A U.S. battery bubble could create carnage in greentech.

Dotcom boom was followed by dotcom bust. Housing boom was followed by housing bust. And now here we are, recovering from a financial crisis, with idle money that needs somewhere to go. And that somewhere looks like greentech—which could easily become our next investment bubble, if it hasn’t already. Nowhere is this clearer than in the rush to turn batteries for a nonexistent fleet of electric cars into gold.

Warren Buffett got in early, taking a stake in Chinese battery maker BYD, which is trying to transform itself into a leading automaker in the developing world. This swells the Asian battery bubble—but that bubble may be coming to America, home to startups and a few large players after hunks of what they think will be a huge pie. E.V.s can’t go without lithium-ion batteries, which provide the ideal combination of power capacity and light weight. But if the bubble bursts (and they always do), it will create carnage in a nascent industry—and sabotage the dream that the greentech economy will be led by brilliant engineering.

Want an example? How about a technologically ultra-earnest startup that hails from the Land of the Terribly Smart Person? Earlier this month, a battery company based in Massachusetts, with ties to MIT and backing from General Electric (GE), launched an IPO that thrilled the pinstripes off Wall Street. A123 Systems (AONE) priced its offering at $13.50 per share and gained more than 50 percent in its first day on the Nasdaq. It briefly threatened $30 a share, making its market cap $2 billion. This is all speculative lucre, of course, minted on the gossamer wings of hope and the dark flappings of pure cynicism. Since the startup began in 2001, A123 has made very little money—and lost nearly all of it. It needed greentech buzz to achieve a price to stay alive.

The race is now on to handicap the major players in the advanced-battery space. The usual suspects were in on the A123 IPO: Goldman Sachs (GS) and Morgan Stanley (MS) underwrote the offering. The Department of Energy has also thrown in a quarter of a million, after putting half a billion into two electric-car startups, Tesla Motors and Fisker Automotive. Other battery makers want in on this action. EnerDel has received DOE money, an imprimatur of viability that has raised the values of its parent company Ener1 (HEV) significantly this year. Another maker, Boston Power, didn’t win DOE funds, which may have taken it out of the bubble game.

Someone will emerge as the U.S. leader in this field, which is why A123’s offering, and the ensuing spike in its valuation, was so captivating. The expectation for A123 is that its advanced lithium-ion battery designs will find widespread application when electric cars become common on American roadways. There really is no E.V. market without sophisticated new batteries that can deliver range and performance on a par with existing gas-powered and hybrid gas-electric cars. At the moment, there’s concern that Asian companies have jumped ahead of the United States, which will lead to a future in which we’re as dependent on Asian batteries as we are on Middle Eastern oil.

Still, early investors are banking on major returns when the E.V. market comes on line. But estimates of the potential size of the global battery market vary widely and shouldn’t be trusted when connected with events like A123’s IPO. The Street.com, which has been critical of A123’s IPO, quotes research that says the global lithium-ion market could be almost $80 million by 2020. But Deutsche Bank estimates the market at only $30 billion to 40 billion by then. Other estimates put it at less than $5 billion by 2015. Now it’s about a billion—or, viewed another way, half of A123’s market cap in the first week of October. And if electric cars don’t take off—if they achieve only 5 percent to 10 percent market penetration over the next few decades, rather than 20 percent—then the battery market will languish.