John Petersen

Is Berkshire’s Burlington Move All About Coal?

Regardless of whether it's hauling coal for the short-term or hauling increasing amounts of freight over the long-term, BNSF should be very good for Berkshire. The development of North American rail was stunted by the development of the highway system. In a world where minimizing waste is important, rail will become critical. Several years ago I was delighted when my son-in-law quit his job at the airline and went to work for the railroad. This is just one more case where all things old are new again.

A123 vs. BYD and Other Irrational Battery Investments

Renim, I'll struggle to contain my excitement until the articles stop using words like 'mulls,' 'considering,' 'possibility,' 'feasibility' and 'concept.' Currently it's all fairy dust and optimistic plans to sell a product that will cost twice as much; offer a mere fraction of the flexibility, comfort and convenience; not make a whit of economic sense until oil prices attain levels that are not reasonably expected for 10 years; and not make a significant contribution to either energy independence or CO2 emissions. The politicians always love these grandiose ideas and consumers invariably hate them.

Get back to me when EV sales in the U.S. top 100,000 units per year. Washington may not understand the difference between $20,000 and $40,000, but I'll guarantee that budget stressed consumers do.

A123 vs. BYD and Other Irrational Battery Investments

Doug, I thought you'd enjoy a headline and link that another reader sent me this morning:

"Lithium-Ion Batteries Could be Too Expensive, MIT Team Says"

industry.bnet.com/auto.../

On EESAT and Energy Storage Opportunities on the Smart Grid

Mayascribe, I always love adding new words to the lexicon, especially when they are so thoroughly descriptive. The prior addition was eco-bling, which I was really depressed to find had been in popular use for a couple years.

It looks like last Friday was a pretty good decision day. For the last few days I've had a clear sense that ZBB and Axion are both seeing sales from somebody who needs to raise cash but doesn't know the first thing about illiquid markets.

The biggest problem with morons is that we seem to have an unlimited supply in both the government and private sector.

On EESAT and Energy Storage Opportunities on the Smart Grid

waitaminit, my price chart shows ZBB peaking at about $1.80 last December and trading a little below $1 in April. I'm unaware of any reason for people to be selling ZBB. Unfortunately with small companies when there are more sellers than buyers prices fall, sometimes precipitously. I'm seeing the same thing with Axion right now and while it's irksome as a short-term trend it does not change my opinion. My challenge for today is deciding whether I want to take a profit elsewhere and increase my ZBB position.

A123 vs. BYD and Other Irrational Battery Investments

marketquant, I don't know enough to agree or disagree with your assertions on the principal uses for the A123 and Altair devices, but one of the biggest issues that the thought leaders are grappling with right now is how to aggregate benefits from multiple value streams and arrive at a comprehensive and intelligible value model that can be worked into a utility's rate base. All of the current testing of battery systems is focused on relatively small high value niche markets like FR and spinning reserves. As numbers viewed in a vacuum, these niche markets seem pretty attractive. In the context of the overall grid storage market, they're less than a drop in the bucket. There is a new report working its way through the publication process at Sandia that will update the 2004 graph I've published in several articles. When the report is released, I'll have more to say.

tireman63, I'm with you 100% on the time-to-profitability issues. I still buy green bananas, but I don't want to start from scratch and clear a new plantation from the jungle. As a result, I generally use a very high discount factor for markets that are subject to substantial uncertainty and won't be profitable for another decade. The investor in me is far more interested in markets that will experience outsized growth and profitability over the next three to five years.

A123 vs. BYD and Other Irrational Battery Investments

Marketquant, I'm not enough of a technophile to draw fine distinctions like the one you're describing, but A123's prospectus disclosure says:

"Our products provide standby reserve capacity, by delivering power quickly in order to offset supply shortages caused by generator or transmission outages, and frequency regulation, by regulating the minute-to-minute frequency fluctuations in the grid that are caused by changes in supply and demand. The first of the AES systems, a two megawatt system housed in a 53-foot trailer, is installed at an AES facility, and we have shipped additional units for AES, totaling 16 megawatts."

So it certainly appears that A123 and Altair are competing head-to-head for the same customers and A123 has the lead in shipments by a pretty wide margin.

A123 vs. BYD and Other Irrational Battery Investments

Jack, I've blocked the date on my calendar and would love to join you in Washington DC.

MRTTF, while translating SAFT's financial statements is a major pain because everything is stated in Euros, it trades at 3.8x book value, 1.1x sales, and 14.6x net income.

A123 vs. BYD and Other Irrational Battery Investments

Freya and Grey Road, amen.

A123 vs. BYD and Other Irrational Battery Investments

Freya, the biggest market losses I've ever taken came from my failures to separate emotion and optimism from financial facts. I understand all too well that we're going to need every storage technology that exists and many that haven't even been invented yet. So when I'm looking at a sector that has effectively unlimited growth potential across the board, it's fairly easy to predict that the biggest upside potential is found in the stocks that are beaten down in price. I'll take a $50 million market cap with a $1 billion revenue potential over a $200 billion market cap with a $1 billion revenue potential any day of the week. I'll also take a $500 million short term revenue potential over $1 billion revenue potential a decade out. The goal is simple, buy them when they're undervalued and sell them when they're overvalued and don't fall in love with an idea.

While there isn't any one technology that will get a definitive nod from any administration, bureaucrats are as subject to PR hype as the rest of us. The fact that many of them are ideologues that have never worked for companies that had to produce something and make a profit in the process can complicate the issue. When you add a presumption that resources will be as available in the future as they have been in the past, you can get some pretty unreasonable policy initiatives (think fuel cells and ethanol). I also can't discount the importance of having an ear in high places, although I can think of any number of places where the ear listened politely and still said no.

A123 vs. BYD and Other Irrational Battery Investments

Mayascribe, one of my commenters on altenergystocks referred to hopium, a highly addictive drug that can destroy portfolio values in the blink of an eye. While the symptoms are very common among investors, they're even more common among plug-in evangelists who insist on arguing that all opinions, experiences and visions of the future that don't match theirs are wrong. A careful reader will note that I've decided that it's easier to just let them have their say and refrain from engaging in endless and fruitless debate.

A123 vs. BYD and Other Irrational Battery Investments

purestock, BYD is a fine company and I expect them to become a major force in China, but being a fine company does not necessarily mean investors will profit. Every stock has three values: under valued (which is what BYD was when Buffet bought at $1.02), fairly valued, and overvalued (which is what I think BYD is after a 900% run in its market price). Paying 2x or maybe even 3x the Buffet price leaves plenty of room on the upside. Paying 10x is a sure recipe for short term disaster. Over the long term, BYD may well grow into its current market capitalization - but it's not worth $11 per share today.

MRTTF, on June 30, 2009, before the big push for the IPO really got up and rolling, A123 was carrying $4.85 million on it's balance sheet for "deferred offering costs," which is what you call the amount you've spent on an in-process IPO. Their last amendment prior to the effective date estimated the total IPO costs at $6.8 million, including $3.4 million in accounting and $1.9 million in legal. It's neither good nor bad, but it is dreadful expensive.

Advill, the funds and technical companies invested in A123 over the last couple of years and they paid something less than $9 per share. The IPO which was priced at $13.50 put the rest of the money on A123's balance sheet. Now that the offering is done, the company has nothing to do with the daily trading activity and it's all a new investor buying stock from an old investor.

Whenever a company like Ener1, Valence or for that matter Axion goes to the market for additional capital, the new investors take a very hard look at what the current values are and then negotiate a price based on their perception of those values. In a market like the one we have right now, those negotiations are bare knuckle affairs where the company that needs money is at a distinct disadvantage to the investor who has money. That disadvantage is particularly acute when the spread between financial statement values and market capitalization is measured in hundreds of millions of dollars.

On EESAT and Energy Storage Opportunities on the Smart Grid

D.McHattie, the envision solar video is a good presentation and highlights one of the many chicken or egg problems of plug-ins; which came first the charging station or the vehicle. The video is here:

envisionsolar.com/vide...

I've previously written on the solar tree concept and think it's a wonderful dual use that provides a valuable customer service in hot and sunny climates where getting into a car that's been parked in the sun for a couple hours is always an adventure.

seekingalpha.com/artic...

I don't expect to see Axion's PbC used in new micro-class plug in's because of size and weight limitations. There is, however, significant potential in using the PbC to convert existing pickups, vans and SUVs to dual mode, something that can be done today to slash oil consumption.

seekingalpha.com/artic...

It also looks like the PbC may be an ideal solution for the new stop-start micro-hybrid technology that is expected to become standard equipment over the next three to five years.

seekingalpha.com/artic...

JLBR, the technical presentations at EESAT dealt with performance rather than pricing so I don't have a lot of insight about who the low bidder will likely be. That being said it should be a good deal easier to improve the performance of a flywheel than it will be to improve the performance of a battery.

On EESAT and Energy Storage Opportunities on the Smart Grid

JLBR, the number was presented as an example based on the President's target of 1 million vehicles and their service area encompassing 18% of the population. In other words, it was an ultra rough wild guess assuming that the President's goal of 1 million cars with plugs is met.

I don't for a minute believe cars with plugs will fly with consumers, but with 100 million cars on the road, it doesn't take much market penetration to get to 1 million vehicles in five years.

The more intriguing question is "If you have 4,000 MW of potential frequency regulation capacity in 180,000 plug-ins but only need 1,000 MW of frequency regulation, how much are you going to be willing to pay the plug-in owners." The law of supply and demand tells me not much!

A123 vs. BYD and Other Irrational Battery Investments

By the time any company makes it to the first tier investment banks for an IPO, the bulk of the money invariably came from VCs and corporate funders. That's just the way of the world. Back when I was a baby lawyer, a small company could go out and do a small IPO and raise $3 to $5 million. Anymore that's the preliminary budget for legal and accounting fees. It's a shame because there are lots of small companies that could reasonably justify an $18 to $25 million IPO that will never get a chance.