Lithium Batteries Boom: Finding Value in the Automotive Sector

We may be on the cusp of a great global boom in the automotive industry. That may be hard to believe, given all the ink spilled on the troubles at the mossbacked mastodons known as GM (GM), Ford (F) and Chrysler. But there are reasons to believe something big is afoot here in the land of wheels. And the investment opportunities it opens up are surprising.

The first little nugget comes from The Economist, which points out that in 2008, for the first time ever, consumers in Brazil, Russia, India and China (the BRIC countries) bought more cars than U.S. consumers. The year, despite all its troubles, may still hit 59 million vehicle sales, an all-time record. By the end of this decade, which is not far off, China will pass the U.S. as the world’s largest auto market.

All that must give even the most gloomy mind reason to pause. It gets better, though. Yes, all those cars will need roads. But perhaps even more interesting is to think about what will power the cars of the future.

Someday, most of these new cars may be electric or hybrids. This is not some pie-in-the-sky vision. China - and the rest of the emerging markets - has an opportunity to leapfrog technologies here, just as it did with communications. China isn’t laying out miles and miles of phone lines. The country is going wireless. In the same way, don’t expect China to invest heaping piles of money in gas stations.

So reasons Alex Molinaroli of Johnson Controls (JCI), which makes car parts and specializes in battery technology. He thinks electric vehicles in China on a large scale could well happen before they do in the U.S. “They don’t have the legacy costs chasing them around,” he says, referring to America’s vast network of service stations and all that supports them.

Whether that happens or not is beside the main point. The bigger idea is that we’re moving into an era when electric cars are going to be a big part of the pie, rather than a novelty. It is only a matter of time. “Just about every manufacturer is now planning to launch vehicles with hybrid powertrains within the next few years,” reports The Economist. In these so-called hybrid electric vehicles (HEV), battery technology will play a big part. The battery market is hot right now.

The above chart “Battery Market Booms” shows the growth in the size of the rechargeable battery market by battery type over the years. In 2008, despite all the economic woes plaguing nearly everything, the market really took off.

A Key Resource in Batteries is Lithium

But there is another interesting material in the mix, too. And here we get to the surprising opportunity. If you look at that chart again, you’ll see lithium-ion batteries have come to dominate the market. In its last conference call, OM management said that “even with the recent global economic uncertainty, the lithium-ion battery market is expected to grow by 6-8% in 2009,” which is about half of the 2008 growth rate, but healthy, nonetheless.

Note it’s lithium-ion, not nickel, batteries. As HardAssetInvestor.com notes: “While calling the winner in the battle of the HEVs’ battery technologies is currently impossible, one thing is clear: The winning technology will be lithium based.”

The automobile will continue to be an important and highly prized product. The biggest markets for it will be emerging markets. And the fastest growing segments will be hybrids and electric cars. Rather than buy the manufacturers of these cars, or even the makers of the batteries, it may be more profitable to look at what goes in the batteries - lithium, for instance.

Comments

[John Lounsbury:]

For an interesting series of articles and many spirited comment streams, check out articles over the past several months by John Petersen on Seeking Alpha.

2008 Dec 20 01:41 AM

[John Adam:]

I get the idea that a large automotive led acid battery can store as much as 1-killowatt hours worth of power and weighs about 50lbs. Now I have read that the GM Volt battery weighs 400 lbs and stores about 16 kwh. Now the old led acid batteries with that capacity would weigh about 800 lbs. However these old batteries would probably cost about an eight as much and have no heating or other problems. They also can last a long time.

Now I see that NEW ADVANCED LEAD ACID BATTERIES have been designed with superior performance to current models and weigh and take up space at around one third to a quarter as much, www.fireflyenergy.com/... .

GM engineers may have become addicted to lithium. If Ford engineers actually do the math they may realize that they could easily buy better advanced lead acid batteries that are much better than lithium batteries. Lithium is also a much scarcer element than lead.

2008 Dec 20 06:16 PM

[22thoroughbred:]

There is a company called Aerovironment (AVAV) who was the company that made the battery for the 1st battery operated car many years ago, they still hold the patent and are working with both the domestic and foreign automakers...take a look avinc.com

2008 Dec 20 10:28 PM

[k9s-4-k8:]

Sorry, but as much as I would love to see electric cars, HEV's are more novelty than reality. What I mean is while we will produce more and more HEV's, battery technology sucks. Even lithium-ion battery technology is a miserable excuse for an automobile battery. 40 miles and the gasoline engine kicks in. How long before the 40 miles becomes 20 miles? The productive life of these batteries dwindles with recharges. How long before it has to be replaced? Then at what expense to replace? What happens to the value of HEV's should we actually see a true advancement of battery technology where 300 miles at highway speeds is possible? Probably not a great risk considering the glacial advancements in battery technologies. And what about the lithium-ion heat problem? Too much hype with a technology that isn't ready for prime time. Would rather see us move to biodiesel.

2008 Dec 21 03:46 AM