John Petersen

Battery Investing for Beginners, Part 3

truthteller, I've been quiet for a couple of weeks while I waited for everybody to post Q-3 results but expect to start back in again soon. One of the areas that I plan to focus on in detail is timelines and probabilities for emerging technologies. One of the more interesting factoids that came up in this round of conference calls is that Enersys is already doing about $30 million a year in grid-based business, which seems to support the idea that cheap beats cool, particularly when the companies that make cheap products also generally have objectively cheap stocks.

Battery Investing for Beginners, Part 3

Horsed, from what I've seen ULBI is a fine company with a good book of business. While I feel pretty comfortable describing long term trends, I'm at a complete loss when it comes to explaining short-term price movements beyond the old saw about there being more sellers than buyer.

Peter, it's hard to argue with the logic that raw materials suppliers will prosper as the industry develops. I don't get into analysis of miners because it's an entirely different industry, but that's merely recognizing my own limitations.

Battery Investing for Beginners, Part 3

Don and Renim, these last few articles are directed principally at the people who got a call from their brokers a few weeks ago and heard "let me tell you about this hot new IPO that's coming in late September" but had never given storage a second's thought before that. For those of us who've been deeply involved in the industry and the various technologies for a long time, there's little more fascinating. For the newcomers, the in-depth detail is mind numbing. Even my own mother has stopped reading because she can't stand the deep technology talk.

The real challenge for me is keeping it light enough for the financially oriented and deep enough for the technically oriented.

Battery Investing for Beginners, Part 3

battman, I'm hoping to limit my future technical discussions and rely more on links to the archive. Seeking Alpha is about making money investing and I'd much rather talk about economics than electrons, but it was important to prove that I could discuss both sets of issues intelligently.

I like to see A123 performing well because so far they seem to have done a pretty good job managing expectations. The market seems to understand that revenue growth over the next couple years will be limited by capacity on the manufacturing side and they're picking up a lot of sales in the grid markets. These are all good things.

One of the big problems in storage is that it's never been seen as a sector and there are no generally accepted valuation metrics. That's part of the reason why Exide trades at 0.2x sales and A123 trades over 20x sales. I don't ever see a cheap sustainable company like Exide trading at parity with its cooler cousins, but a spread that's two orders of magnitude wide seems excessive.

Don, there's a lot of merit to investing in raw materials producers rather than raw materials users, but I think that trying to comment on different but related sectors would be more than I could keep up with. The article you linked is intriguing but does highlight our need to broaden our thinking about what our needs are and how those needs can best be served. It's one thing to know for certain that major change is coming and another entirely to describe the future. The only thing I can say for sure today is that all classes of batteries will be critically important to that unknown future.

Battery Investing for Beginners, Part 2

Mayascribe, I think most readers' reactions are a bit like yours was at first. Many things that I see as sensible others see as contrarian if not outright luddite. Since many people get involved emotionally with the stocks in their portfolios and repeatedly saying critical things about a favorite is a lot like criticizing a pet or even family member, it takes most folks a while to decide I'm not crazy.

Fredrick88, thanks for the reference. I don't have a lot of Great Western but it's done well for me so far.

Battery Investing for Beginners, Part 3

Clavis, the nice thing about stock markets is that even companies that are not doing well take a long time to fail. When I was much younger an old partner from one of the prestigious Silicon Valley firms told me that small companies were like children in third world countries and if you could keep them from dying of dysentery they usually wouldn't die of starvation either. So in the small company markets the trick is to avoid the high multiple stocks and spread your bets across the low multiples with big books of business. That way you stand a pretty good chance of holding value on the losers and gaining value on the winners.

Battery Investing for Beginners, Part 3

danno, part one explained how I arbitrarily defined the peer group - pure play public companies that report to the SEC.

Saft is French and doesn't report to the SEC - but it's a great company.
JCI does report but is far from being a pure play.
BYD does not report and is far from being a pure play.
Polypore is materials not batteries.
Wilson Geatbatch is too diversified
Chloride Power is English and doesn't report to the SEC.

A wider net would include more worthy companies, but significantly complicate comparisons.

carey_jim, diversification is always a very good idea. Pick one and the odds are you'll pick wrong. Pick several and the odds are that at least a couple of them will work out, particularly if they have a billion dollar sales book to start with.

Battery Investing for Beginners, Part 3

After watching 58 years of magic changes in everything else, I expect to see magic changes in energy before I revert to ground temperature. But the magic changes will come one baby step at a time and only be magic in retrospect. I still buy green bananas, but I'm not interested in planning and developing a new plantation.

Battery Investing for Beginners, Part 2

NorthernPiker, my "constant rants" are little more than one small voice in the crowd that's shouting the praises of the Emperor's new wardrobe. I'm terribly bullish about the prospects for large format batteries of all kinds, including lithium-ion batteries. But the economics you so ably summarized are being lost in an unending drumbeat of governmental hype and automakers who given no choice are getting out in front of the crowd to make it look like a parade. This is not a healthy environment for investors who don't understand the intricacies of the economics or the false promise of PHEVs and EVs. A debacle like we saw in the ethanol markets a couple years back would be a disaster for the energy storage sector and somebody has to stand up and say "THIS IS STUPID." I know that regular readers like you are tired of the same old themes, but at least I'm continually coming up with new source documents.

Battery Investing for Beginners, Part 3

Thanks Issac.

Tom, CSGH reports that it is a large producer of cobaltosic oxide and lithium cobalt oxide (anode materials for lithium ion batteries) and has the second largest cobalt series production capacity in the PRC. They also also provides substitute products including lithium iron phosphate (LiFePO4). It has roughly 53.5 million share outstanding and made $0.16 in the year ended May 31. At yesterday's closing price, the P/E is about 12, the P/S is about 1.4 and the P/B is about 1.6. Those metrics are within the range for the other Chinese battery manufacturers I mentioned in Part 2. I don't talk about CSGH because they're more of a materials company than a battery company.

I'm sure you've seen the reports that early generations of lithium ion batteries had problems with explosions and fires while the newer chemistries were safer. The materials CSGH manufactures and sells are primarily used to make the explosion and fire prone classes of batteries.

I'm a bit of a skeptic when it comes to foreign companies that list their shares in the U.S. but have all of their operations elsewhere. It's done all the time but I've always found that my foreign clients have less respect for US law than my US clients. When I add in the fact that I don't truly understand the business culture in Asia, I tend to shy away from the Chinese companies that trade in the US. The combination leaves me very reluctant to say too much, either positive or negative, about the China class.

Battery Investing for Beginners, Part 2

ripskil, the only thing that frees me to be as opinionated as I am is the knowledge that there will always be an informed reader to present the other side of an argument. Folks who read the articles and skip the comments are really missing something. I continually point out that battery cost per watt hour is irrelevant when you're talking about a Macbook Air that uses 37 watt hours of batteries. It's an entirely different dynamic when you're looking to put 16,000 watt hours of batteries in a GM Volt. In the former variations in battery cost are easily overlooked because they're not a meaningful percentage of the total product price. In the latter where battery cost is upwards of 50% of total product price, even nickels and dimes per watt hour make a big difference. Natural resources don't need to be produced domestically if there are multiple sources and no one country has a dominant position, but situations where a single country like China produces 95% of the global rare earth metals or a couple countries in South America have a stranglehold on lithium production makes domestic production capacity far more important from a national security perspective. I've been around long enough to know that countries that are currently friendly, or for that matter currently hostile, may not always be so in the long term. If battery manufacturing is viewed as a national security issue, so should the raw materials.

Battery Investing for Beginners, Part 2

Old Wizard, I'd never let it be said that I'm a gung ho advocate of PHEVs because we both know that I think using batteries to power a car at highway speeds is just about the dumbest idea in the world. That being said, my criticism is reserved for the senseless waste of batteries rather than an inherent flaw in the batteries themselves. Asian manufacturing prowess is renowned, but the draft lithium-ion battery roadmap I've spoken about at length talks about the need to leapfrog Asia by taking the chemistry through three generations and the manufacturing process through two generations in the next six to eight years. When it comes to inventing new technologies and inventing new ways to make technology products, the U.S. has it all over Asia because it's people are not as fearful about being wrong, or about trying an idea, failing and trying another idea. If it was simply a question of preserving the technological status quo, I'd give the Asians a big advantage. Since I know the ultimate goal is something far better than we currently have, I think the US has the advantage. The effort may fail, but you can't win a game you don't play.

Battery Investing for Beginners, Part 2

MRTTF, there are so many big and talented companies trying to be Mr. Touchdown in lithium-ion that I'd find it almost impossible to handicap the contenders. Given your in-depth understanding of exactly what the contenders are working on and exactly how those enhancements will impact performance, you'd be in a far better position than I to make the technical judgments. On balance, I feel a lot more comfortable about the relative risk/reward ratio of the cheap groups.

Battery Investing for Beginners, Part 3

joe, I expect great things for Axion but given my long history with the company that opinion has to be taken with a grain of salt. I've also invested in Exide, Enersys, Active Power and ZBB. I don't know that I would feel comfortable picking a small group of likely winners or offering advice on specific stocks, but diversification is never a bad idea for investors who don't have a lot of time to spend on research.

Battery Investing for Beginners, Part 2

joe, the movie quote about plastics was from Mr. Robinson in The Graduate. Currently the lithium-ion battery market is in the $7 billion range. Most of the proposed factories won't be operational until 2012 or 2013. So if you're really interested in likely market leaders, the race won't even start for another 3 years. I'm sure there are any number of readers who are willing to express an opinion on "who's likely to be the lithium winner," but I'll abstain from that debate.