Over the last few weeks electric vehicle aficianados have been beside themselves with glee over reports that Tesla Motors (TSLA) will report a net profit on both a GAAP and non-GAAP basis for the first quarter of 2013. Since the news broke on March 31st, the stock has gapped up from $37.89 to an all-time high of $52.92.

Few commenters and even fewer investors understand that Tesla's Q1 income guidance is little more than an epic April Fools prank, an aberration attributable to the confluence of non-recurring factors that will leave Tesla solidly in the red for the next two years.

The two big drivers of Tesla's Q1 earnings will be:

• A one-time non-cash gain of $11 million arising from the reversal of a derivative warrant liability associated with the acceleration of Tesla's DOE loan; and
• An estimated $20 million in ZEV credits that have already saturated the market

Yesterday Mitsubishi Motors (MMTOF.PK) issued two critical press releases on safety problems with the lithium-ion battery packs for its electric drive vehicles.

The first press release disclosed the March 21st discovery of a lithium-ion battery pack failure in an Outlander PHEV that was being prepared for delivery to a customer. One of the battery's eighty cells apparently overheated after charging and melted adjacent cells, destroying one of the vehicle's three battery modules.

The accompanying notice to 4,000 Outlander owners said:

"Mitsubishi Motors suggests that Outlander PHEV drivers refrain from using external charging or Charge Mode until the cause is found. In addition, dealers will be contacting Outlander PHEV customers regarding use of their vehicle as well as responding to customer inquiries."

The second press release disclosed a March 18th fire at Mitsubishi's Mizushima plant where a lithium-ion battery pack for an i-MiEV overheated in the

Over the last three decades, I've worked as counsel for several clients in the mining, oil & gas and battery industries. Because of that experience, I've always understood that battery manufacturing is extremely energy intensive. After all, the entire value chain from mining and purifying metals through component fabrication and final assembly requires massive fossil fuel and electric power inputs. Until last week, however, I didn't truly understand the magnitude of the energy inputs required to make a battery.

Last week I spent a few days digesting a paper from Stanford University's Global Climate and Energy Project titled "On the importance of reducing the energetic and material demands of electrical energy storage" that was published in the Royal Society of Chemistry's Journal of Energy & Environmental Science.

While the paper's conclusions were predictable, I was tremendously impressed with its "cradle-to gate" analytical framework that started with black

Friday was a day of unfortunate delays for Elon Musk, the CEO of Tesla Motors (TSLA). He had two critical items on his To-Do List - launch the SpaceX Dragon Capsule and file Tesla's Form 10-K for last year.

Neither went according to plan. The Dragon will have a late rendezvous with the space station and the Form 10-K will suffer a similar fate.

While it's rare for a large accelerated filer like Tesla to miss an SEC filing deadline, there can be any number of reasons including clerical errors and even technical glitches with the SEC's Edgar system. If it was a simple clerical error or technical glitch, Tesla's annual report will be on file at the SEC before the market opens on Monday.

However, if Tesla requests a 15-day extension by submitting a Form 12b-25 Notification of Late Filing, the most likely reason will be unresolved audit

The last few days have been immensely entertaining for me as Elon Musk, the CEO of Tesla Motors (TSLA), excoriated New York Times writer John Broder for deviating from Tesla's carefully scripted and surreptitiously monitored Winter Wonderland Tour for their flagship Model S Performance Edition. Despite Mr. Musk's shrill accusations of dishonesty verging on deliberate sabotage, Mr. Broder's tragic tale of woe struck me as a classic example of the kinds of things that can go wrong when human beings are given inaccurate information by smart control systems and make poor decisions based on that flawed information.

Tesla builds three versions of the Model S, a five passenger electric sedan with impressive performance and fair weather flat road ("FWFR") range of 160 miles with a 40 kWh battery pack, 230 miles with a 60 kWh battery pack and 300 miles with an 85 kWh battery pack.

For several years, news in the energy storage sector has been dominated by happy talk stories about lithium-ion batteries that over-hyped performance and fueled flights of imaginative fancy while downplaying technical limitations, system costs and safety risks. The relentless hype resulted in nosebleed market valuations for several lithium-ion battery developers that collapsed like a house of cards when the economics of using $1,000 bottles to store a $0.10 commodity became self-evident.

At its peak, the lithium-ion hype was just a hair shy of "Silver Bullets" and "One Ring to rule them all." A predictable but subtle collateral impact was an increasingly bearish outlook for all energy storage technologies that weren't lithium. It was yet another proof of Newton's Third Law of Markets - for every hype there is an equal and opposite anti-hype.

Now that lithium hype has self-immolated in a toxic stew of persistently high

By John Petersen

In late October I gave a keynote presentation at Batteries 2012, one of the largest lithium-ion battery conferences in the world. During the conference, I was buttonholed for a couple hours by the chairman's global strategy team for one of the top three lithium-ion battery manufacturers in the world. They started by explaining that their Global 100 company is abandoning the plug-in vehicle market to focus on sensible applications where it can earn a reasonable margin. Then they started drilling down with a series of detailed and probing questions about whether any of the principal lead-acid battery markets might be an attractive opportunity for a company with their size, scale and stature.

While it may strike some of my readers as heresy, I told them that the lead-acid battery sector's biggest vulnerability was in the rapidly evolving micro-hybrid market where industry leaders Johnson Controls (JCI)

I'm an occasional critic of Tesla Motors (TSLA) because I believe electric cars, as a product class, are unconscionable waste and pollution masquerading as conservation. After patiently deconstructing prevailing zero emissions vehicle, energy efficiency, energy independence and renewable power mythologies, the debate has finally been reduced to the admittedly superior performance of the Tesla Model S, and the underemphasized but critically important reality that buyers who are smart and well-heeled enough to spring for a Tesla can avoid the plebeian burden of traffic as they cruise along in the HOV lane. For many, the HOV perk justifies the price.

Since I've always believed in giving credit where credit is due, today I'll focus on the genius of Tesla. From all the reports I've read, the performance of the Tesla Model S is very impressive to those who prize the ability to drive recklessly. I've had that kind of performance

One of the great advantages of writing a blog like mine is that I get to spend time with other professionals who know more than I do. Recently I've become friends with a former partner of the Boston Consulting Group who generously shared his time to help me better understand the difference between the vague economic concept of economies of scale and the more useful industrial concept of experience curve effects that was pioneered by BCG in the late 1960s.

In general, the economic concept of economies of scale describes the aggregate cost advantage to a business as the size of its infrastructure grows and its use of that infrastructure becomes more efficient. The most common sources of economies of scale include:

• Purchasing economies from buying larger quantities of materials;
• Labor economies from worker specialization;
• Technological economies from improved production methods;
• Managerial and marketing economies from spreading costs

The Lithium-ion Battery Bust

2012 has been a year of unprecedented carnage in the lithium-ion battery industry as one manufacturer after another went bankrupt, dissolved joint ventures, wrote-off assets or restructured operations in a desperate attempt to survive. The year's headline stories include:

Last week Debra Fiakas of Crystal Equity Research published an article titled "No Battery Producer Left Behind" that was based on old information about the relationship between Exide Technologies (XIDE) and Axion Power International (AXPW.OB) and reached several erroneous conclusions. Since I'm a former Axion director, the stock is my biggest holding and I follow the company like a hawk, Tom Konrad asked me to clarify the record and present a high level overview of Axion's business history, stock market dynamics and technical accomplishments over the last four years.

Since Tom's request is a tall order, the article will run longer than usual, but it will tie together several themes I've discussed in the past.

Axion's price chart since September 2009 has been a vision from investor hell. However, I believe the market performance is 180 degrees out of synch with technical and business realities. I've been

Since Oct. 15, I've watched in horror as the stock of A123 Systems (AONE) collapsed from $0.24 to $0.06 in the wake of its Chapter 11 filing and then rebounded into the delusional $0.11 to $0.19 range as speculators began chasing the most fabled of stock market unicorns -- the Chapter 11 bankruptcy that will leave significant value on the table for legacy stockholders. As of yesterday's close, the market valued the stockholders equity of a bankrupt company at some $50 million.

It's not going to happen!

A123's stock is worthless. The speculators who are buying A123 with reckless abandon will lose their money because they don't understand what all the background machinations between the stalking horse bidder, Johnson Controls (JCI), and the debtor in possession lender, the Wanxiang Group, really mean.

Let's start with some basics. As of June 30, A123 had $70.5 million in working capital and $107

Last week I made a keynote presentation at Batteries 2012, an important annual conference for developers and manufacturers of "advanced technology batteries" including Nickel Cadmium, Nickel Metal Hydride and Lithium-ion chemistry. On the first day of the conference, I learned that Dow Chemical (DOW) had filed a Form 8-K to summarize its plans to record fourth-quarter charges of $500 million to $600 million for asset impairments, including "an impairment charge related to the write-down of Dow Kokam LLC's long-lived assets."

Since Dow Kokam was a headline award recipient in the DOE's "Electric Vehicle Battery and Component Manufacturing Initiative" that awarded $1.5 billion in Federal grants to 10 battery manufacturers in August 2009, I thought it might be worthwhile to review performance history and offer my subjective interim assessment of the individual grant awards.

Johnson Controls
$299.2 million
Disappointment

The Johnson Controls (JCI) lithium-ion battery plant in Holland, Michigan,

In a watershed 1968 essay, ecologist Garrett Hardin defined "The Tragedy of the Commons" as the depletion of a shared resource by individuals, acting independently and rationally according to their own self-interest, despite the knowledge that depleting the shared resource is contrary to the best long-term interests of their society.

He began with an example from medieval times when residents of a village frequently had the right to graze their cows on a community pasture. An individual herder pursuing his own best interest would invariably increase the number of cows he grazed in the pasture. But when all herders made the same individually rational decision, the common pasture was depleted or even destroyed by overgrazing.

As a trailblazer and thought leader in the early days of the environmental movement, Mr. Hardin was particularly critical of pollution of the commons, which he described as follows:

"In a reverse way,

A hundred and thirty years ago Thomas Edison commissioned the Pearl Street Station in lower Manhattan. It was the world's first electric grid with 85 customers and 400 lamps. Unfortunately, Mr. Edison chose temperamental steam engines to power his dynamos so his grid was unstable. He hoped big batteries could fix his design mistake.

At the time, electrochemistry was cutting edge science. Battery technology had potential, but the available products were better suited to parlor tricks than power grids. The battery entrepreneurs of the day promised Mr. Edison more than they could deliver and he was furious. So he lashed out with the most memorable battery quote of all time.

"The storage battery is one of those peculiar things which appeals to the imagination, and no more perfect thing could be desired by stock swindlers than that very selfsame thing. … Just as soon as a man gets working

In late September I had the pleasure of giving a keynote presentation for the 13th European Lead Battery Conference in Paris. While my presentation focused on the macro-economic, regulatory, supply chain and environmental issues that are driving fundamental change in the battery industry, most of the presenters focused on the auto industry's unprecedented adoption of micro-hybrid technology in response to increasingly stringent CO2 emissions and fuel economy standards.

While global automakers only built 5 million micro-hybrids in 2011, Lux Research predicts that micro-hybrid production will exceed 25 million cars a year by 2015 and Johnson Controls (JCI) has pegged that number at 35 million cars a year. Consensus holds that micro-hybrid technology will be standard equipment on all internal combustion engines by the end of the decade.

The one thing all micro-hybrids must have is a better battery that will generate more revenue and higher profit margins for its

On Monday I published an article titled "Electric Vehicles, Front Loading The Filth" that discussed a peer-reviewed study from the Journal of Industrial Ecology titled, "Comparative Environmental Life Cycle Assessment of Conventional and Electric Vehicles" which found that:

"EVs powered by the present European electricity mix offer a 10% to 24% decrease in global warming potential (GWP) relative to conventional diesel or gasoline vehicles assuming lifetimes of 150,000 km. However, EVs exhibit the potential for significant increases in human toxicity, freshwater eco-toxicity, freshwater eutrophication, and metal depletion impacts, largely emanating from the vehicle supply chain."

That article focused primarily on the toxicity and metal depletion impacts of battery electric vehicles, or BEVs. Today I'm going to ignore the toxicity and metal depletion issues and focus solely on greenhouse gas emissions. The critical points I want to demonstrate for readers are that:

• BEVs double current

On October 4, 2012 the Journal of Industrial Ecology published a "Comparative Environmental Life Cycle Assessment of Conventional and Electric Vehicles" which found that:

"EVs powered by the present European electricity mix offer a 10% to 24% decrease in global warming potential (GWP) relative to conventional diesel or gasoline vehicles assuming lifetimes of 150,000 km. However, EVs exhibit the potential for significant increases in human toxicity, freshwater eco-toxicity, freshwater eutrophication, and metal depletion impacts, largely emanating from the vehicle supply chain."

Since mushy terms like 'significant' leave plenty of wiggle room for rationalization, I spent some time digging through the supporting information to get a better understanding of the environmental impacts. I learned that when the authors compared the comprehensive cycle life impacts of a Leaf from Nissan Motors (NSANF.PK) against the comprehensive cycle life impacts of a gasoline fueled A Class from Mercedes Benz (DDAIF.PK):

In late June I wrote a forward looking article that identified several companies in my energy storage and vehicle electrification group that I expected to perform well or perform poorly during the third quarter. Since short-term market changes are notoriously hard to predict, it's worthwhile to look back and see where I got things right and where I got them wrong. So I'll start today with a quick summary table and assess the relative accuracy of my Q3 calls, and then turn my attention to Q4, which is shaping up as a time of bright opportunity for some companies and continuing risk for others.

Click to enlarge

My list of expected Q3 winners included Exide Technologies (XIDE), Active Power (ACPW) and Axion Power International (AXPW.OB). I was wrong on all three counts because Active Power lost 1.2%, Exide Technologies lost 7.7% and Axion Power lost 20.6%.

My list of expected

I've been a bit of a blogging slacker for the last month as I focused on preparing my keynote presentation for next week's European Lead Battery Conference in Paris, but it's been a quiet time in the battery and electric vehicle space and there hasn't been much to talk about.

That all changed yesterday when the Congressional Budget Office reported that plug-in vehicles are not ready for prime time, Smith Electric Vehicles cancelled its IPO, and I discovered critical modeling errors in two research reports on Tesla Motors (TSLA) from first-tier investment banking firms.

Before discussing the latest developments, I want to mention an important article I found earlier this month in APS News, a bi-monthly newsletter from the American Physical Society, which asked "Has the Battery Bubble Burst?"

The author's conclusions were no surprise: current lithium-ion batteries aren't good