Alternative Energy Storage: Cheap Will Beat Cool 37 comments
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I’m a Mac user and have been for over 19 years. More accurately, I’m a serial early adopter of new technology. I bought Sharp’s first portable calculator in 1971; bought word processing, laser printing, videotape, compact disks and satellite TV in the early ‘80s; bought a cell phone and established an Internet domain in the early ‘90s; and had established a paperless office and a global practice by the late ‘90s. If it was new and cutting edge, I had to have it first regardless of the cost. So far, the only technical temptations I’ve been able to resist are an iPhone, because I don’t want that much connectivity, and an EV, because I don’t believe the available products are good enough. But I can pretty much guarantee that I’ll have an EV within a couple years, or as soon as somebody comes up with a reasonable solution that fits my relatively modest transportation needs.
I am not what most people would classify as a regular guy. But I have to admit that my perverse insistence on being an early adopter of the latest and best in cutting edge technology has more often than not led to product purchases and investment choices that ranged from disastrous to merely suboptimal.
My first portable calculator was a Sharp LE-8, a 1.6-pound four-function marvel that cost me about $350 and came close to costing me a wife. Within a couple years, it was a dinosaur that I replaced with an HP business calculator that did far more and cost about $250 less. The experience taught me nothing.
My first videotape was Betamax, a Sony product that was superior to but more expensive than the VHS alternative. Within a couple years after I bought the best technology the mass market chose the cheapest technology. It wasn’t long before Beta format tapes were hard to come by and after a few years I had to accept the fact that cheaper had beaten better. So I jettisoned my Betamax and joined the VHS world until DVD came along.
My first word processor was Xerox 860 system that cost about $14,000 in 1980. It offered a touch pad pointing device, full-page document views and the only black and white WYSIWYG display in the industry. It is my understanding that the Xerox (XRX) 860 was a big part of the inspiration for subsequent innovations by Apple, but those details are ancient history. I gave up my Xerox 860 when I changed jobs, but missed it for years.
I almost had a comparable experience with Apple (AAPL), which has always offered a superior operating system for professionals who simply want a complete set of tools that works. I moved from the PC world to the Mac world in September 1989 because I represented an authorized Mac software developer in connection with its IPO and was able to buy a top-end system at developer prices. But despite the technical superiority of the Apple products, the mass market chose the cheaper Microsoft (MSFT) - Intel (INTC) alternative.
Within a few years, Mac programs were hard to come by and were it not for software support from Microsoft and a huge bailout investment from Bill Gates in 1996, Apple might well have failed. Now that Steve Jobs is back at the helm and the price discrepancies between high end products have largely evaporated, Apple is able to command a modest premium for ultra-cool. But it clearly understands that the cool premium must remain modest or the mass market will go to the cheaper alternative.
Since September of 1989, both Microsoft and Apple have become huge and highly successful companies. But the following table provides an instructive glimpse of how a $10,000 investment in each of these companies would have fared over the 19 years that I’ve been a devoted Mac user.
Microsoft Corporation | Apple Computer | ||||||
Price | Shares | Value | Price | Shares | Value | ||
September 1989 | $0.47 | 21,276.6 | $10,000 | $11.13 | 898.9 | $10,000 | |
September 1994 | $3.50 | 21,276.6 | $74,468 | $8.42 | 898.9 | $7,569 | |
September 1999 | $45.28 | 21,276.6 | $963,404 | $15.83 | 898.9 | $14,229 | |
September 2004 | $27.65 | 21,276.6 | $588,298 | $19.38 | 898.9 | $17,416 | |
September 2008 | $26.69 | 21,276.6 | $567,872 | $113.66 | 898.9 | $102,166 | |
The point of all this history is that a 1989 investment in the best available computer technology would have been far less rewarding than an investment in the best affordable computer technology. So the question for today’s energy sector investors is, “Do you honestly believe it will be different this time around?”
For several months I’ve been writing about a fundamental analytical disconnect in the energy storage sector. My earlier articles have focused primarily on macro developments in the energy storage sector how various classes of storage technologies have developed in the past and are expected to develop in the future. Now that most of the November SEC filings are available and we have current data for all of the battery producers and developers except China BAK (CBAK), it may be helpful to compare how the various companies stack up based on the numbers they’ve just filed with the SEC. To enhance comparability, sales and pre-tax operating income have been annualized based on reported year-to-date results and all amounts other than share prices are expressed in thousands.
(Click to enlarge)
Though sorely tempted, I will resist an almost overwhelming urge to comment on individual companies in the Cool Chemistry group other than to observe that ULBI, ABAT and HPJ are far more financially stable and reasonably priced than some of their gravity-defying peers. I will point out, however, that the Cool Chemistry group has only a small fraction of the assets, equity and annualized sales of the Cheap Chemistry group but it carries a combined market capitalization that is 2.25 times greater.
Frankly, I have a hard time understanding how any rational investor could believe that the valuation disparity between the Cool Chemistry group and the Cheap Chemistry group is justifiable under any reasonable growth scenario. Best affordable technology always wins out over best available technology. It’s been that way since the dawn of time and it won’t be any different over the next few years as annual revenues in the energy storage sector soar from $30 billion to $100 billion. Every company in the energy storage sector will likely see tremendous growth, but it will take a very long time for growth in the Cool Chemistry group to justify current market premiums.
Mark Twain quipped, “History doesn’t repeat itself, but it does rhyme.” Henry Ford didn’t make the best cars; he just made the cheapest cars. Microsoft didn’t make the best operating system; it just made the cheapest operating system. Xerox invented and then failed to commercialize more cool technologies than I can even begin to recount. Additional examples of the fundamental economic reality that price always trumps cool are far too numerous to mention.
When you cut through the alternative energy hype and drill down to business fundamentals, I have to believe that investors who want Microsoft class performance in the energy storage sector should be investing in the Cheap Chemistry group.
Disclosure: Author holds a long position in Axion Power International (AXPW.OB) and is a former director of that company.
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This article has 37 comments:
Thanks for the enjoyable read...
I have been an Apple fan since 1979 having been an Apple reseller and a Macintosh developer. I wouldn't touch a Windoze machine. But when it comes to buying Mac, I tend to buy the low end products. I'm writing this on an iBook G4 with the now obsolete PPC chip.
An OS is not quite a commodity. There is a lot of personal investment in learning the use of an interface. This is why a technology to be disruptive must be ten times cheaper than the technology being disrupted according to Clayton Christensen. But energy is essentially fungible so expensive makes no sense except for very special uses like maybe a Mars orbiter.
I agree with the cheap chemistry proposition. I have positions in ABAT and CBAT.
Thanks for the kind comments so far.
my old G3 tower (OS9.1) ran both msword & wordperfect as well as a buncha other stuff. it caanot run safari or firefox.
since no wordperfect utility is available for OSX i am stuck with some wordperfect files that can't be accessed. this is one type of obsolescence, software makers only cater to ibm compatibles.
> jack
Nice article as usual. Your last article was the best I have seen you write and I appreciate the global overview it gave. You might mention in this and subsequent articles that the storage competitors are not all public companies.
I listened to John Granville on the recent conference call, as I am sure you did as well, and I was pleased to hear how up beat he sounded. I think things are happening nicely there. However, I believe it is still too soon to invest due to the large number of shares outstanding and the need to get a huge buildup in sales before the share value goes up appreciably.
Thanks again for your efforts and your articles.
I think more progress is necessary, but I don't think the market will let the stock stay at current levels once the revenue starts ramping up.
online.wsj.com/article...
Already announced, yadda yadda.
I don't know what it brings to AMD for its future, but believe Intel has a challenge here.
Yes, my next new car will be fully electric and with no PHEV or extended range gimmicks. Yes, I will convert my old cars to electricity, especially the light ones. Yes, my next laptop will still be an Apple, because it always works! When it won't anymore, the early adopter in me will go to another system. Yes, my next residence will be solar and wind friendly. If I can pitch a deep enough hole, I will use geo-thermic energy. I will continue using products that work and have my friends see them as the reality they are, that saves me money in the long run, work and are good fir the environment. Simple, no?
At about 3412 BTUs/KWh.
Flipping the middle finger at the laws of thermodynamics may not be a good idea?
www.prosefights.org/nm...
"At about 3412 BTUs/KWh. "
More than 3412 BTUs/KWh.
Second law of thermodymics.
www.prosefights.org/nm...
Yes, spasitic it is. A perfect indicator to how insane things have become is that Star Bucks is now worth more cap-wise than GM. And Star Bucks I would not invest in with a five-to-one put using Monopoly money.
Another is how Bidu crashed 25% today, on spare, almost spam-like news. How in the hell can that happen? This stock market is 'droiding south on paranoia.
And this Energy Storage Sector, which I think will be right behind commodoties when things turn up, is equally insane.
But here's what bothers me about this sector...just maybe, John Peterson is right about the lithium commodity debate. I read today a Forbes article that still did not undress whether or not there is enough, as I would put it, "easily convertible" lithium in the world to make regular joe-like cars go.
This deep, this close, this many auto manufacturers who are about to infuse bilions into lithium-ion vehicles is ripe for investment. But...
Sidebar: About this insane market: to those regular readers that never comment here, I did once say somewhat proudly that I bought exide (XIDE) at $4.20 a share. Sold that that for a profit. And now what, a week plus later, it's $3.20?
All this makes me wonder why I read so much about the kilo watt hours given forth by any battery...
Worldwide, all stock markets are topsy turvy. This adrenelin-crazed paranoid (experimenting) day trader is hugely bullish on the Energy Storage Sector. There is so much money on the sidelines right now, including most of mine. I recognize there are multiples, and the cool part is that the multiples keep increasing. But just when do I/we commit?
My gut tells me that the DOW will test and test again the bottom. I read all day. The experts say that the bottom has been tested three times and that that means the bottom is in. The whole world is pumping money into the global economy, and yet the Russian stock market can't stay open for two minutes. What I see, or better yet, feel, is to wait.
I just hope my Exide goes above $3.20.
CSHG sells the bulk of its processed materials to a small number of Chinese battery producers, but has other potential customers offshore.
The stock is currently trading at slightly less than book value and has a P/E ratio of about 3.
I don't know enough about their business to offer advice, but nothing jumped out that would terrify me, other than the economic downturn that will likely reduce sales and profitability over the short term.
On balance, I think that an investment in a materials producer that sells materials to several li-ion battery producers offers more diversity than an investment in a single battery producer. It also avoids a number of potential products liability issues that are more severe at the battery producer than they are at the materials processing level.
Thx in advance!
The JCI-SAFT joint venture you mentioned will provide batteries for the new S Class Mercedes hybrids. So it's clearly worth watching if you are willing to do the extra diligence work.
On Dec 07 03:51 AM John Petersen wrote:
> SAFT is a wonderful company but it only trades on the Pink Sheets
> in the US. Since the principal market for SAFT is Euronext Paris
> and it can be very hard to find comparable performance figures and
> make all the currency conversion adjustments, I generally omit SAFT
> from my list.
>
> The JCI-SAFT joint venture you mentioned will provide batteries for
> the new S Class Mercedes hybrids. So it's clearly worth watching
> if you are willing to do the extra diligence work.
He likes to use math and market cap charts to prove his thesis, but he conveniently misses the fact that somewhere out there is a young genius who will turn his tidy little world completely upside down one of these days. That kid might even be related to John and only be in high school right now but he's out there, believe me, and when he comes on the scene, look out!
Even John knows this is true. And, while I do agreee with his short-sighted investment advice, nobody strikes it rich playing the favorites as we can attest to by the running of the 135th Kentucky Derby yesterday....lol!.
Don Harmon