battery wars

Battery Wars

by Jim Kingsdale
http://seekingalpha.com/article/119362-battery-wars

A horse race is in progress that will determine the next generation automotive power plant. In order to break our oil addiction cars must transition to electric power, which means the power plant must be either all electric or plug-in hybrid electric. Either one requires a battery with vastly better cost/benefit ratios than is currently available. The two near term favorites to fill the bill are nickel metal hydride and lithium-ion; a long shot on the outside is ultracapacitors.

Competing battery technologies also include an improved lead-acid battery and a nickel-cadmium battery in addition to the NiMH and Li-on alternatives. According to metals analyst Jack Luftin in an article entitled “The Future Of The Nickel Metal Hydride Battery And Of The Rare Earth Metals From Which It Is Constructed,” “So far the hands down winner among the new battery technologies as of 2009 is the nickel metal hydride battery based on the hydrogen absorption capacity of the rare earth metal lanthanum alloyed with nickel and cobalt.” But the popular press is all about “the immature and untested lithium-ion battery technology alone.”

Luftin details the contest between the NiMH crowd that is headed by Toyota (TM) and the lithium-ion crowd of which GM is the apparent cheerleader. He describes Toyota’s superior long term planning and product development skills that have lead them to chose the NiMH battery which currently powers virtually all hybrid cars. Contrasting with Toyota’s brilliance, according to Luftin, is the mistaken judgement and poor planning skills of General Motors, which has caused them to fall back on what he says is the inferior lithium-ion battery. Luftin believes GM is precluded from using the better performing NiMH because they can’t obtain enough of them, having failed to understand the critical need to secure supplies of the rare earth elements that are used in NiMH batteries.

Luftin’s essay recounts the history of the automotive industry’s experimentation with electric and hybrid- electric power. The NiMH battery was invented by Energy Conversion Devices (ENER) in the 1980’s. ENER still operates that business in a joint venture with Chevron (CVX). Since China became the sole global supplier of rare earth elements, ENER gave China the technology for the NiMH battery in exchange for guaranteed access to lanthanum. Thus China has been making NiMH batteries since the 1980’s.

A critical difference between the Japanese and American approach to battery technology, according to Luftin, is that only the Japanese recognized the vital need for sufficient lanthanum, a rare earth element, if one wanted to produce a large quantity of NiMH batteries. Japan then went on to corner the developed world’s market in lanthanum. Toyota has long monopolized Chinese exports, has stockpiled lanthanum, and has made supply agreement with Australian, American, Canadian, Vietnamese and other suppliers and companies that plan to start up production of rare earth elements. They even bought a trading company that specializes in rare earth elements.

Thus all NiMH automotive batteries are now made in Japan. Toyota focused both on obtaining the raw materials and on refining the technologies needed for NiMH production. They have vastly improved on the original ENER NiMH technology and are now ramping up production to meet an estimated 1 million NiMH-powered hybrid cars per year capacity.

As a result of Toyota’s far-sighted planning efforts, the supply of materials for making NiMH batteries is now unavailable to Ford (F), Chrysler and GM, all of which have announced their commitment to lithium-ion batteries for their hybrids. But until they actually develop a cost-effective li-on battery the American manufacturers must depend on the kindness of Toyota to obtain sufficient NiMH batteries for the relatively few hybrid cars currently in their production schedule.

Unfortunately for GM, the li-on battery they are promising for their Volt, due in showrooms in less than two years is untested, has never been mass produced, and carries an estimated cost that is excessive. The latter point is most critical. If the li-on battery cannot be produced more cheaply then GM is guaranteeing that either each Volt will be sold at a loss (which they have publicly admitted in terms of initial production) or that few people will be able to afford the vehicle.

The above is Mr. Luftin’s view of the battery world. If he is correct, how can investors benefit? One way may be to own companies that produce the rare earth elements needed for NiMH batteries. As Mr. Luftin says, “There will be a growing demand for rare earth metals for nickel-metal hydride batteries and for neodymium-iron-boron permanent magnets, which can only be met by extending the production of REEs outside of China.”

In August, 2008, I posted an analysis of the REE market and the potential investment alternatives. The investment conclusion: the primary opportunity seems to be two Australian producers, Lynas Corp, (LYSCF.PK) which plans to start shipping in Q4 this year, and Arafura Resources, which is about 18 months behind Lynas. Major shares of Lynas are owned by several top-ranked Wall Street firms. I own stock in both companies. Neither stock has been a winner yet and Lynas stock has actually been stopped from trading in Australia over the past week pending an announcement. Another and deeper discussion of rare earth elements by Jack Lifton is here.

The Dark Horse

Meanwhile, as the analysts are busy comparing and contrasting various battery technologies, a dark horse is running in the background and threatening to break open the race altogether. That horse is the ultracapacitor. Various sorts of ultracapacitors have been produced and used in products for many years; a public company, Maxwell Technologies (MXWL), is a prominent supplier but has never made a profit in the business.

Now a secretive company called EEStor, financed by the pre-eminent venture investment firm Kleiner Perkins and located in Texas, claims to have a new technology for making ultracapacitors that have cost, weight, and performance benefits that combine the enormous power of ultracapacitors with their rapid re-charge and great storage capacities at much less weight and cost. In short, the EEStor product would change the game and, indeed, the world.

EEStor has not made its product available for public inspection but it has announced a supply agreement with Lockheed Martin (LMT). And the rumor is the it is talking with General Motors. A couple of sources of information are here and here. I’ve written a few pieces on EEStor that you can access here and I own a few shares of Zenn Motors (ZNNMF.PK), a Canadian electric car maker that is said to own a 2% interest in EEStor and which is the only way I know to play it.

Each time I mention EEStor someone writes to accuse me of hyping vaporware. I try to be clear in saying that I have no idea whether the EEStor product is real or just hype. But I do know that Kleiner Perkins is very real as is Lockheed Martin. And I suspect that if the EEStor claims are even vaguely in the ballpark of reality, the new product could change everyone’s idea of what the energy future will look like. Not only would it potentially push the viability of electric transportation forward. It would impact the viability of all battery technologies along with changing the demand for oil in future years and even shifting the balance of power in the world. If you think I’m kidding, think further.

A breakthrough like the EEStor concept or something comparable would be in the great tradition of new technologies changing the way we live and solving problems that we did not think could be solved. It would be wonderful if such a new technology were to come once again from America.