A few days after A123 went public in the fall of 2009, the value of the company’s stock nearly doubled as investors rushed to get a piece of one of the hottest clean-tech companies. The company boasted advanced lithium-ion battery technology, developed at MIT, that promised to popularize electric cars by making batteries more powerful, safer, and longer-lasting.

Things could not have looked better. Prior to the initial public offering, A123 had raised over $350 million in private funding. In the months leading up to the IPO, it announced it had been offered $100 million in refundable tax credits from the Michigan Economic Development Corporation and a $250 million federal grant as part of the Recovery Act of 2009. The IPO raised nearly $400 million, bringing total funding for the company to more than $1 billion. A123 had factories in Asia capable of producing millions of batteries per year, and within a year it would open what it called the largest lithium-ion battery factory in the United States, in Livonia, Michigan.

Three years later, A123’s situation looks very different. Its stock value has fallen dramatically, depressed by ever-increasing financial losses. This week it reached a low of 82 cents a share, down from $25.77 shortly after its IPO. The company loses money on every battery it sells, and it’s desperate for more capital to stay afloat. Its most recent earnings statement included a warning that the company might not survive.

What happened to one of clean tech’s brightest stars? Part of A123’s problems are specific to the company. A123 has signed dozens of production contracts and supply agreements, but its current problems are partly due to the fact that it has relied heavily on just one customer, Fisker, for a large part of its revenue. When Fisker failed to bring its Karma sedan to market in time, it cut back orders for batteries, and A123 was forced to lay off workers and shut down some of the production at its plant in Livonia. Then, in March, A123 announced that in its rush to scale up production for Fisker (before Fisker cut its orders), it had produced some defective battery cells, leading to a massive recall and replacement program.

But A123’s problems also reflect the challenges facing many startups in the highly competitive energy markets. Not only is it expensive to scale-up and commercialize new technologies and manufacture energy-related products—A123 has spent well over $300 million on equipment and other capital expenses alone over the last three and a half years—it is also risky. Like some other battery makers, it is struggling with a difficult market in which it can’t charge enough for its batteries, a situation that can’t be helped by its current oversupply of manufacturing capacity. As a result, it loses money on every battery it sells. Andrea James, an analyst for Dougherty, estimates that A123 spends $1.57 for every $1 in revenue it gets from sales to Fisker.

A123 says it can become profitable eventually, if it can raise enough money to keep going until supply contracts kick in over the next couple of years. It says that will allow it to get to the volumes it needs to achieve to take advantage of economies of scale. James estimates it needs to sell nearly 50,000 electric-vehicle battery packs a year, or more than a tenfold increase over last year’s sales. (She adds that the company must also make technical advances to become profitable.)

But reaching the needed volume could prove difficult. A123 has signed contracts to supply batteries for several vehicles over the next few years, including one with GM for its upcoming Spark. But it’s not clear how well the new vehicles will sell—EV sales so far have been disappointing—or whether A123 can raise enough money to stay afloat long enough. It’s also not clear whether A123 will hold onto these customers. Automakers need to be able to count on a company being around for many years to fulfill warranty obligations, and A123’s financial troubles could scare some of them off.

“A123 has a very impressive battery system,” says Jeff Dahn, professor of physics and chemistry at Dalhousie University. “It can provide very high power, and it works really well at low temperature. But unfortunately, it doesn’t have all the ingredients that a successful lithium-ion battery technology needs to have,” he says. In particular, he says, A123’s battery lacks a low cost per kilowatt-hour of energy storage.

A123 may yet survive. To hedge its bets, A123 is drumming up business in other markets. For example, it’s selling batteries to help stabilize the electrical grid. But the market for grid batteries is also uncertain.

EV sales have been sluggish because they’re expensive, in some cases twice as costly as their gas-fueled equivalents. Batteries—which sell for over $10,000—are one of the biggest reasons for that high cost, even though automakers are buying them for less than it costs to make them. A123 talks about lowering its costs, but this may not do much to make electric vehicles cheaper. It will just help A123’s business by allowing it to make money on what it sells. Those hoping for a revolutionary technology that will make electric vehicles affordable may need to look elsewhere.