By Baruch Lev and Chenqi Zhu, New York University
The Wall Street Journal recently wrote: "Today, the battery industry is mustering for exponential growth as car makers electrify their fleets… The path to profitability is far from clear… Investors looking to benefit from this gold rush need to take a long-term view." Good advice, but how could an investor form such a long-term view? The main players in the batteries space are large car companies and dedicated battery developers/manufacturers. The battery operations of the former, like Toyota (TM) and GM, are very small relative to their conventional car business and not separated in the financial reports. The latter (battery developers) are relatively young companies with limited financial history. Although investors could find historical financial reports for battery makers such as LG Chem (LGCLF) and Samsung SDI (SSDIY), they seldom discuss their technological strategy and R&D progress and therefore provide investors with very limited insight about future growth opportunities. It's, therefore, very difficult for investors to differentiate among the various players in the batteries industry and assess their long-term potential.
Patents to the rescue: In the long run, the winners in the fast-evolving batteries space will be those with superior technology, potentially disrupting other competitors. Patents are obviously the best source of information for investors about technological progress and prowess. There are two useful sources of patent data in the U.S.: (1) Publicly disclosed application documents for patents granted to the company, usually around three years after application, and (2) pre-grant patent disclosures: A much earlier exposure of the entire patent document by the U.S. Patent Office, made 18 months after patent application. These early and detailed patent disclosures provide a comprehensive view of the invention (technology, intended use, relation to current technologies) and are an invaluable information source on firms' innovativeness, technological strategies, and future course. A few
