chem, which are building battery plants in Holland, Northville-based IHS Automotive analyst Aaron Bragman told Bloomberg.

“Other suppliers are having much more volume, they’re bringing costs down,” Bragman said. “A123 is kind of behind the game on this.” 

The company's other contracts include companies like California electric vehicle startup Fisker Automotive.

A123, which is based in Massachusetts but plans to locate most of its operations in Michigan, also reported a second quarter net loss of $34.2 million, up from $21.9 million a year ago.

A123 established its Ann Arbor operation in 2006 by acquiring advanced materials firm T/J Technologies, which was founded by U-M engineering professor Levi Thompson and his wife, entrepreneur Maria Thompson, in the early 1990s.

Another analyst for IHS, Eric Fedewa, told the Boston Globe that A123 "has excellent technology" and can flourish.

“The future of vehicle efficiency is about electrification or further electrification of vehicles,’’ Fedewa told the Globe. “So the market is open for them.’’

A123, which completed a high-profile initial public offering in September, plans to hire thousands of workers for a new plant in Livonia. The company is officially sticking to those plans for now.

Battery companies face enormous challenges in driving down the cost of lithium-ion technology and improving the reliability. Experts also disagree about the rate at which the electric vehicles will become affordable for the common consumer -- a challenge that hinges almost exclusively on cost reductions of lithium-ion batteries.

A123 announced plans this week to spin off a new "flow battery" startup company called 24M Technologies, several news outlets reported. The startup reportedly is developing a new technology for use in energy storage for electrical grid applications.

"Vieau was cagey on technical details but said the technology was developed at A123 Systems and improved at the Massachusetts Institute of Technology, where founder Yet-Ming Chiang developed the nanomaterial research which became the basis for A123 Systems' batteries," CNET reported.

Meg O'Leary, a spokeswoman for 24M, told AnnArbor.com in an e-mail that the company would be based in Boston.

Les Alexander, general manager of A123Systems' government solutions group in Ann Arbor, said 24M would not affect the company's Ann Arbor presence.

Contact AnnArbor.com's Nathan Bomey at (734) 623-2587 or nathanbomey@annarbor.com. You can also follow him on Twitter or subscribe to AnnArbor.com's newsletters.