A123 Systems Moves Its Planned IPO to the Front Burner 60 comments
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After six months of regulatory silence and $100 million in new funding, A123 Systems amended the SEC registration statement for its proposed IPO on June 23rd. While this latest filing may simply be A123's way of demonstrating its ability to raise matching funds for a scaled back ATVM loan request of $1 billion and pending applications for $438 million in direct Federal grants, my sense is that the proposed IPO will probably come to market in early September. Since ATVM loans will require 20% cost sharing and direct Federal grants will require 50% cost sharing, the IPO will probably be a good deal larger than the $175 million contemplated by A123's original filing.
I'm very interested in A123's IPO for several reasons. First, it will be underwritten by Morgan Stanley (MS), Goldman Sachs (GS), Merrill Lynch (MER) and Lazard, which will give us the first clear picture of how the top-tier investment banks and institutional investors value pure-play energy storage companies.
Second, the emergence of A123 as a sub-sector leader will encourage lesser Li-ion battery developers to adopt comparably transparent disclosure metrics that will make it much easier to assess their relative strengths and weaknesses.
Third, the existence of a large, adequately capitalized and business driven leader in the Li-ion sub-sector will probably dampen some of the unbridled optimism we've seen in the markets for transition stage Li-ion battery developers. Finally, the A123 IPO is likely to launch a renaissance of interest in a basic industrial sector that's been undervalued and ignored for years.
I spent some time over the weekend studying A123's draft prospectus and was able to glean important current data that tends to highlight the yawning economic chasms that Li-ion technology must bridge before it can compete in applications where the end-user has a choice. During the first quarter of 2009, A123's cost of goods sold was $1.89 per watt hour, which does not compare favorably with an average cost of roughly $0.20 per watt hour for lead acid batteries. Likewise A123's $41 million investment in property, plant and equipment that can manufacture up to 151,000 kWh of batteries per year is at least an order of magnitude greater than the capital cost of lead-acid battery manufacturing facilities.
I fully expect that capital outlays and manufacturing costs for Li-ion batteries will both decline dramatically over the next ten years. For the short- to medium-term, however, I expect gross profit margins in the Li-ion sub-sector to remain narrow and sales revenues to ramp-up slowly as Li-ion battery chemistry and manufacturing methods progress through two or three generations of technological change. It all boils down to baby steps; learning to crawl, then toddle, then walk and then run. The bumps, bruises, skinned knees and tears are all part of the learning process.
As regular readers know, I come from the lead-acid side of the battery business and believe that over next ten years the bulk of the expected revenue growth in the energy storage sector will flow to established manufacturers of inexpensive lead-acid batteries that can do the required work for a reasonable cost even if they are bulkier and heavier. Over the longer term, I expect leading Li-ion battery developers like A123 to overcome a myriad of cost, performance, safety, cycle-life, abuse tolerance and raw material constraints that I've written about in other articles, and ultimately usher in a golden age of cheap energy storage for applications ranging from portable power, to vehicles with plugs, to a smart grid that smoothly integrates a host of emerging power generation technologies. The changes won't come overnight and they will be expensive, but by 2020 the world will be very different from the one we live in today.
While I'm not so old that I avoid buying green bananas, I expect to be cold, dead and buried long before competition from Li-ion batteries results in a year on year decline in global sales of lead-acid batteries. Nevertheless, A123's upcoming IPO is certain to focus the market’s attention on the storage sector in a whole new way. Since I've been around long enough to know that a rising tide of investor sentiment lifts all of the boats in the marina, I think astute investors ought to be doing their boat shopping now.
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This article has 60 comments:
ECD Fan, new companies with new technologies frequently lose lots of money and have highly variable operating results. But there's an investor for every investment and as long as the numbers don't get too far out of line, picking the right horse in a rapidly evolving sector can be profitable. I personally prefer beaten down established companies but would have a hard time criticizing other well informed preferences.
For a more recent example, look at the flow of money into the solar sector over the last 10 years. Once the faucet turns, it flows for a long time.
Valence has been 20 years in the field...there are 2 possibilities
1. They are stupid, complety stupids, Mr Berg (a Forbes 400) is a dumb pumping money for 20 years in a company with 300 patents and no product has been seriously considerated for mass production.
2. The dumbs will be the ones who buy this IPO offer.
The A 123 product has been passed by GM and Ford, they are moving because they have money...federal money but Valence had it for 20 years and......there is no business around.
Even if they have a product, there are a lot of facts (JP work in this blog) that indicates that unless they are able to deliver power at 250 dls/kwh base price, there are many options in grid power and transportation different to batteries even (in my opinion to expensive Lead-carbon ones)
Regards.
earth2tech.com/2009/06.../
In comparison, Valence had $25 million in sales for the year ended March 31, 2009; $6.3 million in property, plant and equipment and a negative stockholders equity of $67 million. If the holders of roughly $78 million in Valence debt (principally Berg) wanted to, they could force it into Chapter 11 tomorrow. The link to the Form 10-K is:
www.sec.gov/Archives/e...
I agree wholeheartedly that there are a wide variety of storage options for transportation, alternative energy, the smart grid and a myriad of other applications we haven't even thought of yet. The best estimates I've seen talk in terms of hundreds of billions of dollars per year in total demand. There is no need for li-ion or NiMH or even my beloved lead-carbon to be the answer to all prayers. I actually think the best any technology will ever get to is answering a small percentage of the prayers. But even small percentages of this market will have about 9 zeros, which is more than adequate for a very healthy business.
Is not th same having a Black and Decker contract and moving the stuff, my point is THERE WILL BE NO PRODUCT AS THE IPO WILL PROMISE, Science facts are not there in the way they should promise in a investor proposal.
Agree with you that this IPO moves water in all the rivers I hope the best for my XIDE and VLNC but after suffering with Valence for years of frustrations, quarter after quarter i am not optimist about the long term result of A123 IPO, thats all
On Jun 29 03:05 PM John Petersen wrote:
> Advill, I hate to disagree with you but A123 has $40 million of producing
> property, plant and equipment in China and had first quarter revenue
> of $23 million ($20 million in product sales and $3 million in contract
> R&D). Their product sales were broken down into two main categories
> (a) portable power for hand tools - $7 million, (b) transportation
> - $13 million. They also had roughly $200 million in equity after
> giving effect to (1) $100 million that they raised in the second
> quarter and (2) the automatic conversion of the preferred stock that
> will happen when the IPO goes effective.
>
> In comparison, Valence had $25 million in sales for the year ended
> March 31, 2009; $6.3 million in property, plant and equipment and
> a negative stockholders equity of $67 million. If the holders of
> roughly $78 million in Valence debt (principally Berg) wanted to,
> they could force it into Chapter 11 tomorrow. The link to the Form
> 10-K is:
>
> www.sec.gov/Archives/e...
>
>
> I agree wholeheartedly that there are a wide variety of storage options
> for transportation, alternative energy, the smart grid and a myriad
> of other applications we haven't even thought of yet. The best estimates
> I've seen talk in terms of hundreds of billions of dollars per year
> in total demand. There is no need for li-ion or NiMH or even my beloved
> lead-carbon to be the answer to all prayers. I actually think the
> best any technology will ever get to is answering a small percentage
> of the prayers. But even small percentages of this market will have
> about 9 zeros, which is more than adequate for a very healthy business.
The key to advanced Lithium-ion (or any chemistry) is the ability of a company to offer a true "plug & play" solution to it's customers. That of course means being able not only to provide the cells @ an acceptable level of Price & QC - but to offer the complete electronics package to handle whatever requirements the customer has for their specific product application.
This is what will truly seperate the wheat from the chaffe and the ones who will succeed will be those who can acheive a high tech market advantage by becoming such a "total solutions" battery systems supplier across a wide variety of markets.
Big 6 abandon selling diesel cars in the U.S. by 2010!
www.autonews.com/artic...
PHOTO OF THE WEEK: Sign of the times? Look at the front and back cover of the August 2009 issue of Car and Driver magazine featuring "Cool Cars for the Future." Depicted are the Chrysler Circuit EV, the Chevy Volt, the Fisker Karma and the BMW Mini-E, all of which are electrically driven. Inside, the magazine states, "If you've read a car magazine anytime during the past two years, you've seen the news: The short-term automotive future will be electric."
25 years ago – Methanol
15 years ago – Electric vehicles
10 years ago – HEVs and Electric vehicles
5 years ago – Hydrogen Fuel Cells
2 years ago – Ethanol
Today – PHEVs and Electric vehicles
2011 – What’s next?
seekingalpha.com/artic...
This time may be different from all the others, but I'll not hold my breath. I will, however, continue to believe that the CO2 emission standards in Europe and CAFE standards in the US will favor stop-start technology over the short term and incremental revenue to lead-acid battery producers will dwarf revenue from sales of Li-ion batteries into the automotive market.
On Jun 30 10:58 AM Don Harmon wrote:
> John, I knew you would make that correlation. Thought the same thing
> myself! Yet the media is fixed on cars with plugs.
evworld.com/news.cfm?n...
What do you think the chances are of Axion getting some of the DOE money for battery development? I'm thinking of picking up some shares to hold for the long term, and it almost definitely would be best to do this before the stimulus occurrs.
Thanks!
By the way, did you get my email?
I did not get your e-mail please try again using jlp (at) ipo-law.com.
I understand that LFP/graphite batteries have flat voltage profiles relative to SOC, such that algorithms are more difficult to implement, and large errors in the SOC estimation may result -- affecting life. Don't you give up life for that "simple" algorithm?
The algorithym you are referring to only affects the charging of the LFP battery. It is almost identical to the Lead Acid charge profile except it takes a higher charge and a different eqation for charging. There are some very fine Chargers already on the market from highly recognized companies that handle this quite easily - so no need to worry. If you want FAST charging you can have it with LFP and you just pay more for the charger.
But it's not rocket science - it's all out there right now and available to anyone who wants to use it.
On Jun 30 04:59 PM marketquant wrote:
> > the charging algorithym for LiFePO4 is quite a simple affair -
> Don
>
> I understand that LFP/graphite batteries have flat voltage profiles
> relative to SOC, such that algorithms are more difficult to implement,
> and large errors in the SOC estimation may result -- affecting life.
> Don't you give up life for that "simple" algorithm?
In an HEV application where it is desirable to maintain near mid-SOC (and within the SOC swing) then having a flat discharge curve makes it difficult to avoid the stress and strain of deep discharge and/or avoid the risk of degradation reactions during high power recharge -- which increases as the SOC increases (not to mention hysteresis or temperature).. blah, blah, etc.
Or are those type of objections besides the point? Simple is fine in most applications? "No need to worry"? That stuff will get fixed in the long run?
I think you need a little more education on this whole concept of advanced Lithium-ion before you go too much further posting your thoughts about it.
J
Are you? :-) The 8,000 cycles you refer to in that report are from the *utility* PSOC cycle test. The hybrid pulse power cycle test is included, but that's not a cycle life test. The Freedom Car cycle life goal is 300,000 cycles (of 25Wh), so this is sort-of apples and oranges, but this is besides the point.
The issues that I raised are consistent with the comments and research focus of some of the world's top LPO battery researchers. And I've discussed this life issue with the manager of a govt funded HEV test progam who said that in *practice* entire LPO packs were getting dragged down by cell failures -- which I have come to believe is caused by miscalculations of the SOC which thereby results in stress and strain of using the cells outside the desired SOC swing, and subsequent failure.
> "Over the longer term... battery developers like A123 to overcome... myriad of performance..., cycle-life.. constraints - John
A123 seems to be finding potential solutions to these issues using interesting new materials. :-)
files.me.com/john.pete...
It's a great high level technical and policy analysis that I encourage everybody to download and study. Granted it was prepared during the Bush administration, but it does a great job describing the actions taken and planned by the Obama administration. So I think there is still a lot of value.
A123 has some new dopants and additives for cathode and anode to mitigate over-charge and over-discharge but I don't know how manufacturable they will be. I have just had a heightened curiosity after my talk with the HEV test manager about these LFP issues. It just seems that more LMO is moving forward in HEV than LFP.
> Li-ion batteries into the mainstream - John
EPRI said recently that *used* Li vehicle batteries would have higher energy and power density than other options for utility energy storage -- so re-purposing these reclaimed batteries is another variable in their "present value" calc.
Also a theme keeps coming up at energy commission meetings -- cannot build generation in cities (especially carbon), cannot expand transmission in cities, so energy storage keeps getting called "crucial".
This is going to be a big enough horse for us all to ride! Giddy-up!
Every Li-ion advocate I know of is certain that the DOE's goal of reducing the price of new Li-ion batteries to $250 per kWh or less is easily attainable by 2020. The same is true for the expected performance gains. While I'm not certain that the production cost savings and performance gains will be possible, let's assume for a minute that they are.
If I can buy a new battery pack in 2020 for $250 per kWh that will have far better energy density, power and performance, how much do you think I'll pay for used batteries that were made in 2010?
History doesn't repeat itself but it frequently rhymes.
Ultimately I agree with you that the energy storage industry is going to be massive enough that every company that stays in the game will have more business than it can handle. Milunovich at Merrill Lynch keeps talking about cleantech being one or two orders of magnitude bigger than IT. There is no question that storage is an enabling technology for huge swaths of cleantech. We've heard lots of people quip that the country that controls the batteries will control the auto industry. I think it would be more accurate to say that the country that controls batteries will control cleantech. You can't even imagine the size of this horse.
value of old batteries will be the net value of their raw materials after the cost of extracting and refining them has been extracted. Note that at present (2009) there is no economical process for recovering the lithium from exisitng battery technologies at a cost less than the cost of new lithium. Lithium's price would have to go up dramatically for any of today's recycling technologies for such batteries to be economical. As for nickel metal hydride batteries I am not aware of any economical recycling processes for them either, although such may already exist but are proprietary.
The lead used for SLI batteries is, by contrast, today almost all recovered economically enough to account for 85% of the demand for "new" lead for batteries in the USA.
The ores of metals do not renew themselves; only the creation of a new planet with the makeup of the earth and a few billion years of churning, hydroactivity, and weathering can create and bring to the surface concentrations of metal ores from which the metals themselves can be recovered.
This urgent recycling issue for the rare earth metals, nickel, cobalt, lithium, and manganese has been eclipsed by the larger issues of the quality and economics of the battery technologies, but we cannot possibly electrify our motor cars without an efficient economical recycling process in place. The idea of wasting our limited resources of rare metals in one time uses as we today waste lithium, nickel, cobalt, and lanthanum in batteries for small and personal electronics is obscene.
I will be speaking on this issue at the Metals in Aerospace Conference in Seattle, sponsored by Metal-Pages.com between October 6 and 8. I am trying to drum up interest in creating a rare metal recycling research and development institute or company in the USA for which I would volunteer to be the first CEO.
Jack, there were a couple of ARRA battery grants set aside for companies that wanted to develop or improve recycling technologies (2 at $25 million each as I recall). While I'm sure somebody applied for them I have no idea who. Of all the problems faced by NiMH and Li-ion battery producers, I worry most about resource availability because a factory without adequate inputs is merely a scar on the landscape.
Stay with me John, dial that back to 2 years in a vehicle and 3 years at the utility, and then onto recycling or whatever.
I'm not saying that it will definitely work -- although the modular nature of the problem implies "duh!". It's just that there is apparently a lot of chatter between the utilities and the auto cos -- it might be like 1970s gov't housing projects: destined to fail, but it didn't stop them from sinking a bunch of money into the idea.
There are probably a bunch of 2yr used LMO packs sitting around at the auto cos to experiment with.
ARRA Battery Grants were targeted at companies that could not get financing from a free market, which requires a return on invested capital in a "reasonable" time. Companies that cobbled together a grant application are all like graduate students who hurry to write up their results at the end of the year, so they can get another year of funding for whatever their advisor has chosen for them to study; they, the ARRA "grants or loan-guarantees" are a sideshow intended to show what I call "depth perception" by the "tone deaf." And, yes, I meant to mix my metaphors.
The rdiculous business models of the so-called recyclers are a wonder to see. I am proposing an institute or foundation with no ax to grind and no conflicts of interest to take a disinterested look at the issue of recycling precious rare metals, before we pass the threshold of losing so much of our domestic supply of them that technology implementation becomes impossible no matter how good one is with a teleprompter.
Just one last comment. Cap and trade does not take into account how much it adds to the cost of producing metals in cap and trade limited economies. Watch out for that.
Jack
Jack, the ARRA grants will require recipients to provide 50% matching funds, so it won't be a simple give away. That's one of the more appealing aspects of the program. Even if the DOE likes a proposal it isn't going to happen unless an investment banker likes it too. So far, the only battery producer that's had the temerity to suggest it can all be done with somebody else's money is Valence, which has asked for $225 million in free money from the Fed and another $359 million coming State and local incentives.
I for one would love to see somebody perform a comprehensive and independent evaluation of the mineral resource issues you've described. I've grown tired of even trying to argue with people who blithely assert "we'll just get it from seawater" but have no concept of how difficult it is to get useful supplies of important metals at anything approaching a reasonable cost. Ignorance may be bliss, but not when you're spending billions of dollars in Government money. Our biggest problem is that substantially all Americans have never experienced shortages that go beyond the latest gee-whiz electronics at Christmas. You and I know how absolute limits are going to impact life over the next 25 years, most people cannot even bring themselves to a point where they acknowledge a potential problem. It will be a very rude awakening.
I was thinking a high intensity fleet vehicle application followed by a high intensity utility application, so as to more quickly ascertain the whole life usage and economics. If EPRI starts a research project we'll know they're serious, otherwise it's just a ppt slide.
www.usnews.com/article...
Having a mineral deposit is a lot like a having a cool battery technology. The only thing standing between the owner and a revenue stream is a hundred million or so in development money and five to seven years to get from planning to production.
Undeveloped natural resources are affectionately referred to as moose pasture, because that's all they're good for until somebody spends the time and money to put them into production.
China controls 97% of global production and that will not change for a minimum of five to seven years because that's how long the mine development process takes.
It's pretty clear that Lynas Corp will be the first rare earth miner to come on-line outside of China, that has existing contracts in place with customers outside of China to deliver a final rare earth product.
We'll be happy to grow this way and not put our investors into a huge debt load like Valence has done.
I also see a market in "conversions" that is going to be a good one for us once we can leverage the costs a bit more and be able to offer finance terms to customers. Since the Car companies will not be able to offer EV's in any significant numbers or affordable prices - I believe there will develop a small booming market for conversions and this could help small Lithium-ion makers survive while they further develop their chemistries and ramp up their production.
www.edmunds.com/inside...
I see demand for cars with big battery packs ramping up the same way the Prius did with small numbers for several years followed by a much more rapid ramp up with Li-ion 2.0 and Li-ion 3.0. I agree wholeheartedly that a small company with tight overhead controls is far more likely to survive than one that spends profligately.
If you want an example to follow, ABAT was my hero in the Li-ion space until they bought an electric bike manufacturing company in China and diversified to the point where they are no longer a pure play company.
As our cells develop and become higher energy and greater amp hours they will have become tested and proven in the conversion market and will gain confidence with the EV makers. By that time we should be prepared to offer a real production and price advantage to larger Car makers.
Hopefully, my partner and I will be able to retire by then and let the young tigers move the company into the next stage of development and we'll be sailing on the LiFeBATT catamaran around the world and visiting our foreign partners and maybe writing a book about the cowboy days of Lithium....lol!
"During the summer of 2005, ZQ Power-Tech signed a cooperation agreement with the Beijing Institute of Technology to participate in the development of an all-electric bus using ZQ Power-Tech rechargeable batteries. To enhance the potential use of that battery, ZQ Power-Tech entered into a development and supply relationship with Altair Nanotechnologies, Inc. of Reno, Nevada. During 2005 Altair supplied ZQ Power-Tech with nano-structured lithium spinel electrode materials that ZQ Power-Tech has successfully tested in its vehicle batteries. The inclusion of these nanomaterials in ZQ Power-Tech’s batteries has significantly increased the power delivery and reduced the time required for recharge. ZQ Power-Tech is currently conducting research and development activities aimed at exploiting the technological advantages that the Altair nanomaterials can provide throughout ZQ Power-Tech’s catalog of batteries."
Altair's Form 10-K does not mention either ABAT or ZQ Power-Tech, much less claim that ABAT is using its technology.
I think crediting ALTI with being the wellspring of ABAT's technology falls in the category of urban legend.
After all they are listed on NASDAQ and have been around for more than a few years now.
"When we first entered the battery business in 2003 and following years, the bulk of our sales were small capacity batteries, primarily those used in consumer electronic devices. Our growth, however, has been propelled by customers for our medium capacity batteries (used for electric scooters, electric bicycles, power tools, miners’ lamps, searchlights, etc.) and large capacity batteries (used for electric sanitation vehicles, stationary applications, and other large scale battery applications). In 2008, the contribution of batteries in these categories to our total revenues was:
Small Capacity Batteries – $4,727,223 (10.5%)
Medium Capacity Batteries – $16,200,079 (35.9%)
Large Capacity Batteries – $13,467,511 (29.8%)
Other – $10,777,298 (23.8%)"
ABAT operates principally in China and with their recent vertical integration into the E2W and light EV markets, I don't expect that to change any time soon.
I recommended them to you as a model because any company that can take a third of total revenue to the bottom line is doing a lot of things right.
My point is they mention they will be going into the EV market (everyone does) but it's not a simple matter to scale up a cell phone battery to an EV system and I think it will by a long time before ABAT comes to market with such a product line?
Which is fine because we all agree that this market (if it develops) will take time for sure!
Please don't take me head off, but I have to ask if you have any thoughts on the news floating around the internet of an imminent breakthru by EEstor.