The development of Nanophosphate EXT, as the technology is called, could potentially increase the adoption of the struggling company's rechargeable batteries, analysts said.

Shares of the company shot up 61 percent to $1.67 on Tuesday on the Nasdaq. Nearly 26 million shares of the company were traded by 1730 GMT, 17 times their ten-day average volume.

A123 said the ability to work in a wider range of temperatures and the lower costs will create new opportunities for its products in the transportation and telecommunications markets.

The high cost of lithium ion batteries has held back their large-scale adoption.

The heating or cooling systems account for 10 to 20 percent of the total cost of the lithium ion battery, said Stifel Nicolaus analyst Jeff Osborne, citing the Electric Power Research Institute.

"A123 has struggled to-date to execute as a volume manufacturer and make the significant reductions in its manufacturing cost structure that will allow the company to sell its products at a profit," Osborne said.

The company's announcement comes just days after it said there was "substantial doubt" about its viability as a business and warned of steep losses due to the recall of defective batteries.

A123, which developed as a start-up at the Massachusetts Institute of Technology, makes battery for Fisker Karma, the BMW hybrid 3- and 5-Series cars and GM's all-electric Chevy Spark due in 2013.

The company plans to begin production of batteries based on the new technology in the first of half of 2013.

BIGGER ISSUES

Though the new technology was a positive for the company, its financial position continued to be a cause for concern, said Needham analyst Michael Lew.

"They have to sell more products. And they cannot afford to stumble again, like the quality issues in the past," Lew said.

Stifel analyst Osborne said the company will need to raise an additional $75 million by the fourth quarter of 2012 and another $200 million in 2013 to fund its ongoing operations.

"Funding remains the biggest risk to A123's equity," said Osborne.

A123 stock is down about 96 percent from the $28 range it used to trade at in 2009. That year, A123 was given a $249 million grant by the Obama administration, and it went public.

(Reporting by A. Ananthalakshmi in Bangalore; Editing by Sreejiraj Eluvangal)

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