Is China BAK Battery Just What the Hybrid Vehicle Market Needs?

As crude oil hits the triple digit price, hybrid vehicles may become a necessity for the US lifestyle to survive. As a result, automakers will need a low cost lithium ion battery. In this search for a high power battery maker to receive potentially massive orders from US and European car makers, the name China BAK Battery (CBAK) reveals great potential.

Currently, there is a variety of lithium ion battery makers in China. The top brand is BYD [HKSE:1211.hk]. However, BYD chooses to develop its own dual mode hybrid car, F6, along with its own lithium ion battery business. This strategy may ultimately prevent most US auto makers from collaborating on the lithium ion battery. Lishen Battery is another prominent Chinese lithium ion battery maker, but operates as a state owned entity with heavy government influence. The other company, Advanced Battery Technologies (ABAT), is similar to CBAK, but the company is far smaller in terms of revenues and net assets.

As a privately owned lithium ion battery maker in China, CBAK seems to have more flexibility and focus to serve the need of Western auto makers. This is because CBAK is building up a focused high power lithium ion battery manufacturing base in Tianjin. Once the base starts to ramp up the production in June 2008, CBAK will have the capacity to entertain US hybrid battery outsource inquiries.

CBAK is also currently qualifying for the OEM status of the HP (HPQ) notebook lithium ion battery. Once the status is obtained as expected by the management, the CBAK hybrid lithium ion battery outsource qualification will be further enhanced.

The fact is that Japanese and Korean lithium ion battery makers have more technical strength and innovation abilities than CBAK. However, the overall cost in comparison might be a more imperative factor for any US auto makers if they want to roll out new hybrid models in great quantity. The proof of CBAK’s capabilities lies in its past experience in meeting demands for A123 Systems that work with GM (GM) on the hybrid lithium ion battery.

Wall Street analysts expect CBAK to earn 29 cents for the fiscal year ending September 2009. The estimates do not include any hybrid battery potential. With the crude price reaching triple digit levels, the CBAK hybrid battery might arrive much sooner than Wall Street expects. The success of the Chinese solar stocks' performance in the last few years may even be repeated with CBAK’s capacity. The fundamental question is: Are there low cost producers of hybrid batteries other than CBAK that are reliable, sizable, and show value delivery? If not, CBAK could be the catalyst the hybrid vehicle market has been searching for.

Disclosure: none

Comments

[1keyer:]

CBAK has been with HPQ for the notebook battery qualification for over six months now. Analysts said the final outcome shall be out within this quarter.

2008 Mar 03 07:07 AM

[1keyer:]

4 million shares short have not been covered for CBAK, yet.

2008 Mar 03 07:10 AM

[JGS007:]

Where do you find the information regarding how many shares short have not been covered? Just curious.

2008 Mar 03 07:50 AM

[Dave Davidson:]

CBAK definitely has bright prospects with a possible HPQ relationship and the continuing search for alternative energy sources, however buying shares of the company is like buying a lottery ticket. If neither of these possibilities come to fruition, the stock goes nowhere and may continue to erode, however if the do happen, the shares could easily triple or quadruple from this point with nearly 4.2M shares shorted. This stock definitely qualifies as a "mad money" investment and is not recommended as a core portfolio holding. I am long shares now and I'm waiting for a big move north on an HPQ announcement...however that announcement may never come! Good luck to all!

2008 Mar 03 08:06 AM

[stock_picker13:]

Advanced Battery Technologies (ABAT) is further ahead of CBAK in battery technology. They are already supplying batteries for electric cars and motorcycles and are already profitable should make .50-.60 cents a share in 2008.

2008 Mar 03 09:20 AM

[Urbane Gori...:]

I researched and followed CBAK and ABAT for awhile... ABAT has a leg up on CBAK as far as electric cars go... CBAK seems to be mired in a Oriental cellphone mode.... Just don't see any activity there.. Too bad...

2008 Mar 03 12:40 PM

[Urbane Gori...:]

Just read an article from "Seeking Alpha" regrading Johnson Controls... I think this would be a better electric car battery bet:

Re: Batteries and Automotive Power Systems

Johnson Controls' joint venture with Saft has been making headlines recently, no doubt in large part due to Johnson Controls automotive industry network. The partnership has won contracts to supply batteries to Chinese auto manufacturers Chery and SIAC for their Hybrid electric vehicles, and a battery development contract from GM to develop Li-ion batteries for GM's Saturn Vue Green Line Plug-in Hybrid (GM).

I'm extremely enthusiastic about the growth prospects of the automotive battery industry, the reasons for which I detailed in this article about another battery company, and this one about the long term prospects for cellulosic biofuels. The power systems division comprises about one third of 2007 revenues.

JCI also supplies automotive battery management systems and power systems, with a focus on energy savings, as part of their automotive division

2008 Mar 03 12:44 PM

[Dr_sfzed:]

CBAK is interesting because China is itself much more tuned in to global warming and alternative energy than are most other countries - e.g. the USA. Of particular note:
1) China has ramped up electric bicycle production to lofty levels, using almost entirely lead-acid - this will be a huge conversion market, ready made, as those lead acids wear out every year, and they don't have the same safety problems as autos. China is also working on hybrid cars/trucks - watch the olymipics, for example.
2) Today, Lithium is sold mostly by Chile, at high prices. Lithium is most effectively mined from alkali lakes - of which West China has an abundance. China is rumored to be bringing Lithium production on line for a dramtic lowering of price to companies like CBAK.
3) CBAK is gaining market share at the cost of margin - a margin dictated by Lithium price. Need I say more?

I own CBAK stock for these reasons.

2008 Mar 07 10:50 AM

[skopros:]

seems to me Cbak went thru a pump&dump phase a month ago when sagami of the weiss outfit reco'd it. Abat also at @ same time. i too wld be interested in info on the shorts. i'm long but don't hv high hopes, as the sizzle of a month ago seems to have fizzled.

2008 Jul 21 10:03 PM