Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Rachel Carroll - Vice President of Corporate Communications

Charles Gassenheimer - Chairman and Chief Executive Officer

Gerard Herlihy - Chief Financial Officer

Jeffrey Seidel - Vice President of Corporate Strategy

Ulrik Grape - Executive Vice President

Cyrus Ashtiani - Chief Technology Officer, EnerDel

Naoki Ota - Chief Operating Officer

Analysts

Steven Milunovich - Merrill Lynch

Rod Lache - Deutsche Bank

Colin Volek - ThinkEquity LLC

Bryce Dille - JMP Securities

Raj Seth - Cowen & Company

Thomas Daniels - Thomas Weisel Partners

Harlan Cherniak - Venor Capital

Ener1 Inc. (HEV) Q2 2009 Earnings Call August 6, 2009 5:00 PM ET

Operator

Good afternoon and welcome to Ener1's 2009 Second Quarter Results Conference Call. Today's call is being recorded. If you have any objections you may disconnect at this time. Your lines have been placed on a listen-only mode until the question and answer segment of today's conference call.

I will now turn the call over to Rachel Carroll, Vice President of Corporate Communications for Ener1 Incorporated.

Rachel Carroll

Great, thank you. Good afternoon and welcome to the Ener1 management call to discuss second quarter results for 2009. Participants on the call toady will be Charles Gassenheimer, Chairman and CEO of Ener1 Inc.; Gerry Herlihy, Chief Financial Officer of Ener1 Inc.; Jeff Seidel, Vice President of Corporate Strategy for Ener1 Inc.; Ulrik Grape, CEO of the lithium-ion battery subsidiary, EnerDel and who is also the Executive Vice President of Sales and Marketing for Ener1; Cyrus Ashtiani, the Chief Technology Officer for EnerDel and Naoki Ota, the Chief Operating Officer for EnerDel will be available in the question and answer section of the call.

Prior to the call, I'd briefly like to remind listeners that certain statements made on this call constitute forward-looking statements that are based on management's expectations, estimates, projections and assumptions. These statements are not guarantees of future performance and involve certain risks and uncertainties which are difficult to predict. Therefore, actual future results and trends may differ materially from what is forecast in forward-looking statements due to a variety of factors.

I will now turn the call over to Charles Gassenheimer, Chairman and CEO of Ener1 for opening remarks.

Charles Gassenheimer

Thanks Rachel. Yesterday was a historic day for Ener1. During his address to the Nation from the State of Indiana, we were deeply honored and humbled to have President Obama acknowledge EnerDel as one of the companies leading the charge to rebuild America's automotive industry.

Our grant award of $118.5 million to be administered by the U.S. Department of Energy under the 2009 American Recovery and Reinvestment Act was 100% of our ask.

Out of hundreds of applicants, 48 transportation grant awards for U.S. companies were announced in total. As many of you have followed the company for some time, you will understand that this is the result of many years of hard work. This milestone was achieved by building the foundation of our company and successive achievements brick by brick.

While we are tremendously excited to be acknowledged as one of America's leading lithium ion-battery companies and component suppliers to the global automotive industry, this is just the first step of an intricate business plan to take a center stage in a new energy industry that is on the verge of taking off.

I will have the Ener1 management team walk you through the quarterly highlights, the expansion of the business under the various federal funding initiatives, the customer pipeline and emerging new markets. But first would like to reiterate the binding principles of Ener1 from an investment perspective.

The coming weeks and months, we expect a lot of hype and expectation regarding electric vehicles and the promises for this new industry.

While we are generally excited, we also pride ourselves of being one of the most hungry and entrepreneurial companies in this space, we are dedicated and committed to setting realistic goals and performance targets by which you can clearly measure our progress. And importantly, making the right kind of strategic decisions that create long-term shareholder value.

On our fourth quarter earnings conference call in March, we laid out a list of our top 10 focus customers. It was a balanced portfolio of customers that potentially represented substantial revenue generation of up to $2 billion in the next five to seven years. That's on an annual basis. We committed to announcing 60% of that list by the end of 2009.

I'm pleased to say that with the recent announcement of a development program with Nissan Motor of Japan on July 30th, we have already reached that target. Given the quality and range of customers on this list, it is a formidable achievement.

In my concluding remarks, I will summarize the performance benchmarks and strategic objectives for you to measure us from the second half of 2009 and beyond.

I'd now like to turn the call over to Gerry Herlihy, Chief Financial Officer of Ener1 for his comments on the quarter.

Gerard Herlihy

Thank you, Charles. We filed our Form 10-Q containing our unaudited financial statements this afternoon prior to the call. The financial highlights are as follows.

Revenues for the second quarter 2009 were $7.5 million compared to $437,000 in 2008 for second quarter. The gross margin was $1.2 million for the quarter.

The operating loss was $11.4 million compared to $7.3 million in the prior year quarter.

The 2009 quarterly results included significant non-cash operating items of $3.4 million including $1.8 million of depreciation and amortization and $1.6 million of stock-based compensation expense. 2008 amounts for depreciation and stock expense were $191,000 and $658,000 respectively.

Second quarter operating expenses were $12.5 million in 2009 compared to $7.8 million in 2008 as Enertech operations were included for a full quarter in 2009.

Research and development expenses were $7.5 million, general and administrative expenses were $3.7 million.

Our financial results now include the operations at Enertech International since the acquisition in October 2008. Despite a difficult worldwide economy and a depreciated Korean won, Enertech's six month EBITDA was $1 million. Enertech sales were $6.8 million for the quarter and $14.7 million for the six months.

Ener1's net loss per share was $0.11 in 2009 compared to $0.08 in 2008. Weighted average shares were 113.8 million in 2009.

Unrestricted cash at June 30th was $6 million under our open market sales program with Jefferies & Company from May 26th through August 4. In that we raised $19.6 million at an average price of $6.38 per share.

I will now turn over the call to Jeff Seidel, our Vice President of Strategy who will discuss the grants.

Jeffrey Seidel

Good afternoon. I wanted to update investors on two things: our grant initiative and also our ATVM loan process.

Up until August 5th, we had not received any feedback under our application for funds under FOA 26, the $1.2 billion grant program for advanced battery manufacturing. However, everything changed yesterday when President Obama announced in Elkhart, Indiana that an entrepreneurial company from Indianapolis named EnerDel was named the recipient for funding under the Recovery Act Battery Manufacturing Initiative.

I'm happy to report that EnerDel received 100% of the funds requested under the manufacturing grant at a 50:50 cost share. The funds requested by EnerDel under the grant are smaller than some of our competitors. It is important to remember that the grant program is a 50:50 cost share that for every dollar provided by the government, Ener1 must also contribute a dollar.

As such, this is not free money, but money provided at 50% of our cost of equity. That said, the State of Indiana has offered a number of potential incentives to reduce Ener1's cost share under the grant program and we are actively valuating all incentive opportunities.

If you consider the weighted average cost of capital under a 50:50 cost share, the grant is not as attractive as the ATVM direct loan where for every $0.80 contributed by the Department of Energy, Ener1 must contribute just $0.20. That $0.20 equity contribution can also be reduced by Ener1's historical invested capital in the project.

In essence, we believe that under the ATVM program, we can support larger expansion proceeds with a smaller equity contribution that is possible to achieve under the grant program. As such, our grant application was for a smaller level of incremental capacity than the ATVM, but large enough to bring us to 60,000 EV packs per year, a level of demand we expect to reach in the 2013 timeframe.

There are two major advantages associated with utilizing the grant first and the ATVM load second.

First, money released under the stimulus package is expected to move first and we will do so with the grant, expanding capacity to 60,000 EV units. There is more flexibility surrounding the timing of the ATVM and we can use it to expand capacity beyond what we can achieve with the grant.

Second, we will reduce the financial risk under the ATVM loan program as revenues and free cash flow will easily debt support debt on the balance sheet after we implement the grant. It is our expectation and the expectations of outside consultants hired by the Department of Energy that demand from our core customers will meet or exceed 60,000 EV units in the 2013 timeframe. The grant positions us well to achieve the financing and productive capacity necessary to meet that goal.

And now I'd like to update everyone on the ATVM loan.

Ener1 continues to make good progress with the Department of Energy regarding our application for the Advanced Technology Vehicle Manufacturing or ATVM program. We believe we are nearly complete with the technical and financial due diligence as conducted by the Department of Energy, Ernst & Young, A.T. Kearney and Sentech.

During the first half of the quarter, we believe the applicants who announced loan commitments from DOE, namely Ford Motor Company, Nissan and Tesla received the bulk of attention from the ATVM loan office and their consultants. These initial recipients as well as decisions surrounding the grant created a lull, but we feel we have been busy preparing and responding to various inquiries from DOE since the end of June.

Some milestones associated with our ATVM submission are as follows. On June 16th, we submitted a third amendment to our ATVM applications stating that no new construction was necessary for the first phase of our project. As the current location is currently used for lithium-ion battery manufacturing, we received categorical exclusion from ATVM's new officer for this portion of our capacity expansion.

On June 24th, we were invited by the Department of Energy to review marketing analysis conducted by A.T. Kearney pertaining to their forecast for the lithium-ion battery market for automotive applications. On July 14th, we submitted revisions to our financial model based on feedback from the A.T. Kearney analysis and changes requested by Ernst & Young. On July 20th, we conducted a conference call with you to walk through the changes incorporated into our financial model. And on July 31st, we submitted two scenarios: a management case and a lender case both to DOE. As we move deeper into the evaluation process, we continue to discuss appropriate loan proceeds with DOE.

You may recall from our original application that we applied for $480 million in loan proceeds to finance plant and equipment to produce 120,000 electric vehicles per year. That $480 million broke down into $190 million in new construction and $290 million in manufacturing equipment. It is unlikely that we will receive financing to build new buildings as there are scores of available manufacturing facilities located in Indiana as well as other nearby states suitable for our production requirements.

We have short listed a number of existing manufacturing facilities in Indiana where upgrades and refurbishment are more cost effective than new construction. This has lowered our total project cost and required loan proceeds. Overall, refurbishing existing facilities especially in locations where the recession has hit hardest is more in line with the goals of the ATVM program. In addition, utilizing existing locations will likely lower the time necessary to complete any environmental protection agency studies, allowing us to ramp up manufacturing in a timely manner.

We believe DOE is interested in financing companies to the level where they can finance themselves in the traditional capital markets. There is a point where the revenue and cash flow generation of Ener1 is sufficient to extend plant and manufacturing capability from a combination of free cash and external financing. At 120,000 EV vehicles, our forecast revenue is approximately $2.2 billion with EBITDA margins of 20% and net income margins in excess of 10%. At these volumes, we could finance plant expansion from free cash flow. We do not believe DOE will finance us to these volumes. Rather, like any lender, DOE is assessing the overall risk of Ener1 and the risk that EnerDel does not emerge as the leader in the lithium-ion battery market.

On the downside, in terms of volume and pricing, the question DOE is asking is what loan makes financials sense, reduces risk and still puts Ener1 in a strong position to finance plant expansion independently going forward. That is the loan amount we believe DOE is interested in financing. We expect to hear results in terms of our financial and tactical viability in the coming weeks. We believe we are responding well and in a timely fashion to DOE requests for information.

We also believe that the scenarios put forward to DOE are ones in which EnerDel is financially viable and fully able to repay debt incurred under the ATVM program.

I will now turn the presentation over to Ulrik.

Ulrik Grape

Thank you, Jeff, and good afternoon everyone. For the business development section of the call, I would like to highlight the customer metrics on slide 13 of the accompanying presentation.

On the fourth quarter conference call, I highlighted 15 active programs and a top 10 focus list of customers for the balance of 2009. The top 10 focus list represents customers that are in the process of testing EnerDel cells and/or packs and they provide either near-term revenue opportunities... or of strategic importance to the company.

On the call in March, we committed to publicly announcing 60% of these programs by year end. As Charles mentioned earlier in the call, I'm pleased to say that with the announcement of the R&D collaboration between EnerDel, Nissan and Argonne National Lab on July 30th, we have now announced six of these programs on the top 10 focus list, meeting that 60% benchmark.

We now see incremental opportunities and new markets opening beyond that initial list and anticipate announcing several exciting new programs by the end of the year.

Before I go into specifics on each program, I would like speak briefly about the development process.

The projects being announced today are the culminations of around one to three years of in-depth evaluations and negotiations with the various customers. What we are seeing today are very exciting first steps that represent the tip of the iceberg in terms of the relationships being forged beneath the surface.

For this top 10 list alone, we have substantiated a business plan that could guide us to approximately $2 billion in revenues on an annual basis in the next five to seven years. The individual project highlights are as follows. In terms of Think, Think looks to be exiting from the financial difficulties that caused a setback in their aggressive time to market schedule for the Think City vehicle. We look forward to hearing from the company on the new streamlined business plan and financial model in the coming weeks. Production is anticipated to resume late 2009, leading to a gentle ramp in the first quarter of 2010.

EnerDel has enjoyed a closer working relationship with Think over recent months, exploring potential new business lines and commercial opportunities as exemplified with the development program recently struck with Zero Sports and Japan Post to supply EnerDel's 26 kilowatt hour battery pack design for the Think City and Think's drive train solution as an off-the-shelf solution to new customers.

We believe this is one of the most advanced integrated drive train solution that exist in the market today and look forward to providing additional detail on this opportunity as we move forward.

In terms of Fisker, we have been working closely with the engineering teams at Quantum and Fisker to refine the PHEV battery system that is being tested in two new vehicles by quantum. Tooling for this project will begin in a few weeks and we have begun negotiations on a master supply agreement. Fisker has an aggressive time to market of mid 2010, with a slated production target of 15,000 vehicles per year. So the shipment of battery packs would be immediate from the signing of final documents.

In terms of AC Transit, we have delivered the first battery pack to Van Hool, which is the bus manufacturer in Belgium in June of this year which has been successfully installed into the bus. The feedback has been very positive so far and we look forward to seeing the bus in operation in the United States later in the fall.

In terms of the Volvo announcement, EnerDel's PHEV battery system was also selected by Volvo for the two prototype B70 vehicles being driven around Europe this summer in anticipation of the launch of their first plug-in hybrid vehicle in the 2012 timeframe. This project was the result of an intense working relationship with Volvo we initiated over three years ago. The EnerDel product has been very well received and we are optimistic about the potential opportunities with Volvo going forward.

In terms of Japan Post, the Japan Post is currently testing three different vehicle types for its postal vehicles: the Mitsubishi i-MiEV, the plug-in Stella. Both these vehicles are smaller with modified cargo areas and the EnerDel Think EV conversion solution.

One of the distinct advantages of the EnerDel Think solution is that we are converting existing postal vehicles, which should work out to be substantially cheaper and a more manageable process. This could also result in immediate revenue for Ener1. Japan Post has indicated that it wishes to convert 25% of its existing fleet of 22,000 vehicles to electric and be zero emission by 2016.

The EnerDel product has been very well received and we anticipate selections to be made in the coming months for steady production ramp from the first quarter of 2010.

In terms of Nissan and the collaboration also with Argonne National Lab, we most recently announced this research and development project for an advanced electrolyte that EnerDel is working on with Nissan and ANL in Chicago. The electrolyte is chemistry agnostic and EnerDel and Nissan are optimistic this could provide a breakthrough in safety for the industry.

We are honored to be working with real innovators in the field of electric drive in the pursuit of a new technology that could potentially revolutionize the industry.

I will leave to Charles to summarize the strategic objectives for the business development effort in automotive. We are also seeing opportunities to open up in new markets, namely for military and grid storage applications.

I will now pass the call over to Cyrus Ashtiani, Chief Technology Officer for EnerDel who will talk more about the opportunities in grid storage. Cyrus?

Cyrus Ashtiani

Thank you, Ulrik. Good afternoon everyone. In spite of rapid technological advances in recent decades, the electric grid has remained the same since the invention of the light bulb 130 years ago. In one fundamental effect, every ounce or, I should say, watt of electricity generated has to be used or else wasted on an instant-by-instant basis. In that respect, while electricity is the most perishable commodity known to man and in such widespread use, in comparison to the food industry, it still exists in the pre-dawn of the refrigeration era.

Our grid system is not equipped to store what we can generate. So our generation, transmission and distribution systems are wasteful and inefficient. And more so with the green renewable energy, wind and solar that have an unpredictable generation pattern than with the fossil-based generation. These facts have been known to the experts in the field, but the government and the industry for structural, political and/or financial reasons remained on the sidelines.

The new Obama administration and Secretary to Department of Energy's more progressive and proactive role in setting the U.S. energy policy has encouraged utilities to make significant investments in energy storage and smart grid programs as part of the American Recovery and Reinvestment Act under Funding Opportunity Announcements FOA 36 and FOA 58, a 50:50 cost share of roughly $8 billion total over a three to five year time period.

EnerDel has participated in several applications for these programs in partnership with leading power and utility companies and other vendors with a potential for $12 million sales over a three year time period. And as our plans to be a major player in the following areas.

At the generation level, that is known as firming, refers to supporting unpredictable generation of renewable energy such as wind and solar to predictable power by storing.

At the transmission level, what is known as ancillary services, these are megawatts of portable power available on a continuous demand to support the grid on wheel.

At the distribution level, home and community energy storage, demand response at the distribution and consumer end supporting smart grid. It turns out that the same cells EnerDel developed for EV and PHEV applications with a sweet spot of power to energy ratios of between 2 to 4 ideally fitted with applications creating a synergistic dual use case.

At 160 watt hour per kilogram energy and about 4 kilowatts a kilogram for power density, EnerDel's strength in high energy prismatic cell based on mixed oxides and hard carbon is unmatched in the industry. And combine with U.S.-based manufacturing and assembling facility gives EnerDel the unique competitive advantage in weight, volume and cost almost by a factor of two in this market.

I would now like to turn the call back over to Charles Gassenheimer, Chairman and CEO of Ener1. Charles?

Charles Gassenheimer

Thanks Cyrus. So to the summarize the business development section of the call, I would highlight the considerable success EnerDel has achieved with entrepreneurial car companies like Think and Fisker which will see a critical mass of EnerDel batteries on the road months ahead of the competition and procure near-term revenues for the company.

By the end of 2010, EnerDel will expect to have up to 10,000 plug-in hybrids and electric vehicle batteries on the road through its existing portfolio mix of announced customers; a

considerable achievement from where the industry is today, enabling EnerDel to potentially be the volume leader in supplying large format, automotive grade lithium-ion batteries to the global automotive industry.

Our work with research analysts and intelligence gathered for the industry has led us to build an internal model that suggests total demand for 100,000 electric cars in 2010, 600,000 electric cars in 2011 and 1.3 million by 2012. In Carlos Ghosn's presentation, the CEO of Renault-Nissan, in his presentation of the new Nissan Leaf last Sunday, he suggested a total market just for pure electric vehicles of 10% of the total automotive market by 2020.

We estimate this to be about 6 to 7 million cars per year or approximately $60 billion in revenue opportunity for just the EV batteries on an annual basis by 2020. We believe there will be a huge amount of pent-up demand for batteries as the industry struggles to build out capacity with an inflexion point in 2012 as more capacity starts to come on stream.

In doubling our existing potential U.S. capacity to 60,000 electric vehicle battery packs by 2012 using the above forecast, we expect, to be entirely sold out... or to be entirely sold out, we would have to capture just 4.6% of that global end market demand in 2012.

Based on the Think City pack pricing, that equates to a revenue estimate of profit to be $1.1 billion in that year. Ener1's top 10 focus customer list alone has unit potential for up to 120,000 plug-in hybrid or electric vehicle packs by 2015, which, on the planned capacity build out, would equate to forecasted revenues of approximately $2.2 billion.

Ener1's primary objective for the second half of this year is to therefore continue to execute against this business plan. We will continue to execute on the solid relationships we have built with the brand OEM. Whether that be through strategic partnerships or converting the success of the prototype programs into volume orders. Given initial feedback, we are highly confident in our ability to do so.

The Obama administration has created considerable tailwinds for the industry, but there is still so much to be done to enable the industry to grow and grow efficiently. I'd like to close with two such examples.

The federal funding being offered to EnerDel is not merely an evaluation of our technical, financial and legal viability. But it is contingent on us being able to support to build out of a material supply chain in the United States.

On slide eighteen of the company presentation, we break out the value chain for lithium-ion battery production into discrete parts which illustrates the importance of cell material in the overall process.

Again, this is consensus data gathered by industry experts and corroborated by our own work we've done with DOE. As a data point, 78% of EnerDel's cell costs are material related. These materials are sourced today exclusively from Japan. The push to the whole battery industry to build out a domestic supply chain here in U.S. will result in a massive cost down. The early emergence of this was already evident in yesterday's announcement with companies that EnerDel supported such as Novalight which manufactures electrolyte, receiving preliminary grants of $20 million.

We are confident the steps being taken by the DOE are the right ones to build a highly competitive industry here in the United States and look forward to announcing the results of our negotiation on the ATVM loan to the market shortly.

A second story I would like to share with you is the need to invest in building out charging infrastructure in the United States. I recently visited Kyushu Electric Power in Fukuoka, Japan. KEPCO, as they are called, has been on the leading edge of developing rapid recharge technology and infrastructure. Another area that we believe we can cooperate with KEPCO and ITOCHU is on secondary use of batteries after automotive life.

Ener1 strongly believes that the cost the consumer is baring for the battery must be reduced through more efficient economic allocation and financing than through a significant reduction in the price of the battery. We will update the market of our progress in this area on subsequent management conference calls.

Given all that's happened this quarter and the last few days, I would like to stop there and make sure I take time for questions and answers. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Steve Milunovich from Merrill Lynch.

Steven Milunovich - Merrill Lynch

Thank you very much. Good afternoon. Could you talk a bit more about the grant and the loan? The grant is 50:50. Where is that 50% on your side going to come from and can it come from the loan? Can you talk a bit more about the loan? It sounds like maybe you're reducing your expectations? And does the government look at the two together and say gees, they want almost $500 million, so we count the grant against that, or how do they sort of view the two?

Charles Gassenheimer

Thanks for the question. I'll take the first then turn it over to Jeff, or more importantly, Jeff will make sure that I don't say anything incorrect. On the grant side, yes, the grant is 50:50. There are a number of ways we can finance that cost share. One such way we can do that is, for example, if Indiana were to be able to allocate a plant to us at a substantially reduced cost, the difference between the cost and the equity in the plant could count against that. So you could imagine with some of the brownfield pipes that are in Indiana today, that could be significant equity contribution.

There are also additional state level incentives that we are working with the State of Indiana on. I'd say that's our primary way to finance that. Clearly, there are additional ways to finance that including debt and equity. But until we finalize the negotiations with the State of Indiana, which is our primary path, that would be how we would plan to do that.

On the loan, you're right, it's an 80:20, but remember, and we made subsequent comments today that on the 20% contribution on the loan side, we still strongly believe that both CapEx that we spent in the U.S. already plus potentially net operating loss carry forwards may be equity contribution to the loan, which may not require additional equity contribution on the loan side.

Finally, as it relates to reducing the expectations on the loan, I wouldn't say we are reducing expectations. I think what we are saying is that the total need of the company, it may not achieve... it may not be $500 million because we may not need $190 million to build our building.

So when you look at the total package, yes, there is no doubt that the grant counts against the loan. That was part of the rule from day one that anything you get on the grant does net against the total loan amount. But we still believe between the grants and the loan that we are in the running for a total dollar amount that could be pretty close to our ask when you also include the state incentives from the State of Indiana.

So I think on a net-net basis, we could get pretty close to the total capacity we are looking to build out just by being more efficient with the capital. Of course, as this is tax payer money, capital efficiency is absolutely crucial. Jeff, I want to make sure, maybe you can jump in and see if I missed anything there.

Jeffrey Seidel

I wouldn't add too much to that other than the fact that we are in the fortunate position or somewhat unique position to be negotiating both the grant and the loan simultaneously. So a lot of the answers to these questions will actually develop over the next couple of weeks as the ATVM loan office sort of processes our grant award and we move towards negotiations assuming that we are deemed financially and technically viable on the ATVM side. So I think we'll see some clarity. I think there has, as Charles alluded to, some mentions of netting the programs against each other.

But that's not... I don't think that's set in stone. I think it's part of the negotiation process and I believe that in total, we will end up with the right dollars to build capacity to a very sustainable and cash flow generating position.

Steven Milunovich - Merrill Lynch

You said you were negotiating them simultaneously. It almost sounded like you were surprised by the grant. When did you know you were going to get that?

Jeffrey Seidel

We found out yesterday morning.

Charles Gassenheimer

Steve, we got a call from the... well, to be fair and I'll just share a story with you, I mean it is quite clear that this was the biggest secret and probably Washington DC history. There was no leak on this whatsoever. So even late on Tuesday night, or was it Monday night, the days seem to run together because we haven't gotten a lot of sleep here recently. But even late on the night before, there was no knowledge. There was a 10 o'clock conference call by Matt Rogers who was a former Kennedy consultant who was hired by the DOE to administer the ARRA program. And Matt Rogers hosted a conference call media under embargo at 10 o'clock the eve before. So we only got first breaking news that morning that they were 48 total grants, seven in Indiana and 11 in Michigan.

Once we heard that, we were pretty confident that we would be a grant recipient. But even so, we didn't find out for sure until 10 AM that morning when we got the call from the White House Press Office and from the NETL which is the... NETL is the lab, the national research lab that administers the advance battery manufacturing program.

So we were obviously thrilled to get 100% of our ask. And as Jeff already said, we've obviously got to sit back down with the DOE who has been incredibly helpful and incredibly supportive of EnerDel, principally because of all the work we have done with DOE over the last three, four years. I think they've gained a lot confidence in our technical capabilities, which is I think paramount. But I think we've got to sit back down and finalize the negotiations. So while we are trying to be as transparent as possible, to be fair and honest there are some questions even we can't answer today on this that we'll find out in the coming weeks.

Steven Milunovich - Merrill Lynch

Last question, you mentioned to judge you in the second half by your continued execution and what you've announced. Regarding the ones on your top ten list that you haven't announced, do you expect to put anything out there in the second half and is there anything significant now that's kind of coming into range that would be on your new top ten list? For example, Charles, you kind of alluded to the possibility that some of the existing partnerships in the industry may not be as strong as they appear because there are a number of dance partners who've already matched up.

Charles Gassenheimer

We are seeing a... I mean, clearly, yesterday's announcements clearly puts EnerDel in a much, much stronger position. So there is no doubt that that announcement will continue to spur our business development efforts, and we are clearly thrilled by that and I would say that. The second thing I would say is the business development process and activities were accelerating even before the grant announcement. And so beyond our top ten customer list, we do expect to announce additional customers outside of that scope on a meaningful basis between now and the end of the year. So I guess I'm making quite bullish comments because I do feel very strongly that we are making really good progress.

And the other thing I would say is, as Cyrus alluded to, we have a number of grid storage opportunities that we had not factored into our model where if the current utility companies we've chosen to partner with get awarded these grants, which we full well expect, we could have significant revenue generating opportunities starting in early 2010 there as well. And those would start to get announced towards the end of this year.

So I don't think there will be a lack of news flow. I think from a partnership standpoint, in terms of names we'll be announcing, we are dealing with bigger, more sophisticated companies, the quality of our customers and the sizes of the contracts that we are working on tend to be much larger. And the immediacy of the revenues are now starting to be much, much more aggressive. I've tried to answer your question the best I can. I hope I did.

Steven Milunovich - Merrill Lynch

Yes. Thank you.

Charles Gassenheimer

Operator, next question please?

Operator

Yes, sir, the next question comes from the line of Rod Lache from Deutsche Bank.

Charles Gassenheimer

Hey, Rod.

Rod Lache - Deutsche Bank

Hey, congratulations.

Charles Gassenheimer

Thanks, thank you.

Rod Lache - Deutsche Bank

I have three questions. First, I guess could you just give us a little bit more detail on what is the timeframe for these grants to get meted out over? And secondly, what do you perceive to be the biggest factors that distinguish those companies in the battery industry that did or did not receive the grants, were they technical or was it commercial criteria?

And then lastly, just referring to this slide 18 on the value chain and what you alluded to in terms of costs, can you just give us some thoughts on how you expect the trajectory to look as to scale just from a scale manufacturing perspective? If you go from 50,000 to 100,000 or 250,000, just the scale effect, how does that look to you and what are the key drivers of that?

Charles Gassenheimer

Okay. Thanks, we'll take them one at a time. Jeff, do you want to talk to timeframe issue on the grant side?

Jeffrey Seidel

Sure, I can tell you what I know, which we've had very little, as I mentioned, very little contact to date in terms of the grant other than hearing about the award yesterday morning. We will be appointed sort of an administrator or a manager of the grant process from DOE I'm told in the next week or so. And I would imagine that we are going to lay out what the accounting and reporting requirements are to administer the grant. And I think it would be fair to expect to see that money sort of move in, I would think, at the end of Q3, beginning of Q4 timeframe. And we would like that money to move as quickly as possible because we have expansion requirements that we can start facilitating immediately with those funds.

So we will work as quickly we can on our side and assume DOE will continue to be a fast responder and get that process moved. But I don't really have the milestones or a sort of layout of the process yet. But I assume that once I sit down with the program manager that we will have more detail on how the process is actually going to move going forward.

Charles Gassenheimer

Yeah, I would just highlight on that, Ron. I mean I think it's fair to say that with the administration's A team out on the road yesterday, Obama in Indiana, Biden in Michigan and Chu in North Carolina, I think it's fair to say that they were pulling out all the stops that they want to get this money flowing as quickly as possible and companies like EnerDel and others, especially EnerDel having a U.S. footprint already that we are shovel-ready, so to speak, and that we are ready to start spending that money as soon as they are ready to start metering it out.

So I think we just need to get the administration in place and negotiate because we've already handled $15.5 million in similar grants from the DOE under the USABC program, I think we are very able to handle from a logistical standpoint ramping this up very quickly. And I also think that's probably worth noting.

As to your second point about factors, obviously, we were not in Secretary Chu's office behind closed doors when he was making the final decisions on these. So we can never know exactly what the decision criteria are. Although when you look at total list of 48 grants, it's a fairly impressive list of companies that have a tremendous amount of achievement under their built and electric driver ready.

So I think it would be fair to say that the criteria that they judge this on was certainly commercial, how much success the companies had already, how much traction they have already. And I would say that this lists represents the leadership in the space today. I know there was probably a number of companies that were disappointed they weren't on the list. And certainly we would have been disappointed if we weren't on the list. It's a very difficult protest because there was no... unlike the loans, there was no negotiating. It was binary; either you got them or you didn't.

So to be fair, in terms of trying to answer your question, I don't think we'll ever know exactly what the decision criteria were. But I'm just trying to give some of my two sense and some of my color based on what I saw to be the final list.

Finally, on your value chain in the cost side, Naoki, I don't know if you want to chime in on that question? You might be the best person to make some comments.

Naoki Ota

Okay. The material cost of the each product.

Charles Gassenheimer

Yeah.

Naoki Ota

So if you look at the material costs in federal areas, so usually the $0.65 or $0.75, they depend on the application, the material cost. And if you look at even the battery packs, we may hit that range. So that means if we create the material supplier industry in the U.S. not only for the cell, we already started to buy the remaining components for the battery part in the U.S. That's a huge impact in the industry.

So as Charles said, this $50 billion, the market opportunity where he is referring to the world wide in 2020. So let's say the U.S. market for the EV, even the attrition of the 10% is a conservative number. So does that means the 60, $10 billion, the market would be potentially just in the U.S. So this 60% of the material market to be the created in the U.S. That's a significant number for the material industry.

Charles Gassenheimer

Thanks Naoki. Rod, does that give you a start on your question?

Rod Lache - Deutsche Bank

Yeah, I'm just curious about obviously logistics and things like that are important. But if you were talking about scaling, there must, I would imagine, be some scale effects from automation and utilization of equipment and things like that. Are those meaningful as the industry kind of ramps up into these kinds of number? Is there any kind of color that you can provide on that?

Charles Gassenheimer

Yeah, I don't think there is any doubt that scaling will be meaningful. But again just to buttress Naoki's point, I mean 76 to 78% of the cost of the cell is material. So having a supply chain close to your manufacturing facility is going to be the most significant contributor to bringing down the cost, substantially more significant than for example going to full automation. I mean our plant in Noblesville (ph), Indiana today is capable of full automation. So I think I would just sort of continue to focus on the fact that we are very focused on the material supply chain. I just think that that is going to be the critical issue to bring down cost. I don't doubt that as we get into full volume production, there is going to be economies of scale. But when you just review the model and you look at the step function, that's where it leads you.

Rod Lache - Deutsche Bank

Okay, thank you.

Charles Gassenheimer

Thanks. Operator, next question please.

Operator

Yes sir, our next question comes from the line of Michael Lu from ThinkEquity.

Colin Volek - ThinkEquity LLC

Hi, this is Colin Volek on behalf of Michael Lu.

Charles Gassenheimer

Hi, how are you?

Colin Volek - ThinkEquity LLC

Fine, thanks. Just wanted to you congratulate you on receiving the ABMI grant.

Charles Gassenheimer

Thank you.

Colin Volek - ThinkEquity LLC

And I have a couple of questions. Of the six customers that you've identified, could you tell us which is the likeliest transition into a more material agreement like on the fastest.

Charles Gassenheimer

Sure, I mean on the customer side, I think it's always interesting to evaluate that question because I believe, as many of you on the phone have to do, I how to manage a portfolio. And while we have some very exciting customers like Think and Fisker on the venture-backed car side, we also have some more mature customers that some of you might consider more stable, like a Volvo. So we look at that and obviously we have to assigns weightings and probability. But there is no doubt that Think and Fisker will be our largest customers sooner than a Volvo that's looking for potentially a 2011, 2012 timeframe in terms of start of production on some of their vehicles.

So I think you have a spread and diversity of customer base. We are particularly excited about this Alameda cost accounting, the AC Transit, HEV bus program, because we expect buses to start rolling at the end of this year. And we think that's a program that could roll into multiple different opportunities with the partners we have there, Van Hool the technology. So I think to try and sort of be more specific, I think that we need to maintain a portfolio approach at this point because the industry is still nascent. We don't know which part of the market is going to take off fastest, although we do strongly believe that the venture-backed car market and some of these EV conversion projects like Japan Post and other postal services that we are working on right now could really be the early drivers in the market.

Colin Volek - ThinkEquity LLC

Thank you. Are you seeing any signs of stabilization with regards to how the credit market environment is impacting the consumer electronic business through Enertech?

Charles Gassenheimer

Yeah, Gerry, do you want to handle that?

Gerard Herlihy

The United States sales relate to Enertech, which is to our emerging power subsidiary in Hackensack, New Jersey is down about 8%. But a lot of the business in the Korean operations was secondary electrode capacity for some of the other large consumer products. So it's down more, plus the Korean won as you are aware is down substantially from where it was a year ago.

Enertech is able to sell finance and they have great banking relationships, they still managed to get positive EBITDA for the six... for the first six months. And the real purpose in life over the next five years is to supplement our cell production capacity to supply this top list of customers and they have successfully produced at a very high level, very high quality level over the last six months, making cells for our prototype packs. And are starting... get to start near the end of the year for some of these customers we are talking about.

Colin Volek - ThinkEquity LLC

One final question, with Think emerging from bankruptcy, I was just... do you expect to like begin shipping batteries to them by Q4? Is that going to be pushed into Q1 of 2010?

Charles Gassenheimer

Sure, thanks for the question. Obviously, the situation with Think is moving in a very positive and constructive direction. We are thrilled to be working closely with the senior management of Think that's working very hard right now to get this company over the goal line. We do expect their emergence from bankruptcy here in the month of August. And once they do emerge from bankruptcy, I think that would probably be a more appropriate time to discuss their future business plans.

We've obviously made some positive comments in the script of our release today as well. But we are very excited. We think there are multiple business opportunities for Think beyond the Think City including partnering with them and selling the drive train and the EnerDel battery together. And we are seeing multiple business opportunities in this area. So we think, Think, has a very bright future and we are excited to be working with them especially upon their emergence. So I would probably just leave the comments there rather than setting a specific date when they still haven't emerged yet.

Operator next question please?

Operator

Our next question comes from the line of Harlan Cherniak from Venor Capital.

Harlan Cherniak - Venor Capital

Hey guys, good evening.

Charles Gassenheimer

Hey Harlan, how are you?

Harlan Cherniak - Venor Capital

Congratulations, I know you guys have been working very hard on this and certainly a watershed event for you and the company and the industry. As I sort of went through as an example the Ford Motor Company ATVM sort of loan agreement, it was readily apparent that they've done a tremendous amount of diligence and work and what have you. And there was pretty tight sort of reins with respect to how the capital is sort of deployed. Do you anticipate sort of similar restrictions with respect to the grant capital and how you anticipate sort of that flowing out in the new future?

Charles Gassenheimer

Thanks Harlan and like you, we have reviewed carefully the forward term sheet that was EDGAR-ized and made public. And we are also... have gone through tremendous amounts of very, very thorough due diligence. As you can imagine, our credit is a little bit less transparent than Ford's given they actually have public debt and we don't. So I think we've been through a tremendous amount of due diligence. We've had three different consultants from DOE complete their due diligence on the company. And we certainly feel very gratified that after all this very hard work from the consulting group and DOE themselves that they are still very excited to fund us going forward. So I think we feel good about that.

As to the specific ebbs and flows of the money, again, I mean it's awfully hard for us to make specific comments about that until we finished final term sheet negotiation. So we'd just be guessing at it, although we do feel fairly confident that with the reimbursement, the way the money gets reimbursed and the way these programs work, that there would be fairly specific usage, for example, equipment and building CapEx. I don't know, Jeff, if you can make some specific comments on that in terms of use of proceeds.

Jeffrey Seidel

I think Harlan, you might have been... you are alluding to the restrictions on the process of the grant versus the ATVM, is that...

Harlan Cherniak - Venor Capital

Yeah, I mean there hasn't been any precedent with respect to the grant capital allocation, so I guess I'm negotiating among myself.

Jeffrey Seidel

I think we will have specific covenants on the ATVM side, milestones that we need to manage and to meet under that process. Those covenants are, I imagine, being discussed at this point in time on the DOE side. They have not been shared with us. And I think that's sort of where we go to on the next step.

On the grant side, I think the project is very fairly defined within the grant, which is to expand manufacturing capacity. I don't think they are going to allow us to do... to use the money outside of that capacity build, and I wouldn't expect them to. But it's not alone. So I don't expected it to have associated covenants with it. But I'm sure it's going to be managed carefully, although in a different way than what we'll probably have to work with on the ATVM side, which, as Charles said, will be expense, audit and then reimbursement. So I think the grant will move faster and a little bit easier, but we are not exactly sure what the process will be.

Charles Gassenheimer

I guess we can guess more at the grant side, Harlan, just because we have administered over $15 million of grants from DOE before. And that process really is pretty smooth. So I can imagine that the grant money will be pretty much, if you follow, if you have rules, if you follow the rules, you will get your money pretty quickly. If you don't, then we are going to send a bunch of auditors over to you and make it very difficult for you. And I think we've sort of lived under those rules before and we think we're pretty well able to handle that.

Harlan Cherniak - Venor Capital

That's great. And given where we are, at least from an industry perspective, we are at quite a positive inflexion point. And looking at your flow chart with respect to the industry, do you see consolidation and/or M&A opportunities as part of that capital with respect to upstream or downstream suppliers, customers, what have you?

Charles Gassenheimer

Obviously, it's a good question. I don't think there is any doubt that with the size of the market now coming into sharper focus, especially with folks like Mr. Graham making comments that he is making. I think that you're now starting to see really, really big fish come into the market. I don't think there is a doubt. I mean look, just look at the top grant list. You had Johnson Controls, one of the largest Tier Is in the world; you had Dow Chemicals, one of the largest chemical companies in the world; you had LG Chemical, once again one of the largest electronic companies in the world. I mean that already shows you right there that we've got some of the largest most sophisticated industrialized companies coming into this industry and all three of those players don't typically play for second place.

So I think that this is going to get very exciting in the next 6 to 12 months. I have no doubt that EnerDel can compete and win on a technical basis. And of course we've had to do that now and go head to head not just on U.S. and Europe soil. But remember, in the last three months here, we've gone over to Japan, the battery capital of world and we beat out some major Japanese conglomerates on a head-to-head basis based on our technology. So we are certainly a little bit of a scrappy fighter. I don't think there is any doubt about that. But we feel very strongly that we can compete on a technical basis. And we will continue to evaluate and make smart tuck-in acquisitions on an as needed basis to be able to compete just as we have done with the Enertech acquisition in Korea.

Harlan Cherniak - Venor Capital

Got it. That's great. You guys certainly are doing all the right things and starting to hit on all cylinders. Just two kind of quick questions that I think perhaps are for Gerry and one for Jeff. How much of the capital that you raised in the equity capital markets from May through August would have been included in the June 2009 cash balance sheet that was in the press release?

Gerard Herlihy

Just under $6 million under the Japanese program through June 30th. The investment one was raised afterwards.

Harlan Cherniak - Venor Capital

Okay, thank you. And on slide 11, with respect to your capacity utilization for your top ten focus customers, I guess it's through 2015 time context, can you explain kind of the lumpiness in 2012? Is that with respect to certain programs rolling off and the ramping up of others?

Jeffrey Seidel

Exactly. We have two things going on in 2012. That's when we expect to really put in the bulk of the capacity expansion funded by the grant. And we also have two of the major top ten accounts ramping up beginning in that year. So we could... that line would be much smoother if we did some granularity in terms of how the CapEx comes in coincidence with the customer demand. It's just when the slate... when we lay it out for DOE, we do it in on an annual basis. And so we have to have the capacity available before the customer demand. So you see a little bit of maybe excess capacity at that point in 2012 and then it's really fully utilized beginning in the 2013 timeframe. So if I did in six month increments, maybe in equal chunks of expansion, that line will be further.

Harlan Cherniak - Venor Capital

And I guess at the end of the day it's pretty attractive rates around invested capital. So congratulations again, you guys have certainly worked hard for it. Look forward to hearing more about it.

Jeffrey Seidel

Great. Thanks.

Charles Gassenheimer

Thanks Harlan. Operator, next question.

Operator

Our next question comes from the line of Bryce Dille from JMP Securities.

Bryce Dille - JMP Securities

Good morning. Hi guys, congratulations on a continued business success and the AVMI award. My question I guess related to a comment that Jeff made about the DOE estimating demand to meet or exceed 60,000 EVs by 2013. First, did I hear that correctly?

Jeffrey Seidel

Yeah, they are actually a little bit higher than that, but it's in that ballpark, yeah.

Bryce Dille - JMP Securities

Okay. I guess could you just walk me through?

Jeffrey Seidel

That's EnerDel specific by the way; that's not market, that's specific to the company.

Bryce Dille - JMP Securities

Okay, good, that helps. And I guess could you just walk me through some of the assumptions that they were looking at in modeling out that number? Specific to the conference call you guys shared, some of the insight would be great.

Jeffrey Seidel

Yeah, it's a as far as I know, a lot of the analysis was done independently. It's based on interviews with OEMs, interviews with customers and basically market projections. So I think it's a synthesis of that. I haven't been presented the information. I was able to have a look at a report, so the assumptions behind it were not really detailed. But I know that it was based on lot of sort of bottoms up analysis directly with OEMs.

Bryce Dille - JMP Securities

Okay, very good, and then I guess in the context then Charles with your slide 17 where you are looking at about 10,000 batteries on the road by 2010, just from your current customer base, that mix seems to be more under EV side. Could you just talk about maybe what the revenue range would look like on that run rate?

Charles Gassenheimer

Sure, Bryce, thanks. I mean obviously it's dependant on Fisker, Think and Japan Post being the principal customers we expect to hit the revenue line, AEC trends and of course will be hitting the revenue line, but that's a little bit smaller on the revenue line for next year. In terms of... well I think most analysts have an on the Think pack of about $17,000. So, I think that's already out there. So you can sort of make some assumptions there. The Fisker pack is going to be a little bit smaller, because it's a plug-in hybrid. So you can assume I think a little bit smaller revenue from Fisker than Think given the kilowatt hours for a plug-in hybrid are substantially less, although it a little bit heavier vehicle. So you've got a mix and match. But you can figure out that it's still going to be a little bit smaller in terms of the kilowatt hour requirements for a plug-in hybrid that only requires a 50 mile range versus the Think City where they are still looking at a 100, 120 mile range.

Bryce Dille - JMP Securities

Okay, good. And then I guess one other one and this is sort of in the context of the broad tailwinds you guys are getting in the industry that's pretty evident now. Are you seeing or hearing about any emergence of battery standards on like a form factor? I guess the way I'm thinking about it from, are you seeing anything either on like a kilowatt hour basis for a vehicle type or a specific chemistry that people are looking to apply to a specific or any sort of standards emerging I guess that you're seeing at this point?

Charles Gassenheimer

Thanks for your question. I mean I'll answer that with my standard response, which is the battery industry today is still very much like Baskin & Robbins; it's 36 flavors. So no, unfortunately, we are not seeing standardization. What we are seeing is there is a tremendous amount of pressure, not necessarily just in the U.S., but more so in Europe and Asia. In particular, we are seeing a tremendous amount of pressure for companies that need to get cars on the road quickly. So the standardization is more of a forced standardization where they have to take production ready packs. And that favors us because we are the only ones who have an EV pack is production verified, design verified and road ready. And so we are getting a lot of demand for same variance of our original Think pack.

So that's exciting, because that means limited engineering and other design expenses. And that also means from a production standpoint that again the supply chain has pretty very well been declined for that. So we think that gives us a tremendous advantage, especially where, on the energy density side, we have the highest energy density sell and therefore the highest energy density pack in the world today. We think that is a real, real advantage for the company.

Bryce Dille - JMP Securities

Okay. And then maybe just one quick follow up on that front. So with all the plant capacity that we are seeing both here in the United States and I guess from the traditional back battery guys out of Asia, you truly seem to be in a first mover advantage type situation. Is that kind of the right thinking as we see this market unfold from both a demand side and a supply side?

Charles Gassenheimer

I mean you never want to be super... you never want to be overly confident in the battery business; you want to stay humble, which I think is exactly what the mentality is in EnerDel. I think we always believe that we are the David and field the Goliath, but we really can win. So I think, Bryce, in the coming weeks and months, when we make additional customer announcements that I alluded to under Steve Milunovich's question, I think you will see that not only have we gone head-to-head with all of the major battery companies in the world, but we continue to win. And that includes companies like Mitsubishi and LG and others. So we feel really good about our current positioning.

Bryce Dille - JMP Securities

Okay. Great guys, thanks a lot.

Charles Gassenheimer

Thank you. Operator, next question.

Operator

Our next question comes from the line of Raj Seth from Cowen & Company.

Raj Seth - Cowen & Company

Thanks. Thanks for taking the question.

Charles Gassenheimer

Hey Raj.

Raj Seth - Cowen & Company

Let me add my congratulations as well. Just a follow up on one of the previous question or an extension to it. You had talked about and maybe you can help me just get clear here. You talked about last call about existing capacity that you could add to with... I think it was $75 million or $80 million you could create capacity able to support I think 45,000 EV packs or 450,000 HEV packs. I guess my question is assuming that you made that capital investment and you now had capacity to support that 700 million or so that you talked about, how should we think Charles about the margin structure at those kind of revenue levels and what kind of OpEx might be required to support that level of revenues assuming that you get there sometime in the next couple of years?

Charles Gassenheimer

Okay, thanks for the question. I mean I think we've tried to give you some intel here on call regarding the cost structure and margin, so I'll just try to take a look...

Raj Seth - Cowen & Company

Forgive me if I missed something.

Charles Gassenheimer

That's fine, let me just find it in the script, so I don't tell you numbers that aren't consistent, then I'll really get my hands slapped by our lawyers. So I mean 120,000 EV vehicles, our forecast revenue by 2015 range, 2015 timeframe is about 2.2 billion with EBITDA margins of 20% and net income margins in excess of 10%. We didn't really run the numbers at a 50,000 scenario and 2012. So we can't give you that interim data point. But I think you can certainly think about it in the fact that the 2012 to 2015 timeframe is when the margins really start to expand. And that is facilitated by about a 30 to 40% reduction in material costs within the 2012 timeframe when we expect to stand up meaningful material supply chain in the U.S. So I hope that helps you a little bit. I mean I think I have given you a lot of detail where you can sort of build that into your model.

Raj Seth - Cowen & Company

I mean any... I find it a little difficult, but... because admittedly, it's hard to predict sort of timing of these things. I guess that it's hard. But just generally, is this sort of 40%, 30%, 40% gross margin a little closer in than 2015? I mean I understand that the margins can improve on volume and cost downs et cetera. But not where we are today, but sort of the intermediate stuff, anymore you can give on gross margins, or even the kind of OpEx that one might think about almost trying to put a model together to support that.

Charles Gassenheimer

Yeah, on the gross, well, I'm going to turn it over to Gerry to see if he can help us a bit and then...

Gerard Herlihy

Yeah, Raj, I think the piece that clarifies the analysis a little bit is that the equipment is getting depreciated over a relatively short timeframe. And that's why the EBITDA percentage number was probably the most relevant because you are adding back that very large depreciation number in the first 10 years. And after 10 years, the equipment has depreciated. So really that's a much better number to be looking at in terms of what the margins are in the business.

Raj Seth - Cowen & Company

So the last point Gerry, and forgive me for pressing on this, but I don't quite how to connect the dots here. If you are at 700 million in capacity, what kind of EBITDA margins then are fair to think about in 2012 timeframe?

Gerard Herlihy

You are still actually referring to the Hague facility alone versus the expanded model going to be ATVM plus grant numbers.

Raj Seth - Cowen & Company

Yeah, so just here plus what you have in Korea with that first extension, yes?

Gerard Herlihy

And this grant money is actually going to build out the $50 million of CapEx that you have referred to. That $70 million to $80 million number actually included Korea.

Raj Seth - Cowen & Company

Okay.

Gerard Herlihy

And the pack that you had also included Korea. So the part that related to the United States was the 450 million in sales at Hague at full capacity and the $50 million in CapEx. And then that number is sort of part of a range; it's not $50 million exactly was no pennies, okay. So the thing about in your modeling, and I think we've talked about this before is you got large contacts... contracts with very small number of customers, say SG&A and your R&D numbers are relatively small. And so we are looking at less than 6% on the G&A side and less than 8% on the R&D side. But that's under that single $800 million model that you were referring to, which I really think is $700 million.

Under the expanded version which Jeff was talking about earlier with the 10 year model with the monies under the ATVM, we are working, and a lot of this was done in conjunction with a lot of hard work with the DOE and their due intelligence consultants, both on the marketing and the financial side, they really are targeting hard to get a cost down, getting the cost per kilowatt hour down in these programs from the $0.75 range down to the $0.50 range over this period of time. And a lot of that's coming out of the material side, which is why they are standing up to the material business. There is going to be a lot of moving targets on this thing. The one thing that is pretty clear is how big the industry is going to be if everyone does what they are planning to do here. Did I answer your question?

Charles Gassenheimer

In summary, the base plan, we were targeting 15% EBITDA margins. The new plans, I think what we are trying to give you guidance is that the EBITDA margins look to be improving by approximately as much as 500 basis points.

Raj Seth - Cowen & Company

Okay, good, that's helpful. Thanks very much.

Charles Gassenheimer

Okay. Operator, next question. We'll try to make this our last question just in terms of time.

Operator

Yes sir, our next question comes from the line of Thomas Daniel of Thomas Weisel Partners.

Thomas Daniels - Thomas Weisel Partners

Hi guys. I'm calling in for Dilip. Thanks very much for taking my question.

Charles Gassenheimer

How are you?

Thomas Daniels - Thomas Weisel Partners

I'm doing great, thank you. First, we are just wondering if you could shed a little bit more light on the Nissan Argonne Labs partnership, maybe some expectations and whether there is some potential for a commercial contract down the road there with Nissan?

Charles Gassenheimer

Sure, thanks for the question. I think we tried to give you some color in the original press release that this is a relationship that started and we've really been building it for over a year now. We've identified that Nissan is clearly the most aggressive company in the space. And we thought this was a great relationship building way for us to... and by the way when I say we, I mean the senior management of Nissan and the senior management of Ener1 together thought that this was a great way to start building the relationship between the two organizations. Obviously, Nissan has a battery relationship with NEC and we are very respectful of the partnership that they've put in place. But we also believe we can add value to that partnership and I believe Nissan believes we can add value to that partnership as well.

So we'll continue to work with Nissan and it is our hope and expectation that this is step one of a long-term relationship that we will have with Nissan over time given their leadership... well, given what we expect to be their tremendous leadership in the electric vehicle space. We really think that these guys know more about electrification in the automobile than any other car company out there today.

Thomas Daniels - Thomas Weisel Partners

Great, thanks. And then one more in regards to Fisker. I know they have a couple of different battery suppliers they were testing. Do you think in the end Fisker will go with a single supplier or multiple suppliers?

Charles Gassenheimer

Okay. Well, I think that's probably a better question for Fisker. But if I can try to answer had it been asked a slightly different way which is do I think EnerDel is the best batter choice for Fisker? I think the answer to that is yes. I think some of the other batter suppliers can't do what we can do for them. And I think that's why they decided to sign the LOI with us. And that's why we've headed down the path with them.

The other thing I can obviously share with you is the technical requirements of that vehicle are very, very challenging. And so for them to have to go down the road with multiple battery suppliers would be incredibly expensive and incredibly time consuming. Those aren't exactly two things that a venture-backed car company likes to deal with.

So, in summary, I think we've got a real good short at being their preferred battery partner. It's certainly ours to loose. But from what I can see thus far, I think the partnership is brewing very nicely.

Thomas Daniels - Thomas Weisel Partners

Great, thanks guys. I appreciate it.

Charles Gassenheimer

All right. Well thanks everybody. I know the call went on a little bit today, a lot of great questions. We are obviously thrilled with the participation and the continued interest in Ener1. We know this is a long-term exciting business plan. I think the management is energized and excited to be part of it. I think our core shareholders are excited. We've had a chance to meet with all the new shareholders throughout the quarter. We continue to do shareholder outreach and non-deal road shows to meet with new investors.

And I guess what we are most excited about from an equity investment perspective is the quality of new shareholders that have started to come on board; significantly larger and larger mutual funds with multiple billions of dollar under management, significantly greater ranges in geography from the U.S. to Europe to Asia. And so we are just thrilled with the way we've built this brick by brick. And we are going to continue to execute and we look forward to discussing that with you on our next investor conference call.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Ener1 Q2 2009 Earnings Transcript
This Transcript
All Transcripts