Lithium-Ion Batteries and Centerfolds

by: John Petersen

They’re glamorous, sleek, sexy and hot; the building blocks of pubescent dreams and mid-life crises. But they’re expensive, temperamental, potentially dangerous and scarce.

For the last few years, news from the battery sector has been dominated by stories about advances in Li-ion batteries that hype performance while downplaying system costs and safety risks. As a result, U.S. companies operating in the Li-ion space like Ener1 (NASDAQ:HEV) and Altair Nanotechnologies (NASDAQ:ALTI) have attained nosebleed market capitalizations based on little more than dreams. While some recent articles have noted that global lithium supplies are limited, nobody has come to grips with the fact that it is prohibitively expensive to recycle used Li-ion batteries to a point where you can use the lithium in new batteries. So much like the oil industry, the Li-ion battery industry will have to come to grips with raw material shortages far sooner than anyone imagines.

In comparison, major lead-acid battery manufacturers including Johnson Controls (NYSE:JCI), Exide (XIDE), Enersys (NYSE:ENS) and C&D Technologies (CHP) have established product lines and rust-belt market capitalizations. Lead-acid innovators like Axion Power (OTC:AXPW) and Firefly Energy are currently manufacturing commercial prototypes of advanced lead-acid batteries that promise huge leaps in performance at modest prices. To top it off, over 98% of used lead-acid batteries in the U.S. are recycled into new batteries; minimizing resource waste and pollution.

Size, weight and energy density are critical in cell phones and laptops, but far less important in transportation and alternative power applications: and despite all the safety talk, catastrophic failure rates of one cell in 10 million, or even one cell in100 million, are not comforting when it takes thousands of cells to make an automotive battery pack and a single failure can start a chain reaction (remember the Pinto).

History shows that two key factors determine whether a technology will be widely adopted: bottom line cost and proven product safety. I believe Li-ion fails on both counts because the technology is neither cheap nor safe.

There is growing consensus that energy storage is the next big investment opportunity because cost-efficient storage can significantly improve the profit potential and reliability of every alternative power technology. Transportation applications are an important part of the picture. But the market potential in transportation pales in comparison to bulk energy storage for wind, solar, and utility applications.

When you get real about issues like cost, safety and materials availability, I believe advanced lead-acid batteries offer an attractive alternative to their sexier but more problem prone cousins. In energy storage as in life, the plain and reliable girl next door is probably a far better bet than the airbrushed centerfold.

Disclosure: Author holds a long position in AXPW