Watch Energy Conversion Devices as Oil Rebounds

Energy Conversion Devices (ENER) is a unique company that develops both solar panels and rechargable NiHM batteries for consumers and the auto industry. Because of low oil prices, I am not surprised that the solar sector has not had as huge a run as the mining/raw materials sector is doing, including Freeport McMoran (FCX), Cemex (CX), Cliffs Natural Resources (CLF), and Alpha Natural Resources (ANR). However when the sector takes off, the move will be vicious.

The Obama infrastructure plan's big focus is renewable energy ($150B for the next 10 years), and I am confident that the solar sector will take off any time before the January inauguration as the new president's commitment to renewable energy is unprecedented. Maybe a TV interview of the president elect will trigger the rally. Having said that, I am interested in Energy Conversion Devices for the following reasons:

1. Oil is rebounding from its low, and it should continue as OPEC aims to cut production by at least 2 million barrels. The OPEC target of oil is $75 based on an earlier comment from Saudi Arabia (see link). This time they are going to make it happen because the industry simply can not survive with oil prices at $40.
2. Energy Conversion Devices provides thin film technology that has lower costs compared to the conventional polyslicon technology. The only current competitor so far is First Solar (FSLR). Here is what gives ENER an advantage over FSLR: the conversion efficiency. Based on information from the websites of the two companies, ENER's uni-solar PV panel has efficiency of 12%, while FSLR's TdCe solar cells has 10.8% (link). A startup company, Ascent Solar Technology, also reported 9.2% efficiency for its flexible Copper, Indium, Gallium, Selenide (CIGS) monolithically integrated modules, and is not ready for production. So ENER has a clear leading edge technology.
3. 3. The Obama team has been promoting a clean car plan to develop battery driven/high efficiency cars. Apparently Energy Conversion Devices' NiHM battery technolgy is a good candidate. According to the company, "Every major NiMH battery manufacturer is using licensed Ovonic technology" (link). Customers include Sanyo Electric Co (SANYY.PK), Matsushita (MC), Samsung, Canon (CAJ), etc. The company also has Metal Hydride Fuel Cell technology for next generation hybrid automobiles.
4. Energy Conversion Devices reported strong Q1 earnings back in November, and reaffirmed revenue guidance of full year 2009 between $450M and $485M, while the analysts consensus is $459M.

Disclosure: Long FSLR.

Comments

[leh:]

Excellent call. ENER is indeed positioned perfectly for an Obama green rally, which has to be right around the corner, especially if oil starts rising.
Affordable HEV lithium batteries are still 2-3 years away, and ENER has a lock on reliable large cell NIMH.

2008 Dec 11 08:51 AM

[NOWHEREMAN:]

The biggest customer for clean initiatives is California which needs $15 Billion to survive a shutdown. All of the other non oil producing states are going hat in hand to Congress for Aid.

Considering the scope of the problems, $15 Billion will not help all of the Green Initiatives in the pipeline.

Obama is not funding specific Alt. Energy areas. That $15 Billion annually is for R&D. Please stand in line.

What I find really interesting about your Article is the acknowledgement that $70+ oil is a necessary ingredient for your selection. IMHO

2008 Dec 11 08:59 AM

[From the Ar...:]

You are totally misinformed about ECD, the company, and its products.

Point-by-point:

1. We will see

2. ECD has many, many larger thin-film competitors with lower costs of manufacturing and better efficiencies.

Unisolar's efficiency is obviously not 12% as you claim, but just 1/2 of that. Anyone who can do basic arithmetic can look at the spec sheet of Unisolar's main product, PVL-136, and see that the panel-level efficiency is just 6.3% (rated watts divided by the area in square meters, and the divide by 10). Unisolar's capacity is just 120MWs and costs of manufacturing are about $2.00 per Watt.

For comparison, First Solar's FS-275 is 10.4% efficient and that company has more than 4x Unisolar's capacity and its cost of manufacturing is less than $1.20 per Watt.

AMAT's thin-film customers have about 7.9% efficiency, and are opening gigawatts of production capacity with cost of manufacturing about $1.60 per Watt or less.

Sharp, who just started production from their 160MW thin-film plan, has 8.5% efficiency (panel NA901) and cost of manufacturing comparable to AMAT's customers.

3. ECD's NiMH is overrated. Cobasys, their JV with Chevron, produced leaking batteries that caused the total recall of GM's 2007 mild hybrid production - no wonder GM is in dire need of a bail-out. GM now plans their 2010 mild hybrids to have li-ion batteries instead, from Hitachi.

4. ECD's reported numbers are questionable. There are unexplained discrepancies in the December 10Q, the 10K, and the latest 10Q, related to segment revenue reporting, inventories/costs, and "other assets." The company has been unable to explain why only less than 300KW worth of installations with their product have been reserved in California this year according to the CSI, when ECD's management continues to insist that about 20% of their production is shipped for installations in North America.

2008 Dec 11 09:40 AM

[NOWHEREMAN:]

I went to ENER's website, took a look at the Battery Tech.

How do their products compete? Are they The low cost producer? This economic environment will not favor relatively high cost products.

I guess I just don't get it. Electronic retailers are getting slamdunked and Autos? haven't you been following the news on that sector. Where is the growth?

IMHO

2008 Dec 11 10:20 AM

[Road Runner:]

Just seems like you are singing the same old song about the bright future of solar. We all know the song. Sure, the 10-year future is bright, but what is going to happen to oil, natural gas, and solar in the next 1 to 3 years is a complete guessing game. I avidly listen to CNBC, and there is no solid consensus on where the world economy (and thus oil prices) are going. Uncertainty is the game now.

2008 Dec 11 10:56 AM

[Nick Gogerty:]

The US receives approximately 1% of its electricity generation from Oil and most of this is in Hawaii. The oil - electricity correlation is low as most electricity is from coal and natural gas.

www.eia.doe.gov/cneaf/...

2008 Dec 11 11:40 AM

[User 317543:]

Solid Hydrogen at room temperatures? Check! Thanks ECD. Now who has a good Fuel Cell?

2008 Dec 11 11:52 AM

[hearterinvest:]

Never chase a stock, ENER will pull back around $20-21, then it is your chance. I expect it will happen in the next couple of days.

2008 Dec 11 12:12 PM

[Kelvin Schulle:]

never chase ENER, wait until it pull back to $20-21, then your chance.

2008 Dec 11 12:14 PM

[PAPO:]

What about the part ownership in Ovonyx.... 39 pct i believe
the future of memory chips

ovonyx.com/press/in200...

2008 Dec 12 10:51 AM

[From the Ar...:]

RAPO: ENER's stake in Ovonyx is 30.3% on a fully diluted basis. The CEO of Ovonyx has been caught misleading ENER's shareholders on at least two occasions regarding the status and commercialization prospects of the memory chips. Phase change memory is a 40-year-old vaporware technology - it will never be commercialized in volume.

2008 Dec 12 11:03 AM

[User 302902:]

so what all you negative bloggers on ener-----whats really important is that ener makes up 4.93 % of tan : claymore /mac global solar energy index etf ...also 4.22 % of the ardour solar energy index---as these indexes go up sp will ener ! hahahahahahahahaha

2008 Dec 12 10:15 PM

[From the Ar...:]

User 302902: You still laughing? I don't hear you...

2008 Dec 15 03:43 PM