Treating our Petro-Mania With Lithium 04.29.09 Search

Batteries, Storage and Keeping Pace with the World

Ryan

Battery technology and renewable energies are coming. Get on board now.

It's seems hard to get excited about any investment opportunities these days. It seems in America their is a lukewarm reception of the prospect of electric cars and hybrids. I hear, "there is no way a commercial semi-truck can run on an electric engine," and that "the batteries are too expensive to be afforded by the masses." These will prove to be very short-sighted arguments and are already somewhat muted by the look of what's happening in the domestic and international auto-industries. I tried to think of the new passenger-car paradigm in three parts: the supply of batteries, the raw materials, and the infrastructure necessary to support the charging of the batteries I'll leave the auto manufacturers out (most have left themselves out).

Regarding the battery life issues, one company has already figured out how to quiet the critics. Better Place (privately financed), an Israeli company, has designed an automated recharging process. Basically, you pull your car into the station, and a robotic arm reaches up, removes your battery and replaces it with a fresh one. Think of changing the magazine on a pistol -- Better Place leases the batteries to the you and you never have to leave your car. Still skeptical? Denmark is well on its way to having a grid of stations and Israel's system will be complete by 2011. Australia has signed up, and a billion dollar infrastructure project led by Better Place will soon break ground in the Bay Area region in California. Sounds pretty real to me.

The biggest hurdle regarding wind and solar energy production is storage. This issue was talked about extensively at this year's Hard Assets conference in Las Vegas, some analysts concluding that it was THE prohibitive factor regarding alternative energy. In other words-- the utility company can't control the sun or the wind. The beauty of the concept of "battery stations" is that they can be connected to the power grid to soak up excess energy, like that produced by wind and solar at "off-peak" hours, storing it in the batteries or selling the excess back to the grid. Maybe it's time to look outside our borders for a fresh vision of what transportation can be. What caught my eye was BYD Co. LTD (BYDDF.PK), a battery company based in China that makes batteries for Apple's products like the iPhone and iPod, and is the world's leading supplier of cell phone batteries. Now they're moving into auto-production. Warren Buffet recently offered to buy one-quarter of the company but the CEO wouldn't sell. Buffett ended up buying ten percent of the company for over $300 million. Buffet's partner Charlie Munger in a memo described the CEO, Wang Chuan-Fu, as " a combination of Thomas Edison and Jack Welch." The company, which employs 130,000 workers, is led by 10,000 engineers (that's ten thousand) - 40% of those who enter BYD's in-house training program either drop out or are dismissed - and another 7,000 new college graduates are being trained. Wang says they come from China's best schools. "They are the top of the top," he says. "They are very hard-working, and they can compete with anyone." They live in subsidized housing (Wang lives there too) and work is the focus of their lives. BYD has developed a battery that is so "green," CEO Wang has famously gulped the battery fluid in demonstrations. It's completely non-toxic. Whether or not BYD's vehicles are ever sold on American soil it is very likely that we will be using their batteries and already are to an extent. There is an excellent piece about the company in Fortune Magazine titled "Warren Buffet Takes Charge." Disclosure: We bought shares in this company after reading this article, and you may find yourself doing the same. (Today it is trading at $2.65.)

When it comes to raw materials for batteries, Lithium seems to be the future. Not that it's new technology, it's been around for years, but the lithim-ion batteries are simply more powerful, smaller and lighter -- these traits make it ideal for travel. Toyota has been using a nickel-based battery in the Prius but word is that they'll be making the switch to a lithium-based battery on the new 2010 model. This is in part because at the rate China is fabricating stainless steel, of which nickel is a major component, nickel is too expensive. The world's largest supplier of Lithium is The Chemical & Mining Co of Chile (SQM), a company that actually pays a dividend of 3.6%. SQM reported their eighth year in a row of revenue growth this March, and the share price has nearly doubled since its October low. The world's largest reserves of Lithium are in the Uyuni Salt Flats of Bolivia. Several companies including Mitsubishi and LG are trying to get their hands on those reserves in partnership with the socialist government. But for now, SQM seems to be the Lithium supplier to park a few dollars with.

Electricity supply: Naturally batteries need electricity, so who will supply the juice? One of Warren Buffett’s Berkshire-owned companies is Mid-American Energy, a major U.S. electric utility. There is speculation that Mid-American might join forces with BYD to produce an American network of recharging stations. Regardless the utility sector will have major stakes in collaborating with the electric car culture. Oil companies have already divested much of their gasoline service station holdings -- maybe they see the future a little more clearly than their Detroit counterparts.

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