More than a century ago, governments in the United States and
Europe decided to pave over dirt roads. They knew that many
citizens would soon be driving automobiles and would soon sour on
bumpy, rutted dirt paths. Now, a similar move is afoot. A wide
range of incentives are being enacted to enable a smooth transition
to the age of the electric car. Luckily for patient investors, the
companies that stand to benefit from the coming e-car revolution
have already fallen out of favor, and their share prices stand near
Putting the Pieces in Place
A number of auto makers have announced plans to sell electric and
hybrid cars and trucks that utilize lithium-ion batteries.
popular Prius uses older heavier battery packs, but many of the
planned cars will have driving ranges of less than 100 miles. So
consumers will need access to frequent and convenient recharging
stations. The U.S. House and the Senate have released separate
bills that would provide millions of dollars to a handful of select
cities that install a network of charging stations. The regions
chosen will likely be the first ones to see robust vehicle sales.
Other countries are also building up infrastructure to support
We're closer than you think. Nissan will be selling its
all-electric Leaf later this year.
Ford Motor (NYSE:
will be selling all-electric versions of its Focus and Transit
Connect minivans next year, followed by an expected release of an
all-electric Volvo in 2012. Lithium-ion batteries will also find
their way into a wide range of hybrid vehicles over the next three
years, although those cars and trucks will get their charge from an
engine as well as a plug-in option.
As a brief technical background, a range of companies are
developing lithium batteries, though some are pairing it with
manganese, others with iron, and some with cobalt oxide. Each of
those various chemistries has pros and cons in terms of power,
durability, and discharge rates. Most battery packs weigh upwards
of 600 pounds, so engineers are constantly seeking ways to boost
power while cutting size and weight.
Horses in the Race
Investors can choose from four stocks that are ramping up their
expertise and production capacity for lithium-ion batteries.
A123 Systems (Nasdaq:
is the most well-known as it had been the beneficiary of a
initial public offering (
last September. Investors seemingly forgot that the industry is
still evolving, and proceeded to dump shares once they realized
that it will be several years before the company can grow large
enough to generate profits. Shares now trade for less than
one-third of the 52-week high.
But that selling may prove myopic. A123 Systems is expected to
boost sales 50% next year to around $136 million, and more than
double in 2012. Yet it's fair to wonder if those targets can be
met, considering the company has already had to lower guidance
several times. A recently-announced expansion of a deal with
could help. Navistar has developed a fully-electric truck that is
suitable for package delivery firms and courier services, and will
use AONE's batteries. Heavy vehicles are especially suitable for
electrification, as electric motors have a great deal of torque and
do not strain under extreme load conditions.
, is also making good strides, but has also seen its shares fall
sharply from the 52-week high. The company has inked deals with
Volvo and Norway's THINK, and has also signed a far-reaching deal
with China's largest battery manufacturer. That deal could prove to
be a king-maker. Analysts think China will be the largest market of
electric cars, thanks to massive government support that aims to
boost air quality and cut down on oil imports.
The deal with THINK will be seen as validation of Ener1's
technology. THINK has designed an all-electric car from the ground
up, and has been building up a
of orders. Ener1 is building 25 battery packs per week (to support
a backlog of 2,000 units), and expects to ramp up output to 900
packs per week by early next year. A recent $65 million capital
injection is expected to lead to much higher manufacturing capacity
in 2011, right at a time when many new electric cars are expected
to hit the road.
Ener1 may also look to target the massive market for electric
bikes. There are currently nearly 40 million electric bikes in
China powered by heavy and inefficient nickel batteries.
Lithium-ion powered bikes currently represent just 1% of that
market, but could grow quickly as volumes ramp and costs come down.
Perhaps the safest way to pay the lithium-ion revolution is by
Polypore International (NYSE:
, which already has an extensive background in building separators
that manage the flow of ions (a key consideration in light of the
exploding lithium-ion battery packs of a few years ago). Polypore,
along with a division of
and Japan's Asahi Chemical, control 90% of the market, and all
three should benefit from much higher demand for membranes used in
lithium-ion batteries. Polypore's membranes are believed to be used
in upcoming electric vehicles from Nissan and Ford.
Share gains for Polypore will likely be more muted as its existing
businesses are growing at a moderate pace, and 15% to 20% annual
sales growth is probably the best investors can expect. That could
lead to more robust profit gains, and shares could approach $30 by
late next year if analysts are correct in their anticipation that
per-share profits could rise to around $1.50 by 2012.
In a similar vein, investors may want to check out
Johnson Controls (NYSE:
, which has a joint venture with battery maker Saft. The joint
venture's batteries are expected to be used in upcoming vehicles
from Ford and BMW. But like Polypore, Johnson Controls is also
involved in slower-growing more mature businesses, so its sales and
profits won't grow as fast as the lithium-ion auto market.
Action to Take -->
Both A123 Systems and Ener1 are high-risk/high reward plays, though
with shares close to their lows, much of that risk may already be
in the stock. It will likely be a bumpy ride as this new market
develops, but the potential upside is vast.
-- David Sterman
Disclosure: David Sterman owns shares of Neither StreetAuthority
and LCC nor the editor hold positions in any securities mentioned
in this report..