John Petersen

How PHEVs and EVs Will Sabotage America's Drive for Energy Independence

fireofenenergy, one of the reasons my articles contain as many links as they do is so that readers who want to understand can refer to the source documents themselves. LiFePO4 is a good battery chemistry but it is not cheap and it is not likely to become cheap unless the industry can successfully take the chemistry through three additional generations of chemistry and two additional generations of manufacturing technology. Under the best of conditions that's a six to eight year process that will cost billions and carries no guarantee of success. In my experience, R&D rarely follows the path people expect and the projects that do succeed take twice as long, cost twice as much and deliver about half of the intended benefit.

I've written on the difference between resource availability and commodity availability. The resources may exist in nature, but the mines and processing facilities do not. They will take decades to develop and cost billions more.

Vehicle electrification like most things economic is subject to the laws of diminishing returns. A Prius class HEV needs a little more than one kWh of battery capacity to eliminate the first 40% of gasoline use. Eliminating the other 60% of gasoline use requires another 15 to 50 kWh of battery capacity depending on what you think an electric driving range would be. To make that decision you can use a rough standard of 4 miles per kWh.

As of today, batteries that can be used in cars are a very limited commodity. The highest and best use of those batteries is the low-hanging fruit of the HEV, not the tree-clearing harvest of a plug-in.

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

stockgod, you can e-mail me at [e-mail].

The big problem with CHP seems to be too much debt.

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 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 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.

Battery Investing for Beginners, Part 2

Readers who want to better understand the supply chain constraints that we face in a number of critical raw materials should check out the links provided by Don. They may also want to read my blog on resource constraints at the following link.

seekingalpha.com/artic...

We've all grown up with the idea that shortage means we'll have to pay more. For a lot of these critical raw materials we're about to learn that the word shortage means not available at any price.

Jack Lifton is absolutely right when he argues that encouraging the domestic production of batteries without encouraging the domestic production of raw materials to make the batteries is a fool's errand that simply exchanges one form of dependence for another.

Battery Investing for Beginners, Part 2

Jack, in Don's defense the fact that Great Western had bought the Ovonics facility in Troy slipped by me too. I bought a few Great Western shares a while back because you spoke so highly of the company. I thought I was simply buying into a mining and reserve play and did not understand that the processing capacity was part of the package. Now you have me dying of curiosity. I don't know whether you have the numbers at hand or not, but I'd love to know what Energy Conversion Devices invested in Troy originally and what Great Western bought the facility for.

Battery Investing for Beginners, Part 2

bartpr, when I spoke at Storage Week in July, the California Energy Storage Alliance presented a slideshow that calculated the net revenue of solar as a stand-alone, storage as a stand-alone and wind and storage combined. The IRRs in their example were 4.1%, 4.8% and 5.9% respectively. In other words the two combined offered synergies that neither offered separately. They didn't present comparable numbers for wind, but given wind's tendency to be most stable at night, I have to believe that the IRR advantage of a wind/storage combination would be even greater. Hopefully one of the presenters at EESAT 2009 will flesh this issue out in a little greater detail. I wholeheartedly agree that pre-positioning in the storage sector is critical because the market capitalizations are low enough that prices tend to move quickly in response to events.

Battery Investing for Beginners, Part 2

Mauibuck and Claudio, after six years of working in the sector I have enough background to so some stock picking. For people who don't have the time to study the sector in enough depth to make single selections, I think the best path is to diversify among sectors and give the greatest weight to the companies with the greatest revenues and the lowest market premiums. The new technologies are exciting, but the field is crowded. Since everybody can look forward to rapid growth, I'd prefer to start from a low base.

Battery Investing for Beginners, Part 2

claudio, I try to write these articles in chunks that can be easily digested by the average investor because too much information is as bad as not enough information. The series will continue.

Mayascribe, all of JCI's current manufacturing is in Nersac France as part of the JCI-Saft joint venture. They have big plans to add US capacity (as do many people) but nobody is currently producing lithium-ion batteries in bulk in the US. Ener1 will probably be the first out of the chute with US production, but as far as I know their plant in Indianapolis is still in the start up stage.

Battery Investing for Beginners, Part 2

Don, when manufacturing for NiMH and lithium-ion was first established in Asia the rationale was simple - they were portable device batteries and those devices were all being made in Asia. Until Toyota came out with the Prius in 1999, there was no serious thought that these lightweight and powerful batteries might be used for much larger applications. Under the conditions that existed at the time, the production decisions for small cells were rational. Under new conditions, the decisions to produce large format cells domestically are also rational. I have a high level of confidence that America will return to prominence as a manufacturer, but I don't foresee a return to the "high-touch" manufacturing of the 1950s. Instead it will be highly automated and very capital intensive.

MRTTF, thanks for clarifying the LG-GM connection. I stopped after explaining why I didn't talk about the bigger joint ventures. For the record I also ignore LG, Panasonic, Sanyo, Samsung and Sony because they're all too diversified.

Battery Investing for Beginners, Part 2

Issac, getting to reliable battery system weight numbers is a lot tougher than getting to reliable single cell weight numbers. It's also a metric that has very limited utility in applications other than portable electronics and cars with plugs.

For portable electronics that you want to carry in your pocket weight is everything and buyers will pay a huge premium for light. Likewise, if the goal is to have a car with a battery pack that can drive it for 40 or 50 miles, then weight is an ultra-critical metric. If the goal is to provide 1.5 kWh of batteries for a micro, mild, or full hybrid, the maximum weight differential is less than 70 pounds, or about 2% of vehicle weight.

Once you start talking about a stationary application where the weight will be sitting on a concrete pad, the only person who cares about the weight is the concrete contractor.

jarco, I'm aware of Dow Kokam and JCI Saft. Unfortunately neither of those joint ventures is a publicly traded company in its own right and all of the partners other than Saft (a French company) are far too diversified. So there is nothing for me to talk about in my list of pure-play companies.

Alt commuter, there are any number of Chinese sites that offer cells over the internet at prices that are far below the Sandia numbers. Those prices, however, are for cells rather than packs and the lithium scientists that comment regularly on my articles are very concerned about technical specifications like weight tolerances which indicate a high level of variability from cell to cell, which is absolutely deadly for large packs. I'm confident that the lithium-ion producers will push prices down over time, but it won't be anywhere near the Moore's law kind of improvements that people who don't understand the battery industry generally expect.