By John Addison (10/26/10)
You may be reading this article thanks to the lithium battery in your notebook computer, smartphone, or other mobile device. Demand for lithium is forecasted to double in this decade thanks to a wide range of applications for this metal that is half the weight of water: materials, glass, pharmaceuticals, mobile electronics, power tools, hybrid cars, and electric cars.
Currently, electric cars cost more to purchase than many gasoline-powered cars, but less to fuel. Electric charging is equivalent to fueling with gasoline at 75 cents per gallon in many situations. Nighttime charge rates are even lower.
In 2012, Ford will deliver about 100,000 lithium battery packs in its electric vehicles, new plug-in hybrid, and in all hybrids. Nissan will bring on-line a new battery plant in Tennessee that can make 200,000 lithium battery packs annually for its LEAF and hybrids. These volumes, improved battery chemistry, and streamlined supply chains will drive down the cost of lithium batteries. Automotive lithium battery packs currently cost about $700 per kilowatt-hour. By the end of the decade, automakers are optimistic that they will lower the cost to $250/kWh, at which point electric cars will be less expensive to buy than most gasoline cars.
What do the financial markets make of lithium? To find out, I interviewed Bruno del Ama, CEO of Global X Funds. His exchange-traded fund, Global X Lithium ETF (NYSE: LIT), was launched on July 23, 2010, at 16. It has already soared to 20. For some investors, lithium is the new gold. 10 of the fund holdings are in lithium mining and processing companies; 10 in lithium battery makers.
The fund is dominated with large mining firms such as Sociedad Quimica y Minera de Chile, FMC Corporation, and Rockwood Holdings. The fund is not a dream for environmentally and socially conscience investors. These companies mine a range of metals, using energy intensive processes, chemicals, and put miners in harm’s way.
The fund’s largest lithium battery company holdings include Saft, Ener1, ABT, GS Yuasa, and A123. Saft in a joint venture (JV) with Johnson Controls supplies Ford for the Transit Connect Electric and Mercedes hybrids. GS Yuasa supplies the current Japanese EV leader, Mitsubishi; GS Yuasa is well positioned to be Honda’s supplier for new electric and plug-in hybrids. Ener1 is betting on the Think. A123 is supplying Fisker and non-automotive applications.
The fund does not include the battery companies most successful in lithium: NEC, Panasonic, Samsung, and LG Chem. These diversified giants are excluded because their lithium battery business is less than the 15 percent minimum to be included in LIT. NEC is in the AESC joint venture with Nissan. Panasonic supplies Toyota and Tesla. Samsung is in a JV with Bosch to supply makers such as BMW. LG Chem’s Compact Power is supplying lithium batteries for the Chevrolet Volt and the Ford Electric.
Scientific American reports a 500-year supply of lithium, compared with only decades of available cooper. Demand for lithium will increase as we expand from devices that only need one battery cell, to notebook PCs needing the equivalent of 8, to hybrid cars that use the equivalent of 125, to the Nissan LEAF, which uses the equivalent of 3,000. Reuters Lithium Facts
It would take 60 million cars to use the current annual production of lithium. Although there is plenty of lithium, prices will increase to keep up with the growing demand. Since a typical electric car battery pack only uses 4 pounds of lithium, the price will have little impact on the total battery cost.
There is no guarantee that today’s lithium ion batteries will be the leaders in future decades. Labs to start-ups are working on lithium air, zinc air, fuel cells, ultracapacitors, and hybrid energy storage. It is challenging to overcome lithium ion’s cost and scale advantages. More energy can be stored in an ounce of this metal than any practical metal alternative.
By 2020, the California Energy Commission forecasts 1.5 million plug-in cars on California roads. Clean Fleet Report forecasts 10 million for the USA. Cars, mobile electronics, and many applications will fuel the demand for the lightest of metals and create growth opportunities for the leading battery suppliers.
Disclosure: author owns shares of LIT.
The equity markets love the public offering of A123 (AONE). On the first day after being introduced to the market at $16.5 per share, 3 points above the IPO offering, the stock traded over 41 million shares that day to a high of over 20. It is now hovering in the mid 20s and still trading millions of shares per day. This is a pure Lithium ion battery play, hard to find outside of a corporate mixture. The “green” funds should find the stock attractive until they balance out their portfolios.
But what does this have to do with Chrysler? It has taken A123 several years to sprint from MIT labs to one of the leaders in the advanced battery market, largely buoyed by the Black & Decker/DeWalt hand tool application. In the advanced technology battery business several years is a sprint. A123 has had to sprint to find affordable applications with their brand of battery technology. They have yet to produce a profit, but if A123 can hang on with enough marathon endurance to reach projected economies of scale and Chrysler sustained production, the big energy batteries and high volume of the plug-in vehicle market represent the pot of gold at the end of the rainbow. In the automobile mass production business it takes about 35,000 units per year to be sustainable.
Yet, it will be more like a marathon. For example, the Toyota Prius with a cumulative million cars sold in the US and another million in the rest of the world, was first available in the year 2000 and it took until 2004 before Toyota reached sustainable annual sales. The Chrysler vehicles won’t be available for at least a year and any volume will take years longer. With 1600 employees A123’s estimated annual expenses burn rate is $160 million. That’s above their annual sales and their current markets are not exactly secure. However, I’m cheering for A123; I even bought some of the stock, but there are risks.
It seems somewhat hypocritical that GM chose Korean LG Chem over the US A123 for the Volt battery. It seems that GM valued energy density and a large company over A123 battery safety and being a domestic. The Volt may not sell well because of the $40,000 Volt price tag and competition well under way.
Chrysler looks somewhat more committed with both a battery electric and a plug-in hybrid to be released in 2010. The Dodge Sport car is pure EV. The Jeep SUV and Town & Country are PHEV. The battery life will be a challenge because the dynamic SOC (State of Charge) range is different for BEV and PHEV.
Looking at the whole market and publicly stated release points:
· Nissan BEV with 100 mile range – Fall 2010 with 1000s of vehicles
· Ford BEV with 100 mile range – 2011
· Smart BEV with 100 mile range – 2010 (Europe)
· Ford Plug-in Hybrid – 2012
· Toyota Plug-in Prius with 12 mile all electric – 2010
· Toyota BEV with 40 mile range – 2012
Another little known A123 vehicle market is the Magna pack. Designed and produced in Europe, it took Magna over 2 years and over $2 million to get their A123 pack into a 2000 units per year production line. It currently is used in the Mercedes hybrid that Magna builds for Daimler. There is rumored to be another large European customer.
With the IPO capitalization returning over $300 million, a stimulus award of over $130 million and sales approaching the break even point, A123 probably has enough to cover their burn rate for 3 to 5 years, but let’s take another look the publicly reported customers. The other A123 reported markets may not be as big as they are hyped. Can A123 supply price competitive high quality products?
· The cordless hand tool market is very competitive and will at least have a downward pressure on any profit margins.
· The BAE Systems customer is using the A123 battery pack for hybrid-electric buses. The estimated price range is $5,000 to $10,000/pack with an estimated maximum of 400 buses per year.
· In the utilities energy storage application, AES bought a semi-trailer full of A123 batteries to supply over 1 MWh of energy at a 1 MW power level. Used in a prototype experiment the trailer is performing well in a controlled environment for a power frequency and voltage regulation application. AES has two other trailers full of Altairnano batteries that are also performing well. In another similar experiment, hybrid batteries are performing well. Energy storage will be a sizable part of the new “smart grid”, but there are many forms of energy storage and the choice may be somewhat price sensitive. The utility companies and suppliers are not in any hurry to rush out buy any more trailers full of batteries until the transportation applications reach economies of scale to make the price come down.
· Smart meters and time of use pricing may make home price arbitrage attractive, but that is a long shot market and will undoubtedly be competitive.
Hooray for A123 and Chrysler!
TH!NK City with EnerDel Lithium Batteries
Ener1 (HEV) took the lead among a group of investors that plans to inject $47 million of equity funding into Think Global AS, the Norwegian electric cars producer. Ener1 effectively expands its existing 10 percent stake to a 31 percent stake in Think. Ener1 is the parent company of EnerDel, a leading manufacturer of advanced lithium-ion automotive battery systems and an existing supplier to Think.
Ener1 Chairman and CEO Charles Gassenheimer stated, “Ener1 and Think have collaborated for years on systems development, and today possess a unique ability to bring together category-leading technologies in a fully integrated platform, to suit a wide variety of vehicle applications.” Ener1 appears to be pursuing a business model similar to Bosch Automotive and Magna. Gassenheimer added, “As a key battery supplier and now partner in the production and marketing of electric drivetrain solutions for a range of next-generation vehicles, Ener1 looks forward to a strong future relationship with this industry leader.”
EnerDel and Think have also agreed to enter into a new long-term battery supply agreement as part of the transaction. EnerDel will receive certain exclusivity rights for the supply of lithium manganese titanate batteries for Think’s current and upcoming new vehicle models.
“This investment cements our partnership with one of the leading advanced battery manufacturers in the world,” said Think CEO Richard Canny. “In addition to ensuring supply of high-performance battery systems, the new deal will enable us to more fully capitalize on our advantage in the marketplace with the only ‘plug-and-play’ electric vehicle drive system with prismatic lithium-ion technology.”
Ener1 develops and manufactures compact, high performance lithium-ion batteries to power the next generation of hybrid, plug-in hybrid and pure electric vehicles. In addition to the automobile market, applications for Ener1 lithium-ion battery technology include the military, grid storage and other growing markets.
Ener1 also develops commercial fuel cell products through its EnerFuel subsidiary and nanotechnology-based materials and manufacturing processes for batteries and other applications through its NanoEner subsidiary.
Think is a pioneer in electric vehicles, and a leader in electric vehicle technology, developed and proven over 19 years. Think is also a leader in electric drive-system technology, and was the first to market a ‘plug and play’ mobility solution in the business-to-business sector.
The equity funding allows financially struggling Think to exit court protection and resume normal operations with the production of the ready-to-market TH!NK City.
Also participating in Think’s restructuring is Valmet Automotive, a provider of automotive engineering and manufacturing services of premium cars. In 40 years the company has produced over 1,100,000 high-quality vehicles in Finland. Valmet Automotive manufactures Porsche Boxster and Porsche Cayman for Porsche AG. The manufacturing of Fisker Karma hybrid vehicle starts in 2009. The company is a part of Metso.
Diversifying into system integration around a technology platform is an intelligent strategy for Ener 1 who faces tough competition from battery giants who have joint ventures and strategic relationships with major auto makers. Competition includes Panasonic, Hitachi, NEC, LG Chem, and Johnson Controls-Saft.