Already? The Coming Electric Vehicle Battery Glut (AONE, HEV, SQM, NEM, GLD, MXWL, LIT)

Energy

Published: July 15, 2011 12:09 pm

There’s another case where supply of an alternative energy technology is very likely to overwhelm demand. There is plenty of evidence that such a situation is taking hold in the solar PV manufacturing space, but that is expected to be temporary if you consider possible oversupply until 2013 temporary.

A larger oversupply problem faces makers of lithium-ion batteries for electric vehicles. The cars have not exactly been flying out of dealer showrooms, and battery makers need to develop partnerships with at least one EV maker in order to have a chance of succeeding. According to a report from Lux Research, A123 Systems, Inc. (NASDAQ: AONE) and Ener1, Inc. (NASDAQ: HEV) have generated “more headlines than momentum,” and have developed only minor partnerships that are not likely to produce significant revenue. Another battery maker, Valence Technology Inc. (NASDAQ: VLNC) has not made profit in any of the last four quarters and is not expected to report one for its first fiscal quarter of 2012 which ended on June 30th.

While lack of partnerships may be a problem, the larger problem is the positively booming supply. Global lithium-ion manufacturing capacity is expected to reach 21,000 megawatt-hours by year-end 2012, and nearly 30,000 megawatt-hours by the end of 2015.

By 2012, demand for Nissan Leaf-class EVs is expected to reach 6,000 megawatt-hours (about 250,000 vehicles) in 2015 if the price of oil is $200/barrel. If oil reaches just $140/barrel, similar demand could be delayed until 2020.

Now it’s possible, of course, that lithium-ion battery makers will be able to expand into grid storage applications, but it remains unlikely that grid storage will take all the excess capacity. There are other, cheaper solutions for grid storage.

Chemical & Mining Co. of Chile Inc. (NYSE: SQM) is the world’s leading supplier of lithium and its shares have jumped more than 80% in the past 12 months. Top gold miner Newmont Mining Corp. (NYSE: NEM) has seen its share price fall in the same period and even the SPDR Gold Trust (NYSE: GLD) has risen a mere 30% or so. SQM’s trailing P/E is 41.26 and its forward P/E is 25.04. Price/book ratio is 9.83. If demand for lithium-ion batteries dries up, SQM shares will not trail far behind.

One company that Lux Research likes is Maxwell Technologies Inc. (NASDAQ: MXWL), a leading maker of supercapacitors that can be used in some key energy storage applications, like the start-stop fuel saving technology that most automakers are adopting for their internal combustion engines. But Maxwell too has had profit problems and its forward P/E is higher even than SQM’s. Maxwell’s price/book ratio is also a very high 4.28.

An ETF that is supposed to track the future of batteries via lithium is the Global X Lithium ETF (NYSE: LIT). So far it is ignoring these concerns as its is up 1% at $19.62 today.

Electric vehicle sales may grow in the next few years, but a lot depends on the pump price of gasoline. But even if those prices rise above $5-$6/gallon, there will still be more than enough lithium-ion battery- making capacity.

Paul Ausick

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