Energy Storage Opportunities vs. Irrational Expectations 27 comments
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Last week, Mark Solheim of Kiplinger’s Personal Finance Magazine,posted an article on Seeking Alpha that really helped clarify the economic issues I’ve been writing about for several weeks. His article, backed up by the analytical strengths of the Kiplinger organization, noted that most HEVs offer limited economic benefit to their owners. My reaction was the predictable question:
If HEVs offer marginal economics with NiMH batteries, how can they possibly pay with Li-ion batteries that cost significantly more per watt hour of energy storage?
The simple answer is “THEY CAN’T AND THEY WON’T.” Mr. Market has killed the electric car before and will continue do so each time it arises from the crypt in a form that can’t compete head to head with CNG and light hybrid diesel. “In America we get up in the morning, we go to work and we solve our problems” (From The Lost Constitution, by William Martin), but we don’t pay premiums for solutions that offer less than we think we need. To put it less delicately, the green in our personal philosophies always takes a back seat to the green in our wallets.
Notwithstanding my personal disdain for the overhyped near-term potential of electric vehicles, I believe the rapidly accelerating transition from fossil fuels to alternative energy is not merely a good thing but a necessary thing. Likewise, I believe the anticipated growth in the energy storage sector is not merely smart planning but an economic necessity. While forecasted growth rates across the entire alternative energy spectrum are immense, my sense is that the industry will grow far faster and far larger than any of us can even begin to imagine. As the magnitude of the problems become more obvious to investors who have not spent months in Asia and seen the day-to-day lives of the primary drivers of market change, the current narrow focus on glamour girl energy storage options will have to widen and investors who own work-horse technologies like advanced lead-acid batteries are likely to profit handsomely.
The simple fact is worldwide demand for all types of energy storage devices exceeds available supply by a wide margin. In the 1990s, Asian imports almost ruined the U.S. battery industry and drove many small manufacturers out of business. Their plants were then dismantled and either shipped overseas or scrapped. Recently, however, Asian imports have slowed to a trickle as demand in the manufacturers’ home countries has caught up with supply. So for the first time in years, the U.S. battery industry is building new manufacturing plants to meet current demand. When anticipated growth in domestic demand is factored into the equation, the outlook across the board is spectacular. On balance, I think we are entering an era when every manufacturer of energy storage devices will have more demand than it can possibly satisfy. That’s why I’m bullish on the entire sector, instead of a single technology group.
For two months now I’ve received scathing criticism from the faithful defenders of Li-ion and solid support from investors who want to understand the energy storage sector. In the process it’s become clear to me that my detractors are simply not hearing what I’m saying about the overall market because they are too wedded to the idea that their favorite technology will dominate a favorite market segment. Li-ion is a wonderful battery technology for applications where size and weight are mission-critical constraints. But the current hype over the potential for Li-ion batteries in transportation and utility applications is, to my way of thinking, irrational. Gold and silver are among the best electrical conductors in the world and would be more than adequate for use in many kitchen appliances. But they’re not used in kitchen appliances because they have more value in other uses.
I’m convinced the same will hold true for Li-ion technology. It will probably satisfy all technical requirements for transportation and utility applications, but it will prove to be far too expensive for the required work and have far more value in other applications. In my view of the global energy storage market, 100 power-assisted bicycles will always win the economic battle with a single PHEV; and a Li-ion manufacturer that makes batteries for bicycles will make far more money than a manufacturer that wants to power the utility grid. In the end I expect Li-ion to be a spectacular success, but not in markets where an exhaustive cost-benefit analysis is a critical part of any purchase decision.
The last month has been a tough one for the energy storage sector stocks I identified in mid-August. The group as a whole is off 16.2% and the outlook for today is not pretty. But once the current round of carnage has passed, I think there may be some real opportunities for astute buyers. I think the Li-ion group is generally overvalued because of all the hype surrounding electric vehicles.
Nevertheless China BAK (CBAK) may have considerable short term potential. While I think the NiMH group is fairly valued, Hong Kong Highpower (HPJ) is a new market entrant that has not yet achieved parity with its peer group. I continue to believe the lead-acid group is grossly undervalued because the market has not yet come to grips with the idea that as the energy storage market grows, lead-acid manufacturers will be the first beneficiaries of demand for cost-effective solutions that simply do not justify exotic battery chemistries. The latest price table is set forth below.
click to enlarge
Disclosure: Author holds a long position in AXPW.OB and is a former director of that company.
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This article has 27 comments:
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So what are your thoughts on A123? Won't their IPO essentially create disparate valuations amongst battery companies and potentially INCREASE the valuation of the above companies?
I think they all float upwards with that IPO and then, over time, you'll figure out who the winners/losers truly are.
CBAK vs. ABAT. One losses $$$ and one generates profits. In the end I like companies that generate cash flow from operations and profits.
I understand the LI-ION concern re: power/weight but I think these stocks have some legs still left in them!
Oshkosh (OSK) has figured out that adding old-school capacitators to military diesel trucks provides excellent performance at something like a 20% mpg gain. I'm not sure why some of these unobtainium concept projects are attracting more attention than that.
Who made such claims? Ford strategists. It cost them dearly, as the decision about the Fiesta will.
jegan ;-)
Check out the Technology behind PuraDyne, Oil Filters. Symbol PFTI.OB.
Maybe living amongst the Alps you are unaware that all sectors of the USA stock market are down during the time period of your chart, again, making your chart irrelevant. There are so many aspects to note; the "shorters," the removal of the "up tick" rule, the financials failing, the hedge funds pulling money out of the market, the "Allen Greenspan" money that allowed hedge funds to borrow at a cheap rate and invest dollars into commodities when they were soaring, only to now have to come up with money to repay the loans; hence, in part, the Lehman Brothers induced meltdown today. And then there's little guys like me, who are standing on the sidelines, waiting for all this crap to settle down before getting back in.
But back to your article. Maybe living in the Alps you do not see the explosive growth of Toyota Prius', and the many new models coming out from Ford, right now! They are coming, and in a big way. I look out my condo window from my home office and see six Prius's of fourteen cars parked outside at this just after dinner hour. SIX! They and Subarus are by far the most common cars parked here where anyone who wanted a BMW could own one. HMMMM!
I'll agree with you that lith technology, as things stand right now, still need to improve. And with the numerous comglomerates and small to mid-cap companies pumping hundred of millions if not billions into lith techology, I'm betting there will be even more breakthroughs.
And what's with this diesel? That's only a temporary solution. Pretty much everywhere I research, petroleum based fuel products won't exist in 50 years.
Batteries are the future. And the future is now, both in improved performing lead acid, as well as lithium.
T. Boone Pickens two billion dollar push for wind power (which is going to augment your correct notions of the exposion of the battery storage sector) and natural gas is his idea of a "bridge" until we (the USA) get off of foriegn energy resources. This bridge he speaks of leads us (the USA) toward going near completely electric. Maybe all this is tomfoolery to you, as I know you don't see these commercials, or live here in the USA to get this "feel" of things.
Lastly, I'll add, that you only pointed out one article to base your opinion. I've read so many, many more articles, indicating a bright future for the lithium car battery market. Including, just this past week (8/29/08), an article written here on Seeking Alpha by Jon Markman titled "Gear up for the gas-free car."
Please don't do any more charts unless they are truly relevant.
Waiting on the sideline...
For those who have not read my entire series, I believe (a) the cost reductions folks generally expect in tech industries are unlikely in the battery industry because it's so materials intensive, (b) there are far too many unanswered questions about the long-term supply of exotic battery materials at a reasonable cost, (c) batteries are the future, and (d) the A123 IPO should give the entire sector a huge boost.
My fundamental point is that until somebody comes up with a hybrid that makes sense to ordinary working people who have to deal with car payments and tight monthly budgets, electric vehicles will remain a rich man's toy rather than a mass market product.
> jack
I don't know about anchors, but you are clearly one of the best posters on this fascinating financial blog. By the way, do you really live in the Alps? I would like to live somewhere as exotic, but that's WAY too cold for me.
Every time I read one of your posts, I see what you mean about the dogged li-ion types. We have a similar problem here with the Democrats in Congress. They won't even listen to facts, just the tenets of their Green religion. I feel sorry for them, as this type of thinking leads to such a narrow world view and a misunderstanding of the unlimited opportunities ahead for mankind.
Indeed, other types of energy storage devices are a can't miss investment. Like everything else, of course, you have to get in at the right time with the right one(s). Thanks for outlining and updating the field periodically for us.
In this regard, I've come across a VERY small-cap energy storage stock named Energtek, an Israeli company that has developed a technology they call ANG, which stands for their Abient Natural Gas transport storage device. Do you have any thoughts on this company?
Thanks again for sharing your work with us.
Paul
Given the current financial crisis, did you really have to go any further than "Mr Market has killed the electric car.." I hope it's nothing more than a flesh wound ,'ala Monty Python. Operating capital is going to be a critical element for successful market introduction. A123's IPO might now be adversely affected. In the mean time, it will be a fight for survival for all participants. I am biased toward the unique LiTitanate chemistries of ALTI and HEV(EnerDel). Lithium Titanate does not form an SEI membrane as do other LiIon chemistries and this offers less internal resistance.+++ DD. EnerDel has a Hard Carbon (HC) anode in its Think EV battery pack. AXPW(Axion)'s hard carbon anode sounds promising too. I'll be looking forward to your next article and thank you for the current chart. I'll try to post an intro link of HEV
www.nextenergynews.com...
Good luck and health to all.
As important as the American and European markets are, we're talking about 600 million people who want to upgrade the high-end transport they already have vs 3.8 billion people who want to acquire transport, any transport. I think T. Boone Pickens has it right for the U.S. because CNG backed by wind and solar is the most affordable step toward energy independence and improved air quality.
While I think Li-ion is too costly for cars, it makes tremendous sense in scooters and power-assisted bicycles that have a much larger market in economies that desperately need cost-effective solutions.
The market drivers I see are global, not national. There may be a mild crisis in the financial sector because bankers loaned money to folks who couldn't pay it back. But there is an even more powerful crisis in the energy sector where 3.8 billion Asians are demanding two gallons a week and reducing American and European supplies by ten gallons a week. Any way we cut it, the Asians are going to be willing to pay a higher price for two than we are for ten.
I think A123's IPO will be successful because it has to be. The world market demands it. My only problem with the Li-ion business plans is the desire to make a quantum leap from laptops to SUVs. When the producers come to the realization that they've set their targets a bit too high and scale back to smaller batteries for bicycles and scooters, I think their revenue expectations will grow exponentially.
As a point of clarification, Axion's negative electrode is made from porous activated carbon, not hard carbon. The benefit is that the carbon electrode significantly increases power and recharge rates while completely eliminating sulfation. So you end up with a lead-carbon battery that can withstand the stresses of regenerative braking.
On the other hand hybrid cars, trucks and trains are price competitive now and will continue to grow in use as is pointed out in comments above. A good lead acid alternative to lithium is attractive for these uses since the wieght difference may only be 50 or 60 pounds in a car while the price difference should (barring huge technological changes) be well worth the weight penalty. Apparently Axion and Firefly both think they have such lead acid alternatives coming soon.
But comparing only lithium and LAB ignores the other technologies out there including NiMH and others. Efforts are ongoing to reduce the cost and increase the performance of these technologies as well, of course, and the ultimate winners are not clear. What is typically true, as John points out here and in other posts, is that the winner is not always the best technology. First a rising tide lifts all boats and the near term increasing demand may make lots of winners in this field who do not necessarily have the "best" technology. Secondly a technology is one part of a big puzzle. Management is crucial, financing, good sales force, manufacturing capacity, etc. So the long-term winners will likely be more contingent upon the synergy and competence of the entire company rather than the specific technology. Short-term winners, most of the companies in the field. Long-term winners, well financed companies with good management and good production / sales teams. Warren Buffet likes to say he buys managment teams, not companies. For the long-term that is usually the way to go.
The Army has a contract for Altair (ALTI) to develop a light weight, long-lasting, quickly recharge battery for their ubiquitous soldier. The requirements the US Army has cannot be met with any sort of lead battery. Not too mention the risks associated with carrying a corrosive lead-acid battery around on the battlefield.
Plus, I don't think a lead acid battery can power those Navy vessels that Altair is contracted with the Navy to prototype out. Can you imagine the potential profit from outfitting all Navy diesel turbine powered ships? Holy crap, that would be enough work to make Altair profitable into 2040 on that contract alone!
With respect to naval assets, I'll simply point out that before the advent of small nuclear power plants, every submarine in the fleet ran on lead-acid batteries that were re-charged by diesel engines. When the Navy starts talking about building lighter and more compact battleships, I'll get excited about the perceived advantages of Li-ion. Till then, it's just another earmark.
Li-ion battery is the standard of the EV market but not every Li-ion.....
polymer iron phosphate is becoming the standard!!!
ABAT have it all ....
So the market in the far east is so big , the demand will be HUGE
ABAT have the battery that the EV needs...
SAFE,CHEAP, 6 MIN. TO RECHARGE , LONG LIFE (4000 CYCLES)
GOOD MANAGMENT ....
WILL GROWTH 165% IN PRODUCTION CAPABILITY IN A YEAR...
I think that you are on to an important emerging subsector, and thank you very much for your work and sharing your views. For what it is worth, I´m going to build a portfolio in this sector composed of Exide, Ultralife, Maxwell, Beacon Power, Altair Nanotech and Enersys, with two year investment horizon. May double my money, might halve it, but in any case it will be interesting. Thanks and please continue contributing to Seeking Alpha.
On Sep 16 10:13 PM jprovinc wrote:
> John,
> Given the current financial crisis, did you really have to go any
> further than "Mr Market has killed the electric car.." I hope it's
> nothing more than a flesh wound ,'ala Monty Python. Operating capital
> is going to be a critical element for successful market introduction.
> A123's IPO might now be adversely affected. In the mean time, it
> will be a fight for survival for all participants. I am biased toward
> the unique LiTitanate chemistries of ALTI and HEV(EnerDel). Lithium
> Titanate does not form an SEI membrane as do other LiIon chemistries
> and this offers less internal resistance.+++ DD. EnerDel has a Hard
> Carbon (HC) anode in its Think EV battery pack. AXPW(Axion)'s hard
> carbon anode sounds promising too. I'll be looking forward to your
> next article and thank you for the current chart. I'll try to post
> an intro link of HEV
> www.nextenergynews.com...
>
> Good luck and health to all.
www.greencarcongress.c...