Li-ion Battery Manufacturers: The Bleeding Edge of Energy Storage Technology

As a lawyer, I’ve had the privilege of working with some of the finest scientific minds in the world. They all started with brilliant concepts and impressive laboratory results, but a substantial majority failed to create a viable business.

After countless clients that started well and ended up mired in a swamp, I’ve come to understand that technology is a two-edged sword. On the leading edge, developers of low cost technologies can build fortunes. On the bleeding edge, developers that can’t control their costs and manufacture competitive products often morph into the financial equivalent of a black hole. Sadly, I believe most current developers of advanced Li-ion batteries are on the bleeding edge of energy storage technology and are doomed to spend years, if not decades, hemorrhaging cash.

I frequently feel like Cassandra, the Greek princess who was given the gift of prophecy and then cursed so that no one would believe her. When I read reports about how an MIT researcher has developed a new material that will allow Li-ion batteries to recharge in seconds or how Japan’s national alternative energy development agency has targeted a 50% reduction in Li-ion battery costs over the next year, I don’t get excited over the mirage of progress.

Instead, I start asking buzz kill questions like “How much will these new materials add to the cost of a battery?” and “How can anybody reasonably target a 50% price reduction over the next year when the average has been 5% for the last 20 years?” The answers, of course, are “plenty” and “they can’t.” The stories are cheerleading and hype, not rigorous analysis; and we all know what happens when optimistic forecasts collide with immutable economic laws.

The fact is that everyone, including me, wants an easy, quick and painless solution to our growing energy dilemma. However wishes, hopes, dreams and desires can’t change the fact that until somebody overcomes the cost, performance, abuse tolerance and cycle-life issues that the DOE has analyzed in depth and I’ve discussed in earlier blogs, there will be no Li-ion solution for the average consumer’s energy storage needs. Progress is being made, but it’s an uphill battle where the goal is measured in miles and the progress is measured in feet.

Every time I mention the elephant in the living room, I’m inundated with comments suggesting that the data I’ve cited is old or unreliable. The contrary authority invariably says something like “Lyons said that most estimates put the near-future cost for battery manufacturing at $250-300 per kWh once economies of scale are ramped up” or points me to a Chinese website. The only response I can offer is balderdash! With annual revenues of several billion dollars, the Li-ion battery sector already has plenty of scale. What it lacks are meaningful potential economies.

Economies of scale are modest savings that can reduce per unit cost as a profitable business grows. They arise from factors like discounts on raw materials purchases, greater worker specialization, lower financing costs and reduced spending on ancillary items like research and development. For a more detailed discussion of the topic, see “What Are Economies of Scale?

An estimated 75% of the cost of a battery goes for raw materials. So unless you insist on believing in a commodity fairy that will slash raw materials costs despite rapidly escalating global demand, you can’t honestly believe that vaguely defined economies of scale will make insanely expensive products affordable. Even the happy talk articles like the most recent one from Japan merely serve to prove the point:

“NEDO also analyzed battery cost (not a cell but a battery pack) as of March 2009. It estimates that the cost is about ¥200,000/kWh (approx US$2,016/kWh) for both types of batteries.”

In January I published a comparative breakeven analysis for an EV-40 and an EV 100 using the $1,333 per kWh value for Li-ion batteries that I took from a July 2008 Sandia Laboratories report on its Solar Energy Grid Integration Systems – Energy Storage Program. That analysis showed that an EV-40 could not break even at gas prices of less than $3.70 and an EV-100 could not break even at gas prices of less than $9.20. Even if I use the latest happy-talk target out of Japan and give effect to the vainly anticipated battery price collapse, the breakeven points work out to $3.02 for an EV-40 and $7.54 for an EV-100. At those prices, there are only two classes of buyers, the emotionally committed and the mathematically challenged. This is not encouraging news in a recession.

When evaluating any company, the first thing I want to know is whether it can sell a product and earn a reasonable gross margin on the sale because without gross income net income is impossible. In general, high gross margins are wonderful things and low gross margins are very bad things.

The universe of publicly traded Li-ion battery manufacturers is small so there are not a large number of reliable data points. Nevertheless, I was able to do some digging through SEC filings and cobble together the following table that compares historical product sales, gross profit and gross margin data for five active Li-ion battery manufacturers (Click on the table for a PDF version).

From both a revenue growth and gross margin perspective, Advanced Battery (ABAT) has been an impressive performer and seems to be on the leading edge of Li-ion technologies. At the other end of the spectrum, Valence Technology (VLNC) and A123 Systems seem to be stuck on the bleeding edge. While Ener1 (HEV) and China BAK Battery (CBAK) have modest gross margins, their performance falls far short of leading edge; in fact, they’d be poor performers among the conventional battery manufacturers that I’ve identified in the following table.

Over the course of my career I’ve had substantial experience with both leading edge and bleeding edge companies. As a lawyer, I try to discourage potential clients from starting down a road that has a low chance of commercial success because life is short and dealing with disappointed investors is never pleasant. Once a project begins I carefully watch for signs that a client is tending away from the leading edge and toward the bleeding edge because an early failure is invariably easier to cope with than a client that lives on the bleeding edge for years. Factors I view as warning flags that a company is approaching the bleeding edge include:

Countertrend revenues	When companies like Ener1’s Korean subsidiary report revenue declines while their peers are reporting substantial revenue increases, I see yellow and orange flags.
Gross margins	High gross margins are usually a reliable indicator of a superior product and small gross margins can be tolerable in high volume industries, but negative margins are a red flag.
Debt financing	In the absence of a long and well-established earnings history, substantial debt is toxic and leading edge companies don’t have substantial liabilities to anyone.
Related party debt	A heavy reliance on insider financing is normal during the formative years, but when the insiders of public companies like Valence and Ener1 purchase secured debt instead of straight equity the risk to common stockholders skyrockets.
Idle factories	In the absence of a cogent explanation, idle factories are a red flag that the owner cannot manufacture and sell a commercially viable product. There are always opportunities for viable products and a manufacturer like Ener1 that can’t harvest the low hanging fruit will rarely succeed with more sophisticated customers.
Operating expenses	Leading edge companies like Advanced Battery aggressively control operating expenses at all levels, which permits them to take over 70% of their gross margin to the bottom line. Profligate spenders like Ener1, Valence and A123 are far closer to the bleeding edge.
Nosebleed valuations	When a market leader like Advanced Battery trades at 6.8 times earnings and has a market capitalization of $110 million, no reasonable investor can justify market capitalizations of $193 million or $483 million, respectively, for companies like Valence and Ener1 that have never even come close to reporting a profit.
PR perspective	Leading edge companies talk about events while bleeding edge companies publicize goals. What will happen if the DOE reviews A123’s $1.8 billion loan request or Ener1’s $480 million loan request and decides the requests don’t meet regulatory requirements?
Veiled hubris	New entrants in a technological field are almost never better at manufacturing and marketing than their entrenched competitors who offer comparable products. Li-titanate batteries from Ener1 may compete with Toshiba’s SCiB line, but they are unlikely to be demonstrably better or cheaper. Likewise Li-phosphate batteries from Valence and A123 may compete with products from BYD, but assuming competitive superiority without demonstrable proof is the pinnacle of veiled hubris.

On August 15, 2008, when the Dow [^DJI] was at 11,660 and the Ardour Global Index [^AGIGL] was at 3,370; I offered a short-list of pure play energy storage companies that were likely to benefit from an unprecedented surge in demand for manufactured energy storage devices that will be driven by cleantech, the sixth industrial revolution.

The intervening eight months have been a tough time as the Dow has collapsed to 7,401, a shocking 36.5% decline; and the Ardour Index has plummeted to 1,285, a breathtaking 62% plunge. As a group, my short list of pure play energy storage companies has tracked the Ardour Index and fallen an average of 60%. The following chart compares closing prices of those companies on August 15, 2008 with their closing prices on March 19, 2009.

Combined, the short list companies have a current market capitalization of $2.1 billion. As I previously reported, Federal grants for advanced battery manufacturing will inject $2 billion in new capital into the battery industry over the next two years and grants for electricity delivery and reliability projects are likely to bump that total by another $1 to $1.5 billion. Moreover, effectively unlimited debt financing will be available through an alphabet soup of DOE guaranteed loan programs. In combination, the likely impact on the energy storage sector is mind-boggling.

If one assumes that the DOE does not understand the difference between the leading edge and the bleeding edge and it decides to treat all applicants equally, there is a remote chance that the bleeding edge battery manufacturing companies will have sufficient resources to justify their current market capitalizations when the dust settles, but those market capitalizations are not likely to increase significantly from current nosebleed levels. Instead, the market performance is likely to come from companies that focus on their accomplishments rather than their goals.

At heart I’m an incurable optimist and I firmly believe that “In America we get up in the morning, we go to work and we solve our problems.” (From The Lost Constitution by William Martin). But our problems are not going to be solved by airbrushed centerfolds that thrive on the bleeding edge and promise simple and economically implausible solutions to incredibly complex problems.

Disclosure: Author holds a large long position in Axion Power International (AXPW.OB) and small long positions in Active Power (ACPW), Exide (XIDE), Enersys (ENS) and ZBB Energy (ZBB).

Comments

[jimp:]

Do you have any thoughts on buying mining company's that mine for Rare earth elements, Lynas corp for example?
If a large part of the cost of the battery comes from "raw" material, do you think SQM, lynas corp would be good investments? Thank you.

Mar 22 06:40 AM

[John Petersen:]

jimp, I try to stay away from discussing mining stocks, but the people who sold the blue jeans, shovels and food to the miners in the California gold rush had much more consistent results than the miners did. No matter where the battery industry goes, the raw materials suppliers will likely thrive as long as their reserves hold out. So I'd have a hard time criticizing companies like SQM.

Mar 22 06:46 AM

[jscilla:]

Damn, you are one tedious person. You call yourself an optimist, but
bash the future of LI ion, while supporting the old technology of
Pb acid. You caution people about investing in 'bleeding edge'
companies, yet you have a large holding in Axion, a money
losing company.

As an investor in ABAT I am tired of seeing articles about ABAT listed on Yahoo from Seeking Alpha, because I know that it is just another article by you.

Spare the world of your weekly rants. They don't help me or
anybody.

Mar 22 08:13 AM

[John Cordes:]

Once again nice analysis and cudos for also being literate, a bonus for your articles.

Now that ABAT has the electic bicycle business, do you think this synergy is a meaningful plus for their bottom line, and wouldn't it benefit practical R & D field testing of battery performance?

Mar 22 08:36 AM

[Alphameister:]

With a substantial position in ABAT, I approached your article with some trepidation.....only to be pleasantly surprised by your citation of ABAT as the leading edge in Li-ion technology. I wonder if jscilla read your post before commenting on it!

Mar 22 09:20 AM

[Alphameister:]

Just checked out your related holdings and will likely take a small stake in ACPW. Thanks for your insights.

Mar 22 09:29 AM

[Matt_the_Batt:]

with regard to the ongoing weakness of the US-Dollar, you should consider to take the European SAFT Batterie Group into account.

Mar 22 09:33 AM

[John Petersen:]

jscilla, going to the comment section of an article without reading it first is never a good idea. Today I had nothing but praise for ABAT and identified it as the only Li-ion company worth owning. But you were so interested in posting a rant that you didn't bother to read prior to condemnation.

John Cordes, I've always been impressed by ABAT's plans for electric bikes and scooters like the Veken. My issues come when people want to use exotic battery chemistries to power 3,000 pounds of steel at freeway speeds.

Matt, SAFT is a great company, but fundamental economics in Europe where gas prices are 2x to 3x your prices in the States make for a different business dynamic. I avoid talking about them because information is a bit more complicated to obtain and the currency translations can also be problematic. But any company that can partner with JCI for Mercedes Benz and ABB for utility applications is doing a lot of things right.

Mar 22 09:55 AM

[Mad Hedge F...:]

So where's it going to come from? Politicians, industrialists, and environmentalists who see battery powered vehicles as the wave of the future are overlooking the fact that 50% of the world supply of lithium comes from impoverished, landlocked Bolivia. This is a country that until now was best known for killing off famous foreigners (Che Guevara, Butch Cassidy and the Sundance Kid), and being the source of a new form a venereal disease. Lithium ion batteries are four times more efficient than the current generation of nickel cadmium batteries, and are essential for electric cars to finally become economically viable. But now that the country finally has something the world wants, nationalism is rearing its ugly head. Local politicians see their country as the Saudi Arabia of the highly corrosive, toxic, reactive metal, and are already discussing ways to restrict access. The only other supplies are to be found in Chile, Argentina, Australia, China, and Nevada. Should the US invade to insure supplies? Iraq worked didn’t it? The best way for opportunistic investors to play this is to buy Sociedad Quimica Y Minera (SQM), Peru’s largest producer of lithium.

Mar 22 10:19 AM

[MuMu Moorthi:]

ABAT is a service company, resells batteries from number manufacturers. Not a battery manufacturer and you can not put them into this category. There are numuber of companies like this who are doing well. It is not fair to other companies to include ABAT in this category. Also ABAT is moslty reselling lead acid batteries, no much involved with lithium batteries. Similarly Enersys, C&D, Exide etc., are all lead acid battery companies.

Mar 22 10:26 AM

[John Petersen:]

MuMu, I think you might want to read ABAT's Form 10-K which tells an entirely different story about ABAT's business activities. Gross profit margins never lie and resellers don't get to keep almost half of the cash that flows through the door unless they're dealing with incredibly unsophisticated manufacturers.

Mar 22 10:47 AM

[Jack Lifton:]

This is the best and most comprehensive discussion of the economics of high-tech startups that I have ever seen. It should be required reading in all B-Schools instead of just those in Southeast Asia where it will be immediately added to the syllabi. It cannot be overemphasized that the market is driven by emotion not logic. You can make money in the short term by graphing the "frenzy," but in the long term, where everyone future resides, only the cold logic of economics prevails.

Mar 22 11:10 AM

[Paul Killinger:]

Indeed, our new Administration is beginning to learn about "immutable economics laws" on a wide range of fronts according to the CBO's budget report published this past week. That likely won't intimidate their DOE from squandering the bulk of the funds already dedicated to this once-in-a-lifetime opportunity, however.

Mar 22 11:17 AM

[Paul Killinger:]

John,

How about the idea of developing a basket of alternative energy stocks and possibly their materials providers in the form of a sector specific ETF or mutual fund? Or is something like that too expensive to get started?

Mar 22 11:28 AM

[John Petersen:]

Many thanks Jack. I always expect some heat when I write an article like this one so it's nice to hear kind words for the effort.

Paul, I think Secretary Chu may be more familiar with the problems of bleeding edge technology than some give him credit for. Over the years at Lawrence Berkely I'm sure he's seen a lot more tech driven startups than I have. He also has a habit of using phrases like "cost effective" and "viable business plan" when he speaks to the press. While we will only be able to assess the wisdom of his decisions in 20/20 hindsight, I remain hopeful that we'll see the eggs go into a wide variety of baskets so that a couple high-risk disasters don't gut the effort.

Tom Konrad, a fellow writer at altenergystocks.com does a lot of writing on alternative energy ETFs and mutual funds.

Mar 22 11:38 AM

[searcher:]

"..resellers don't get to keep almost half of the cash that flows through the door unless they're dealing with incredibly unsophisticated manufacturers." John, very droll. A pleasure to read such literate, reasoned and forbearing commentary.

Mar 22 01:13 PM

[battman:]

John,

Another good article. One thing I find interesting and some readers don't want to see is that you're not bashing Li-ion, you're just saying at this point it won't be as prevalent as many want to believe (due to costs, limited raw materials, etc), but that it is and will continue to be part of our lives. Even your disclosure states you own a couple of Li-ion co's.
Lead carbon batteries should very well become the standard for quite some time but they won't be alone, and I don't think you've ever said anything different.
Keep up the good work, I appreciate your candid look. Reminds me of the Ballard hey day when there was no way we weren't all going to be driving fuel cell powered cars by the early 2000's.

Mar 22 01:18 PM

[John Lounsbury:]

John - - -

Thanks for keeping me tuned in to the energy storage sector. I have a significant postion in ABAT, much of it established 1-2 years ago, based on analysis of the financials. In spite of my analysis efforts I am down more than 40% on the position. However, the financials still look good to me and I have recently added to the position. More recently I also added a smaller position in CBAK. My positions in these companies have nothing to do with any potential for automobile applications, but are based on the smaller battery potential growth.

If it were not for your articles I would be totally ignorant of the trade-offs in energy storage for cars, grids and other applications. Thanks for continued effort.

Mar 22 01:35 PM

[John Petersen:]

Searcher, people who take the time to read and understand deserve all my respect. I occasionally get my Irish up but prefer to keep things as level as possible because harshness merely stands in the way of the message.

Battman, I love Li-ion in appropriate applications, which is why I've always liked ABAT. However, on an emotional issue like storage the pendulum frequently swings too far and too fast as people expect more from a technology than it can deliver. I'm convinced we need every solution that exists and a lot that haven't been invented yet. I believe that all energy storage companies that stay right sized in their ambitions offer solid opportunities for investors. I also believe that some of the disrespected lead-acid companies have far more upside potential than people will realize until its too late.

John, any time a public company can survive on less than $5 or $6 million in SG&A my hat is off to management, because they clearly understand that costs matter across the board. ABAT is amazing in that respect and has fabulous margins. If they can keep it up, the payoffs will be well worth the temporary price decline. Remember the words of Sam Walton who said "I still own it all so I haven't lost anything" after the '87 crash?

Mar 22 02:01 PM

[1980XLS:]

SQM is from Chile, not peru.

Mercedes' battery for the new "S Calass" Hybrid are sourced through Contnental.

Gm's "VOLT" appears to be utilizing "LG Chem" technology at this point. But GM wants to control the manufacturing themselves at this point.

Nevada's Lithium Deposits are owned by the Geman Company
Chemtall, a division of Rockwood Holings (ROC)

Lithium Battery disposal is not Toxic.

Bolivia has the most low cost lithium available to harvest.

They will be working with miners to exploit those reserves.

Insider buying suggests Valence may be waiting to get aquired by perhaps one of the larger "non Lithium" battery companies.

Cobasys or ENS perhaps?

These are all points to consider when investing in this field.

It is my belief that intellectual property will be the big winner.

Question is who has it, A123, HEV? GE is a major investor in Think and A123.
Why would Think use HEV? Then again, A123 has ties to MIT., who just claims a breakthrough in chargability.

As far as manufacturing:

Government interference and politics will once again try to manipulate the free market. Their R&D/ Bailout funds will have strings attached such as "Green Jobs", AKA payback to the UAW.

That means the money will go to the firms committed to producing in the USA.

I believe that frontrunner would be HEV at this time.

Do not underestimate the politics of this industry.
Al gore is involved in Think USA. Yet to go into full swing.

Mar 22 02:42 PM

[jimp:]

John, et al

Can you shed any insight on the chinese electric automobile company that makes its own batteries for their cars BYD (byddy)? With the rising chinese middle class and horrible pollution all ready present, this looks like a good potential investment. Wasn't sure if you were impressed by there battery technology, etc..
Thank you

Mar 22 02:52 PM

[John Petersen:]

speculawyer, one of the first things both of us learned in law school is that reasonable men can hear the same evidence and come to different conclusions. I am delighted to acknowledge your right to believe what you want based on the evidence you've considered. It would be nice, however, if you would afford me the same respect.

I have opinions based on the facts I've considered. If and when I am shown contradictory facts of sufficient weight I will be happy to change my opinion. But statements that some body of experts have an expectation of future events is what you or I would classify as double or triple hearsay. Like I said, I'm an accountant. Show me hard numbers rather than assumptions.

You're an intelligent adversary and write well. Your opinions may differ from mine, but I would love a chance to read a complete explanation of what you believe and why that is supported by appropriate links to reliable and unbiased sources.

Seeking Alpha is always seeking authors, particularly ones that feel strongly about a topic. I really think you should give it a shot.

Mar 22 03:00 PM

[John Petersen:]

jimp, BYD is a solid company that has apparently developed their own Li-phosphate technology. It's good enough for Buffet so I would have a hard time criticizing. I do, however, try to stay away from taking about stocks that are not listed in the U.S.

Mar 22 03:03 PM

[hall999999:]

MuMu most likely did a web search and came up with advancedbatterytech.com. This is a company completely unrelated to ABAT that also goes by the name Advanced Battery Technologies Inc.

Mar 22 03:07 PM

[1980XLS:]

Useful list of companies in the sector.


www.aortacity.se/Items...

Mar 22 03:22 PM

[MuMu Moorthi:]

Thank you.


On Mar 22 03:07 PM hall999999 wrote:

> MuMu most likely did a web search and came up with advancedbatterytech.com.
> This is a company completely unrelated to ABAT that also goes by
> the name Advanced Battery Technologies Inc.

Mar 22 03:24 PM

[Alphameister:]

Speculawyer, did you consider the possibility that the author may have established his positions after making an objective analysis as opposed to taking his positions and then doing a biased analysis? It costs so little to change equity positions in today's market, and few investors can stay in the game without a bit of objective analysis.

Mar 22 03:31 PM

[John Petersen:]

speculawyer, I acquired my long position during the period from 2004 through early 2008 and all of my transactions were properly reported to the SEC as required by law and regulations. My average out of pocket purchase price is significantly greater than the current market price. While all of the shares I purchased were restricted when I bought them, none of my holdings are currently restricted. I do have 360,000 options that expire at the end of this year, but since the exercise price is $6 per share I'm not holding my breath for them to have any value.

The last time I checked, five years of direct hands on experience in an industry does not make one disqualified to form a well reasoned opinion about the state of that industry. In fact, it implies a level of expertise as long as the potential conflicts are openly disclosed.

It's one thing to consider and carefully weigh documented facts that any interested reader can independently verify by reference to the source materials and another entirely to assume facts that are several steps removed from the source. Our biggest point of disagreement appears to be your willingness to rely on the assumptions of purported experts without asking who the experts are, what their opinions are based on or any of the other probing analytical questions we were both trained to ask before accepting anyone's word for anything.

I'm growing weary of arguing with an anonymous poster who claims profound knowledge, openly questions my integrity and relies on little more than hearsay and innuendo. Since I can explain my position to you but can't understand it for you, I trust you'll understand my decision to be less responsive to any future comments you may choose to offer.

Mar 22 05:21 PM

[John Petersen:]

PS: The detailed biographical information can be found on my Seeking Alpha author's page which any reader can access by clicking the "Profile" link under my picture.

Mar 22 05:24 PM

[Advill:]

It seems that everything is reduced to Pb vs Ion-Li, when there are other technologies (some of them evolutionary as Ni-Ca 2.0, Zinc etc) and others revolutionary as ultracapacitors and some experimental metal alloys.

What is clear is that each one of them has specific "quid pro quo", and Physics is imposing limits that are really complex to handle in market terms.

In my point of view there will be no clear winner as some alloys will be good for X and others for Y, there will not be a universal product as acid -Pb battery is right now.

A interesting approach would be on trying to determine which technology will be a clear winner in what application and which company is the best fitted in that particular field.

Now I have to decide what the hell to do with my position in VLNC ... which for sure is not a winner.

Regards

Mar 22 06:05 PM

[aquaculture:]

Chemical battery technology is risky and capital intensive. It also has the slowest price/performance improvement of all technologies.
The Merrill report mentions solar storage.
I do think you are correct that lead/carbon deepcycle batteries offer the best price perfomance for solar storage (off grid for individual homes, not utility scale) for some time to come.

That said, investors should be aware that VC firms are also well-placed (and I believe: better positioned and ahead) in this market. eg:

elecsolbatteries.com

As to the probability of cars powered by any chemical batteries: 0.00000000000000000000...

Mar 22 07:11 PM

[aquaculture:]

market penetration probabilities that is...

Mar 22 07:14 PM

[Chancer:]

Advill:

Glad you mentioned zinc. I think this is a much cheaper alternative and has a greater supply than lithium.

Since I have lived in Bolivia and I understand the mindset there, they will definitely increase the price significantly, if they think the gringos see value. The trick is to convince the Bolivians that gringos want the lithium to make low cost chili pepper fertilizer- not for auto batteries.

Mar 22 08:26 PM

[Matt_the_Batt:]

@1980XLS:

SAFT/JCI is going to produce the Li-ion battery for the Mercedes S Class Hybrid!

See the SAFT results presentation (page 25)

www.saftbatteries.com/...

Mar 22 08:42 PM

[billp37:]

While Mr Peterson's and Konrad's posts are fun to read we're concerned that not enough attention has been paid by them to

1 Laws of thermodynamics
2 HEAT RATE - second law
3 CAPACITY FACTOR - reality

"Nonetheless, there appears to be opportunity to make lots of money trying to develop alternate renewable energy sources.

Selling wind farms and solar electric generation system to those who do not under stand the laws of thermodynamics, HEAT RATE, and CAPACiTY FACTOR looks equally lucrative too."

Mar 22 09:48 PM

[John Petersen:]

Advill, I don't believe for a minute that this is a battle between two technologies. Lead-acid and lead-carbon are certainly my favorites because they're cheap, safe and flexible, but there are a lot of areas where I don't think either will do well. For example, I don't think that lead-acid and lead-carbon will work well in a car with a plug because they are bulky. While I also believe cars with plugs are hard to justify in terms of pure economics, that's an entirely different issue. I'm convinced we need every technology that exists and a lot that have not yet been invented. There will be a market for everything and that market will likely be huge. The risk for both companies and investors is assuming that a particular technology will be superior for all applications, because that's not going to happen.

Aquaculture, until the boys get to a fully automated process for all essential components the test results are only an indication of what the performance will be. That's one of the toughest parts of this industry because the guys in white coats can always produce better results than the guys in gimme caps. Ultimately picking the best technology for an application will be based on the specific needs of that application and general statements of superiority will always be dangerous. Will it have a place - yes. Will it be the best - time will tell.

billp37, the mere fact that we've exhausted the low hanging fruit on the energy tree does not mean there is no more fruit. The planet is bathed in energies that we have not yet learned how to harvest efficiently. The next 50 years will be a fascinating time as we learn new ways of doing things that have not been done before. In the final analysis, the choices are either figure it out or suffer global catastrophe and upheaval. The laws of thermodynamics are a bitch and low yield technologies are nowhere near as much fun as the high yield have been, but I'm confident that there is a genius out there somewhere who will find a way to do something we would currently classify as impossible. So the challenge is to encourage him to come forward and try.

Mar 23 01:09 AM

[aquaculture:]

Also from the title of this article it would seem as if Li-ion is a looser technology.
Now take a look at the following data:

Netherlands EU (Population, 16 million) e-bike (95% Li-ion) sales data:(source: bovag):
2006: 45.000
2007: 90.000
2008: 120.000

e-bikes are racing towards 10% marketshare. They are simply hugely popular!

Now looking towards the future at less mature but increasingly affluent markets with similar bike densities eg China, India, Indonesia etc. its not hard to see billions of Li-ion packs being sold, and those who can deliver will certainly do well.

Mar 23 07:39 AM

[jamesnach:]

Dear Mr. Petersen,

week after week you keep posting the same articles.
You just add some tables here and there, and - et voilà - here you have the "new" blog.

And you keep posting the same wrong figures about li-ion batteries costs. It's such a nonsense.

Today, not tomorrow, not in three years, not in ten years, today, some leading european car makers - people who build millions of cars per year are buying and testing li-ion batteries (battery packs, not cells) at 500 USD/kWh.
And these batteries work well, as you will see very soon.

So, you are free to keep posting the same old stuff.
But it's just wrong stuff.

Mar 23 09:14 AM

[John Petersen:]

aquaculture, I love Li-ion for right sized applications like e-bikes and scooters, so even suggesting that I think the technology is a loser is 180 degrees off base. That being said, I think it foolish to try to power 3,000 pounds of steel and 300 pounds of passengers at highway speed using Li-ion, or for that matter any other battery. The economics simply do not work.

jamesnach, I'm sorry but you're wrong. I live in Europe and have for the last 12 years. I'm used to paying $5 a gallon for gas during the good times. People here don't drive HEVs, PHEVs or EVs any more than they do in the States. What they do is drive much smaller cars, walk when distances are short and take trains when distances are long. My pricing data comes directly from the DOE and Japan's New Energy and Industrial Technology Development Organization and I always supply links to the source data. So please quit trying to trump governmental publications with rumor. My work is not mandatory reading.

Mar 23 09:28 AM

[Steve Funk:]

Kudos John. You have laid out what I believe is an accurate picture of the issues with battery operated vehicles and the investment consequences. To your naysayers, has anyone wondered why GM produced and sold a commercial electric car in the 1990's but are now slow to produce a more broad based product? These vehicles will not work in Chicago, Minneapolis or Bangor in the winter. Everyone keeps thinking a breaktrough will solve the problem in the nick of time but as John points out that is not the history of battery development. Most of the chemical combinations that produce electricity have been known for a century (that includes fuel cells). Many of the same engineering problems that we knew about then are still with us. A lot of money has been lost in battery development. One of the first companies to start development (at least 15 years ago) was Ovonics Batteries and now they are making money by selling solar panels. I think short-term trading will be the only investment opportunity in batteries for quite a while.

Mar 23 10:47 AM

[John Petersen:]

Steve, I'll have to disagree with you about the potential because the growth rate in battery sales has been ultra-impressive for the last several years and it's hard to grow industry wide revenue without growing industry wide value. When you add a couple billion in Federal grants to the equation, the industry-wide upside is actually pretty impressive. My basic premise has been that the old reliable producers like Exide and Enersys that have been absolutely savaged by the down-turn have greater upside potential than the super models who have less real world business potential.

Mar 23 10:59 AM

[Kirk Lindstrom:]

Here is California, people have bought hybrids to get the sticker from the state that allows solo drivers to use the commuter lanes. For some, that is worth $10,000 extra. Add in the image they can project to their "Palo Alto neighbors" who seem to have a Prius in every driveway.... there is value to many in being green besides savings at the gas pump. Others who have children fighting in Iraq or Afghanistan might feel the expense of a hybrid is justified too.

Otherwise, thanks for making your points well. I own and cover VLNC in my newsletter but mostly for trading with a cost per share break-even now of about 8¢. I need reminders that this is not a viable company yet so I need to not get overly exuberant when it has big jumps in price...

Mar 23 11:27 AM

[John Petersen:]

Kirk, you've just presented the most compelling economic argument I've ever seen for HEVs. If buying an HEV or PHEV cuts an hour or more off daily commuting time and the driver has a reasonable value, the time savings alone justify the cost. There are also a number of compelling personal reasons. My problem is those things are almost impossible to quantify so I fall back to the simple dollars and cents comparisons. I don't agree that Valence is not viable, but it needs to cut costs and get its ambitions a bit more right sized.

Mar 23 11:43 AM

[Kirk Lindstrom:]

On viability, note I said "yet"... it seems we agree it is not viable at the current price of its products.

I think from my comment on your other article on the Volt, I think VLNC has a shot at being competitive if they can get costs down by a third to a half. IF Obama's stimulus plan is to have manufacturing in the US so they can use VLNC batteries in the vans Ford will sell (Tanfield + Smith Electric Vehicles) and to reduce dependence on foreign oil... a low cost loan to build manufacturing in the US helps get over the cost hump until they get scale. I bet it saves on shipping costs to have batteries close to the assembly plants too.

Check out the photos here:
www.courier-journal.co...
Note that U-Charge is a Valence product. 8^)

My sense is the US government under Obama is FINALLY going to to what it should have done after the oil embargo of the 1970s.... and that is subsidize alternative energy until it can get costs down to counter illegal price fixing by Opec. I think it is a mistake to build cars with "exploding battery deflectors" inside to repeat the Pinto mistake we made in the 1970s to go cheap....

I'll send you the write-up I just did on VLNC if I can find your email address in your profile.

Mar 23 12:24 PM

[John Petersen:]

Kirk, my big issue with the "economies of scale" that everybody keeps talking about is "where the hell will they come from?" There is no Moore's law for chemistry and the best anyone's been able to manage over the last 20 years are price reductions and/or performance gains of 5% per year. Raw materials are about 75% of battery cost and I don't see commodity demand falling off a cliff. Under the circumstances I have to believe the big gains will come from ideas that haven't been thought yet.

Batteries are hard core basic manufacturing and I just don't see that dynamic changing any time soon. In the meantime, I pray for the next Einstein.

Mar 23 12:35 PM

[jscilla:]

You mentioned that ABAT had good numbers, but the point is that
ABAT is Li ion manufacturer and the article downgrades Li ion
manufacturers. Is there anyone else out there who expends so
much time and effort to degrade one industry? You over do it.
Gee, I don't suppose it has anything to do with your large stake
in axpw.ob. You weren't compensated for your work on axion with
their stock, were you? It is difficult for me to believe you are not biased in your analysis.

You can speculate on Pb C, a money losing business and I'll speculate on Li ion which in ABAT's case is doing quite well.
I'm also willing to believe in the combined wisdom of all the
car manufactures who are putting their faith in Li ion. I sense
there may easily be large profits for Li ion in supplying the hev,
phev and ev markets before and if factors of Li price and supply
have an effect.





22 09:55 AM John Petersen wrote:

> jscilla, going to the comment section of an article without reading
> it first is never a good idea. Today I had nothing but praise for
> ABAT and identified it as the only Li-ion company worth owning. But
> you were so interested in posting a rant that you didn't bother to
> read prior to condemnation.
>
> John Cordes, I've always been impressed by ABAT's plans for electric
> bikes and scooters like the Veken. My issues come when people want
> to use exotic battery chemistries to power 3,000 pounds of steel
> at freeway speeds.
>
> Matt, SAFT is a great company, but fundamental economics in Europe
> where gas prices are 2x to 3x your prices in the States make for
> a different business dynamic. I avoid talking about them because
> information is a bit more complicated to obtain and the currency
> translations can also be problematic. But any company that can partner
> with JCI for Mercedes Benz and ABB for utility applications is doing
> a lot of things right.

Mar 23 02:05 PM

[John Petersen:]

jscilla, I'm not on anybody's required reading list and I've always been open about my background, my economic interests and the independent sources that form the basis for my opinions.

I'm heavily invested in Axion, but would not want anybody to follow my example without first doing their own detailed investigation.

I speak very harshly about Li-ion manufacturers who spend like drunken sailors while losing money. I have nothing but praise for companies like ABAT that control spending at every level and focus on delivering good products for appropriate applications.

People are never happy with people who criticize stocks they own or industries they like. It's just one step removed from calling their children ugly. But the national debate over energy and economic policy is far more important than either your feelings or mine and regardless of whether you like my conclusions, the fact is my writing stimulates debate among some very intelligent people.

Mar 23 02:32 PM

[cenes de la...:]

One thing missing is that these new batteries make things possible that never were possible before. Two examples:

1) The Zero-X dirtbike. I just got one, and it is not just another motorcyle, but a whole new sport. You just can't get this performance and light weight (not to mention no noise) from a gas bike.

2) I've been promoting a scheme where you use Lithium Titanate (LTO) batteries to run a hybrid bus in all electric mode, charging the batteries at the route ends. Lithium Titanate batteries can charge extremely fast, and 10s of 1000s of times (30-90 SOC). This has never been possible before, and radically alters the market for buses.

I think you will see more ideas like these, where the new characteristics of these batteries will make entire new industries possible.

Mar 23 03:10 PM

[jscilla:]

OK, your points are well taken; I appreciate your response and it
is true that you stimulated me to do a little more thinking and reading although I could not even begin to do the research you have
done on this subject.


On Mar 23 02:32 PM John Petersen wrote:

> jscilla, I'm not on anybody's required reading list and I've always
> been open about my background, my economic interests and the independent
> sources that form the basis for my opinions.
>
> I'm heavily invested in Axion, but would not want anybody to follow
> my example without first doing their own detailed investigation.
>
>
> I speak very harshly about Li-ion manufacturers who spend like drunken
> sailors while losing money. I have nothing but praise for companies
> like ABAT that control spending at every level and focus on delivering
> good products for appropriate applications.
>
> People are never happy with people who criticize stocks they own
> or industries they like. It's just one step removed from calling
> their children ugly. But the national debate over energy and economic
> policy is far more important than either your feelings or mine and
> regardless of whether you like my conclusions, the fact is my writing
> stimulates debate among some very intelligent people.

Mar 23 05:11 PM

[John Petersen:]

jscilla, I apologize for coming off harsher than I normally like to. The issues I'm trying to bring folks to come to grips with are not easy and I may not always be right. But I try very hard to be even handed and talk about the good and bad aspects of everything. I don't think any of our currently available options are the solution. But I think they all have important parts to play in getting us to the solution. Please feel free to disagree with me, challenge my assumptions and argue the other side. But please don't question my motives.

Mar 23 05:32 PM

[renim:]

Personally I'm partial to Zinc Bromine Batteries but
I notice that BYD is using LiFePO4 batteries in their EVs and hybrids (F3DM - on the market late last year)
and the Chery S18 also uses LiFePO4 which is said to be a 13.4 kwH battery in a 15,000 dollar car

so I conclude that LiFePO4 is the front runner technology for real EVs, and that the demonstrated price of chinese LiFePO4 is significantly less than $1000/kwH (otherwise the S18 car costs nearly nothing)

Mar 26 09:11 AM

[John Petersen:]

renim, zinc bromine, the so-called zebra battery, appears to have significant potential in the PHEV market, but since there are no U.S. public companies that make ZN-BR batteries, the technology is not worth talking about in a site like Seeking Alpha where the focus is investment.

The special introductory prices on new products for the Chinese domestic market are interesting, but prove little or nothing. In case you have not heard, China has a planned economy, its workers are not as well paid as North American workers and it has no substantial domestic oil and gas resources. China as a nation is delighted to overbuild capacity and sell products for export at advantageous prices until their domestic demand increases. Once that happens, export prices climb and availability evaporates. We saw it 15 years ago with lead-acid batteries and I'll guarantee the same pattern with Li-ion.

In other words Chinese prices are an interesting short-term opportunity but no basis for long-term energy policy in the U.S.

Mar 26 11:37 AM

[the battery...:]

At last someone who has seen that there is no holy grail in the battery and that the hard economic facts of Lithium Ion battery systems will not enable the cost of cells to drop to the silly numbers touted recently.

Cashburning large battery companies that will not turn a profit are the issue, smaller leaner companies controlling costs will be the winners.

Mar 27 08:19 AM

[renim:]

John, Zebra is not Zinc Bromide, and like yourself I have a small holding in ZBB corp which makes Zinc Bromide batteries in the USA ;)
I agree, that there appears substantial irrational enthusiasm for certain Li battery related stocks.
I once had shares in an Australian mining company which owned the salar de rincon deposit in Argentina, a major Lithium ( about 500,000 -> 1,000,000 tonnes of Li) deposit in a mining friendly country. It was sold last year for about $22million dollars, that is chicken feed compared to what a major base metal deposit is worth. and seeing the difficulty that some mining companies have in trying to get other lithium mines funded, i conclude that the market for concentrate that li comes from is just too cheap to justify any expense or risk.

Mar 27 09:08 AM

[renim:]

also in regard to china,
I agree that Chery is part of China Inc and has access to benefits that other don't have.

but BYD strikes me as an outsider to China Inc, that does not have any special consideration given to it by the state. They got into cars via a backdoor that the state later closed, I would place battery costs that can be back calculated from what they sell as an indication of current open market price within China, and related to the cost of production.

Mar 27 09:16 AM

[John Petersen:]

renim, I would not necessarily exclude BYD from China, Inc. They are reputedly the biggest battery manufacturer in China and have enough business that Buffet's Mid-America Holdings paid $230 million to buy a 10% stake.

The introductory price of BYD's PHEV is supposed to be an $8,000 upcharge from the IC version. It's 62 mile electric range implies a useful battery pack capacity of about 16 kWh, or $500 per kWh. The big problem with back of the napkin calculations is that manufacturers frequently sell new products at a loss to create market demand knowing full well that they will have to increase prices a couple years down the road. I for one am dying to know what the stabilized price of the Volt will be once GM decides that it no longer wants to subsidize the losses.

Mar 27 12:06 PM

[Fern:]

Finally someone who has it right! I also am disappointed with this inability to embrace the future. I have seen this before. A person with a command of the language and is intellectually committed to an opinion, takes this skill and uses it to manipulate those with no time or motivation to do their own research. Lead has been killing organisms on this planet for centuries. It is unlikely this administration will be investing in any technology with this reputation. Whatever energy storage material will be used in the future, I doubt it will be lead based. Any more than car engines will be made with carburators because they can be made cheaper. What will happen is that initially the expensive technology, ie, lithium, etc., will be subsidized by the government until it can be made more cost effective. Petroleum based societies will not make this change in years, it will take decades. Many forget car fuel is a small part of what we use petroleum for (see plastic, etc.). However, like all other trends, there will be money to be made while we go through the switch of energy sources. Please verify everything you read, especially if you are going to be risking your hard earned cash.


On Mar 22 02:26 PM speculawyer wrote:

> Despite lots of contrary evidence, John sticks with his outdated
> & overly pessimistic high prices for Li-Ions. You've really
> lost all credibility at this point.
>
> You are obviously a smart guy and you've provided lots of insightful
> analysis. For example, your pointing out that the key to making a
> cost effective EV is to have it use all its battery power such that
> extended-range hybrids (the Volt & Fisker Karma) and very small/efficient
> pure EVs (Aptera & Th!nk City) are the best directions to go.
>
>
> However, your large financial position in lead-carbon technology
> seems to have created either a huge blind spot of denial (in the
> best case) or a huge competitive hatred of Lithium Ion technology.
> I don't know which it is but in either case, I really don' think
> the readers here deserve such misinformation of Li-Ion technology.
> This is the kind of misinformation that gives lawyers a band name
> and I take that personally. (In addition, I have reason to take
> it personally since it seems you've called me out personally by your
> mention of 'chinese websites'.) Nor does the country need to have
> someone inject such misinformation when the country seems to be making
> some industrial development policy in the current stimulus package.
>
>
> I don't have time for it right now, but I'll be back with a long
> list of links illustrating why John is very very wrong about his
> overly negative view on Lithium Ion technology. I don't want people
> to believe me (or John) but consider our arguments and then LOOK
> AT THE EVIDENCE and then draw your own conclusions.
>
> Disclosure: I have no financial interest in any energy storage company.
> I am an engineer/lawyer very interested in EV technology as a means
> solving energy, trade deficit, pollution, and other problems.

Mar 27 04:16 PM

[renim:]

Fern

Lead in batteries is fully contained and currently about 98% recycled. As far as environmental issues are concerned, there are a lot more damaging domestic products at home than the lead in car batteries.
The novel lead batteries we are talking about here have an capacitance aspect about them. This little piece of 'magic' means that their life might be 4-5 times longer than conventional lead batteries,their ooompf is greater but their storage is about the same.
In short they appear to be a good benchmark for the newer chemistry to compete against in stationary storage applications, marine applications and in conventional automobiles and very mild hybrids. The CSIRO version of an advanced battery came about because of a prototype car the 'eccommodre' which used both lead batteries and super capacitors.
Using a novel lead battery (instead of an conventional battery) and an up sized alternator/starter would make a car into a BSG 'hybrid'. That is a car which turns off its engine while coasting and at rest, but will restart it engine almost seamlessly. this improves fuel economy by 10 % to 20%. Its a cheap way to improve the fuel efficiency of any car currently in production.

Mar 27 08:45 PM

[renim:]

Fern

I do agree that EV and DM vehicle energy won't be lead based, or metal hydride (unless they can give it some fuel cell characteristics) so the current favorite is lithium ion of some variety. I see china pursuing this more vigorously than any other government (other than Israel) and once China solves the oil problem for transport domestically, that solution will be exported to the rest of the world. It will be impossible for OPEC to compete with China's solution and very difficult for car manufacturing outside off china also.

Mar 27 08:55 PM

[Matt_the_Batt:]

check out the latest news from the Germany-based Chemical Group BASF:

www.basf.com/group/pre...

Mar 29 08:38 AM

[Don Harmon:]

At the end of the day nobody can possibly argue the Li-ion advantages over PB batteries which are 1/3 the weight and 10 X the life cycles as well as a flat voltage curve as opposed to the voltage sag of PB. Then there is the much higher self-discharge loss by PB when sitting on a shelf waiting to be sold.

Don Harmon

Apr 05 07:36 PM

[John Petersen:]

Don, I'll gladly give you the weight and size advantage, but you're wrong about the life cycle and self-discharge advantages of Li-ion when it comes to the new generations of advanced lead acid and lead-carbon devices. It's a whole new world out there and deserves a closer look.

Apr 06 02:30 AM

[Don Harmon:]

John, I am aware of most of the improvements that have been acheived in lead-carbon devices or as they are generally known as Lead Acid. These improvements also come with a hefty price increase, which I believe once Lithium-ion is scaled up in modern battery mfg. plants, the price of Lead Acid and Lithium- ion will meet each other on the curve within 2 years. I am not the Oracle of Nevada but I have more information about LiFePO4 battery technology than most people do, and once these plants get going, the resulting cost issues will resolve themselves leaving each of these technologies on an equal playing field.

Then the advantages will be very obvious and the choice will be Lithium - ion not Lead Acid my friend.

Don Harmon

Apr 06 01:11 PM

[John Petersen:]

Don Harmon, lead-carbon is an entirely new offshoot of the time honored lead-acid chemistry that uses activated carbon to either augment the sponge lead paste on the negative electrodes or replace those electrodes in their entirety. Unless you have a long history with one of the developers, the odds are pretty good that your knowledge is not as deep or broad as you believe it to be. I have been begging for somebody to show me exactly where the expected costs savings of Li-FePO4 will come from and am delighted to change my opinion based on new facts. But I'm unwilling to blindly assume substantial cost savings in an industry where over 80% of direct costs come in the form of raw materials.

Regardless of whether you and I ever agree, however, time will most certainly tell.

Apr 06 02:00 PM

[NorthernPiker:]

John, do you have a reference for "over 80% of direct costs come in the form of raw materials"?

A March 27, 2009 article in Green Car Congress, on a BASF-led consortium to develop li-ion batteries for use in EVs, states that, "At present the materials still account for more than 50% of the cost of lithium ion batteries." From the context, the "present" li-ion batteries are lithium cobalt.

Apr 06 08:13 PM

[Don Harmon:]

John Petersen, of course you favor Lead Carbon, because Axion is the big developer of Lead Carbon and you always take the girl home you brought to the dance. Time indeed will tell sir, and my long term bet will be on LiFePO4 hands down. I could prove my points but why bother and besides it's confidential right now anyway.

Don Harmon

Apr 07 12:04 AM

[John Petersen:]

NorthernPiker, the source I've relied on for the 80% number is Costs of Lithium-Ion Batteries for Vehicles, a May 2000 report from the DOE and Argonne National Labs:

www.transportation.anl...

The specific reference is the introduction to Section 6 on page 37 of the pdf, which also includes a cost breakdown for the various components used in a typical cell. The other 20% of direct costs represent labor and plant amortization. By the time you add a reasonable gross margin of 20% to 25% on direct costs, the materials represent something closer to 60% of the final sales price.

Don Harmon, I've always believed that low cost is lead-carbon's most appealing feature, along with recyclability. When somebody on the lithium side can show me a cost breakdown like the one I referred to in my response to NorthernPiker that proves the point, then I'll be happy to change my opinion on cost. That won't however change the fact that new plants to build enough Li-ion batteries will take a decade to build where lead-carbon could be rolled out in a third of the time.

Apr 07 12:49 AM

[Don Harmon:]

What is your basis for saying that new plants will take a decade to build? We could build a new plant in one year that would be capable of producing 180K LiFePO4 Cells per month. I also would disagree with your statement where lead-carbon could be rolled out in a third of the time? Re-tooling a lead-carbon plant to mfg. Lithium-ion would take much longer and require huge new capital equipment investment. So your points really don't hold water in my book.

Don Harmon

Apr 07 01:30 PM

[John Petersen:]

Don, I've not seen anybody in the Li-ion business suggest that they can build their first plant in less than 2 to 3 years. Then, if the plant works as designed and the products perform in accordance with expectations, additional plants will have to be built nationwide. The first plant is no problem. The problem is the next 10 or 20.

Once Axion's PbC electrode fabrication equipment is proven at a base level of 1 MWh per day (which the first production line should handle with ease), expanding electrode production capacity to tens or even hundreds of MWh per day will simply mean adding new electrode fabrication lines. Once the electrode assemblies are made, they will be suitable for use in every lead acid battery plant in the world without any modification to the user's plant.

Apr 07 01:52 PM

[Don Harmon:]

John, well you just heard me suggest that it can be done in less than 2 years. Of course additional plants would then be rolled-out nationwide.

Interesting when you say "once Axion's PbC electrode fab equipment is proven" - not really saying much here since Axion started working on their advanced PbC electrodes back in 2003 and haven't proven their mfg. concept yet. That's 6 years and still no pilot electrode fab line? I sure wouldn't be a happy investor in Axion!

The Lithium-ion fab equipment is already developed and won't need 6 years to prove it works. Besides, even if every lead acid battery plant in the world CAN use Axion's mfg. process - it won't mean a damn if OEM's don't want to buy "old technology" anymore.

Or as Obama famously opined- "You can put lipstick on a pig, but it's still a pig,"

Don Harmon

Apr 08 02:38 PM

[John Petersen:]

Don, I think you've missed a post or two somewhere. The electrode fabrication lines were ordered a year ago. The first round was designed to make electrodes for 1,000 PbC devices or roughly 1 MWH per day. I would be curious to hear how your hypothetical 180,000 cell per month plant stacks up?

The equipment has already been built and Axion has staff in California making electrode assemblies on the line that are being shipped to Pennsylvania for integration into PbC devices. Which means the first fully manufactured commercial PbC batteries are already rolling off the line. The plan is to move the fabrication line to Pennsylvania during the current quarter and start making devices for the potential users who have been waiting years to test the product in their particular applications. From that point it will all be up to the users. They will either line up to order the product or they won't. I've made my bet that they will, but that's purely a matter of personal opinion.

OEM's may want the best available technology, but that desire is always tempered by the customer's ability to pay. Everybody may want a $50,000 car, but few can afford one. If given a choice between using best available technology and selling cars by the hundreds or using best affordable technology and selling cars by the hundreds of thousands, the OEMs will always obey the market.

You can tie a subsidy pork roast around the neck of an uneconomic technology and the market will play for a while, but when the roast is eaten and there is nothing left but the bones, the stockholders will be very sad.

Apr 08 03:56 PM

[Don Harmon:]

John, you may be right since I have just joined this forum - I am sure I have missed a few posts, but it's interesting that your Axion product is just now rolling off the line while LiFePO4 (Lithium-ion) has been rolling off the line now for more than a few years. A123, Valence, & LiFeBATT, are all U.S. companies who have been making product which is available now.

Your point about cost is certainly a valid one - but given the new push to build Lithium-ion mfg. plants here in the U.S. will become a moot point very quickly.

Lithium is one of the best ways to play President Obama's energy agenda. The power of the Office of the President of the United States will be backing the Eco-Energy Revolution and billions of dollars will be given out to develop the technology behind the lithium-ion battery. This energy revolution is a serious investable long-term trend and we, as investors, have to take advantage of the opportunities being presented. We'd be smart to get in early, ahead of the herd, to take advantage of the coming global rush to electricity - generated by solar, wind & geothermal power and stored in lithium-ion batteries.

Don Harmon

Apr 08 06:00 PM

[John Petersen:]

Don, I have the sense you're going to be a lot of fun. The great thing about storage is that the market is so immense there will be a target rich environment for decades to come and plenty of room for dozens of successful companies. I'm tough on Li-ion for purely economic reasons. Costs may indeed fall over the next few years, but nobody has ever shown me how costs will fall far enough for lithium to compete with lead when it comes to the grunt work. It may well be that everybody is just playing their cards really tight, but until the cards are face up on the table, I'll remain a skeptic.

Apr 09 12:09 AM

[NorthernPiker:]

John, on the subject of material content of a li-ion battery, this summer’s anticipated ANL report on LiFePO4 batteries will be a welcome clarification. There should also be available information on ENER1’s LiMn2O4 chemistry that was jointly developed with the DOE. However, in the meantime, there are some observations that can be made on the material composition and costs of EV battery cells.

According to the table on p. 37 of the 2000 ANL document that you have previously referenced, 48.8% of the material cost of a LiCoO2 cell is in the cathode which is composed of 7.1% lithium, 60.2% cobalt and 32.7% oxygen. At $30 / kg for lithium and $50 / kg for cobalt (5-year average price), these metals respectively would account for 6.6% and 93.4% of the cathode cost. Displacement of cobalt in the cathode by manganese at $2 / kg or iron and phosphate at $0.50 / kg would reduce raw materials cost by over 90% and 44% for the cathode and cell, respectively.

www.transportation.anl...

The first observation is that the raw material costs in a LiCoO2 battery are dominated by the cost of Cobalt. The second observation is that the rising price of metals in general over the last several years, particularly cobalt, which peaked at $110 / kg in 2008, has masked any cost reductions in the use of raw materials. As new raw material contracts are signed at today’s lower commodity levels, e.g., cobalt at $30 / kg, LiCoO2 battery costs will drop

Apr 09 03:45 PM

[John Petersen:]

Northern Piker, I am truly looking forward to the new report from Argonne. The information I have indicates a mid-July release date. The problem with trying to adjust cathode costs proportionally with material cost is that you end up carving out both the cost of the materials and the cost of processing those materials. You may be able to eliminate the hard material costs, but processing costs are with us always. I may be trained as an accountant, but I would not presume to make such a calculation without a lot more data on what it takes to make a cathode from a pile of metals.

I'm more than willing to assume that prices will decline, but price collapses of the magnitude that people want to believe don't pass the smell test. So let's wait and see what Argonne has to say.

Apr 09 04:30 PM

[John Petersen:]

On a collateral issue, all the DOE documents I've seen that refer to Ener1 (or Enerdel) talk about DOE-sponsored development of a Lithium titanate/Mn-spinel chemistry. However, in their Q2 earnings transcript available on Seeking Alpha Mr. Herlihy said:

"Well, we have several contracts. We have a $6.5 million Phase II for the hydro-electric vehicle, lithium-titanate battery. We have a $2.5 million PHAV contract, and we have $1 million grant from the DOE for bus development. It hasn't been turned into a contract yet, but that's all USABC and those are all 50% cost share."

A little later in the Q2 conference call Nakoi Ota added:

"For the Think– this is Naoki Ota. Actually this battery is not the lithium-titanate. This is hydrocarbon base – the battery."

In a similar vein, during the Q3 conference call, Mr. Herlihy said:

"The increase quarter-to-quarter was due primarily to $2 million for R&D material costs, related to the Th!nk battery packs and the materials for the continued development of the lithium titanate cell technology."

Likewise, during the Q4 conference call Mr. Ashtiani said:

"While most of our competitors have placed their bets on one chemistry or another, EnerDel has the capability and manufacturing know-how for developing multiple chemistry products. On the anode side, we have developed hard carbon, graphite, and titanate anodes. On the cathode side, we have mixed metal oxides, manganes-spinel and iron phosphate. We have a strategic alliance with Argonne National Lab for materials research and development that allows us to push the boundaries of energy not just by getting more capacity per unit weight of the material, but also pushing into high voltage for cathodes and electrolytes."

My simple mind tells me that something doesn't quite fit if Ener1 is still developing the Li-titanate technology but selling batteries with a "hydrocarbon base" to Th!nk. Of course my skeptical mind wonders whether they're talking DOE research but selling a simple Li-polymer chemistry that they bought as part of the Enertech deal.

I would love to have somebody who is more adept at battery chemistry take a crack at explaining the apparent inconsistencies.

Apr 09 05:13 PM

[Don Harmon:]

Hi John,

I just take the polar opposite view and hope you realize I come from the planet Lithium and recognize you Lead Acid earthlings don't have the benefit of our advanced technology yet. We will continue to try and bring you along with us because once you try Lithium you can never go back to Lead! Certainly we find your arguments highly amusing though and will continue to follow them. We find it beats your earthling television programs anyday....:-)

Don Harmon



On Apr 09 12:09 AM John Petersen wrote:

> Don, I have the sense you're going to be a lot of fun. The great
> thing about storage is that the market is so immense there will be
> a target rich environment for decades to come and plenty of room
> for dozens of successful companies. I'm tough on Li-ion for purely
> economic reasons. Costs may indeed fall over the next few years,
> but nobody has ever shown me how costs will fall far enough for lithium
> to compete with lead when it comes to the grunt work. It may well
> be that everybody is just playing their cards really tight, but until
> the cards are face up on the table, I'll remain a skeptic.

Apr 09 07:07 PM

[John Petersen:]

Don, I have no problem with intelligent opposing views and would certainly not exclude the possibility that all of my reservations about the cost, safety, performance and cycle life of Li-ion batteries will prove to be totally unfounded. Maybe it just comes from 30 years in the securities law trenches, but the fact is I've been burned so often by the hot that I blow on the cold. In the meantime I'll continue to believe that we should be taking lithium out of batteries and putting back into the medication of the people who so obviously need it.

Apr 09 08:51 PM

[Don Harmon:]

John, nice to see you do have a sense of humor. I have never found an accountant yet who has one. Like you said it's an immense target rich environment now, so arguing the relative merits of cost/benefit analysis is probably something that should be left to the bean counters. I will be focusing like a laser on all those targets out there!

Don Harmon

Apr 09 11:42 PM

[John Petersen:]

Don, Law School included a humor transplant and thirty years of representing entrepreneurs who dream of reaching the stars while worrying about how to make next month's payroll has left me knowing that you have to either laugh or cry, and crying ages you prematurely. In general, I'll give you the right-hand tail of the bell curve when it comes to applications as long as you give me the middle.

Apr 10 01:12 AM

[Don Harmon:]

Fair enough John - we entrepreneurs are stuck in that mode of reaching for the stars and worrrying about paying our partners like you said. Industrial Design school, and thirty years of being self-employed, I will take the right-hand tail of that bell curve because I have naturally ended up there by now anyway.

Best,

Don Harmon

Apr 10 11:10 AM

[John Petersen:]

Don, my best guess is that every battery company that survives will end up with more business than it can say grace over. However the one thing that 30 years has taught me about entrepreneurs is that most are very bad at managing investor expectations. You and I both understand that "it always takes longer and costs more." Most investors don't understand that reality and they often react violently to missed deadlines, delays and great performance that doesn't meet expectations. So I always end up nagging clients "trumpet your accomplishments but be quiet about your plans."

It's good to have another reader that can hold my feet to the fire, keep me honest and tell the other side of the story – and there are always at least two sides to a story.

Apr 10 12:08 PM

[Don Harmon:]

Very good advice, John. So far we've managed to do exactly that! We don't issue "press releases" like some of the other Lithium-ion super stars do and we don't have any investors to pummel us yet. We are quiet about our plans and prefer to operate more in a stealth mode until we can bring out the "brass band" for it's debut gig. Back to walking on hot coals........

Hope to be able to do that sometime soon?

Don Harmon

Apr 10 03:06 PM

[John Petersen:]

Don, my website is ipo-law.com. Do me a favor and drop me an e-mail with your contact information. I'd love a chance to talk with you.

Apr 10 03:18 PM

[realist2:]

Mr. Petersen. Thanks for the props, inintended though it may be.

If by e-bike, you mean very high performance motocross motorcycle, I agree:

hellforleathermagazine...

We had a great time. The riders were swapped far more often than the power packs. The technical off road course and friendly riding aggression was that intense, with the winning team putting in 507.5 miles in 24 hours, with zero maintenance issues, and none less than 300 miles (my team did more than 400 miles). The strongest correlation was that the teams with more riders had more total miles, with all else pretty equal.

Oh, the manufacturer just came out with their street supermoto motorcycle, roughly equivalent to a 400cc gas motard, but with a smoother ride.

It turns out that biggest limiting factors in transportation technology applications are the squishy pink things and their decisions and hardware components (especially for handling (tires and suspension), not power pack chemistries, energy carriers or drivetrain choices. The same goes for KERS in Formula One. It's an improvement, when designed, installed, managed and used appropriately, but only one of many factors in high performance applications.

I'm thrilled, Mr. Petersen, that your analysis of lithium based apps is getting more sophisticated as you learn more. 55% charge swing sounds reasonable to me as a user is it's backed by, say, a five year warranty. After five years, you'd probably want a plug and play performance upgrade to the drivetrain energy carrier hardware, anyway, with a rebate for the swap for its ability to sit alongside its lead brothers as adding low capacity storage value (say, for electric utilities) for an additional many years.

I'm just some Joe SixPack electric vehicle purchaser, so I appreciate your patience with my comments.


On Mar 23 09:28 AM John Petersen wrote:

> aquaculture, I love Li-ion for right sized applications like e-bikes
> and scooters, so even suggesting that I think the technology is a
> loser is 180 degrees off base. That being said, I think it foolish
> to try to power 3,000 pounds of steel and 300 pounds of passengers
> at highway speed using Li-ion, or for that matter any other battery.
> The economics simply do not work.
>
> jamesnach, I'm sorry but you're wrong. I live in Europe and have
> for the last 12 years. I'm used to paying $5 a gallon for gas during
> the good times. People here don't drive HEVs, PHEVs or EVs any more
> than they do in the States. What they do is drive much smaller cars,
> walk when distances are short and take trains when distances are
> long. My pricing data comes directly from the DOE and Japan's New
> Energy and Industrial Technology Development Organization and I always
> supply links to the source data. So please quit trying to trump governmental
> publications with rumor. My work is not mandatory reading.

Apr 14 03:56 PM

[John Petersen:]

Realist, the term for what you have is not EV, it is now formally E2W, meaning electric two wheeler. I've always been a big fan of Li-ion technology where the ratio of vehicle weight to passenger weight is less than two. As I recall, your ratio is closer to one. Your experience is meaningless for a purchaser who is considering the economics of a vehicle to passenger weight ratio of 10.

Apr 14 04:04 PM

[realist2:]

I said right up front that I was referring to a motocross motorcycle. You're the one who brought up e-bikes and electric scooters, as I clearly replied to above, and my reply is directed to exactly that class of vehicle and what it can do in the real world, so what does a purchaser who is considering the economics of a vehicle to passenger weight ratio of 10 have to do with the topic of two wheeled electric vehicles that you initiated in this thread?

My experience is intended for those who are considering the economics of a vehicle to passenger weight ratio that allows for high performance, blessed be Colin Chapman, and more specifically to those who are interested in high performance motorcross and supermoto electric motorcycles. I have to inform you that I'm a heavy, tall fellow, so my vehicle to rider weight ratio is 1.5, though 1.0 is about right for the average high performance EV motocross (off road motocycle) rider.

I've been following the EV literature closely for years now and had never seen E2W. A quick internet search of 118,000 results show no such acronym use as you suggest, except for yours above. I'll try to get others to adopt it, if you want, although the latest revisions for tax credits to electric vehicles goes in the exact opposite direct, with two and three wheel electric vehicles (with sufficient power pack size) now included for the purposes of electric vehicle power pack size based tax credits.

You know how hard it is for others to change years old traditions.

acronyms.thefreedictio...

evworld.com/guides/gui...

I guess since my vehicle is listed in the buyer's guide at EV World, I'll keep calling it an EV, which it is. It's a vehicle and it's electric. Moreover, it's my daily commuter and I own it, so I might call it Suzy KreemCheeze if I want.

Thanks again for the plug for electric two wheeled vehicles, whatever you want to call them. I like the high performance ones, like mine.

Apr 14 04:39 PM

[realist2:]

I meant rider to vehicle weight ratio is 1.5. Sorry. Freudian slip.

Apr 14 04:42 PM

[D. McHattie:]

John, just wanted to give a word of thanks for all your hard work researching advanced batteries and sharing your findings and opinions with us.

Thanks to you, I own small amounts of AXPW, ENS and XIDE. I could have timed my entry to AXPW a little better but today made it all worthwhile.

While I don't like to count my gains until I've actually sold and I don't plan to sell any of them soon, I'm up 56%, 11% and 48% respectively.

Please keep researching and writing - it is much appreciated.

Apr 14 07:21 PM

[John Petersen:]

Speculawyer, the dangerous thing about giving me links is I actually check them and I read things like the following introduction to your vaunted Table 4:

Thus, the capital cost assumptions for storage technologies considered in this study are shown in Table 4. Balance of Plant includes the auxiliary components outside of the storage subsystem or power converters. For some technologies, these costs are integral to the power system.

Capital cost estimates are exactly that - assumptions that somebody made up for the purpose of creating a financial model.

By the way, A123s cost of goods sold for Q-1 was about $2,000 per kWh although I was able to confirm that the overhead cost allocation will fall as production quantities increase.

Jul 21 03:47 PM