This page has been archived and commenting is disabled.

The Great Battery Technology Race

madhedgefundtrader's picture




 

One hundred years from now, historians will probably date the beginning of the fall of the American Empire to 1986. That is the year President Ronald Reagan ordered Jimmy Carter’s solar panels torn down from the White House roof, and when Chinese Premier Deng Xiaoping launched his secret “863” program to make his country a global technology leader.

Some 34 years later, the evidence that China is winning this final battle is everywhere.  China dominates in windmill power, controls 97% of the world’s rare earth supplies essential for modern electronics, is plunging ahead with “clean coal”, and boasts the world’s most ambitious nuclear power program. It is a dominant player in high speed rail, and is making serious moves into commercial and military aviation. It is also cleaning our clock in electric cars, with more than 30 low cost, emission free models coming to the market by the end of 2011.

Our only entrant in this life or death competition is the Tesla, little more than a rich man’s toy.  At $100,000 per vehicle production is capped at 1,000 units a year. Its cheaper S-1 sedan isn’t coming out for two more years. General Motors’ (GM) pitiful entrant in this sweepstakes, the Chevy Volt, only just became available in limited numbers, and won’t see true mass production for at least a year. By then it will be easily overtaken by superior, cheaper technologies offered by multiple Chinese models, Japan’s Nissan Leaf, and a third generation Toyota plug-in Prius.
This is all far more than a race to bring commercial products to the marketplace. At stake is nothing less than the viability of our two economic systems. At the moment, China’s state directed socialism is winning. By setting national goals, providing unlimited funding, focusing scarce resources, and letting engineers run it all, China can orchestrate assaults on technical barriers and markets that planners here can only dream about. And let’s face it, economies of scale are possible in the Middle Kingdom that would be unimaginable in America.

The laissez faire, libertarian approach now in vogue in the US creates a lot of noise, but little progress. The Dotcom bust dried up substantial research and development funding for technology for a decade. A ban on government funding of stem cell research, for religious reasons, left us seriously behind in that crucial field. An administration that believed that global warming was a leftist hoax, coddled big oil, and put alternative energy development on a back burner. Never mind that the people supplying us with 2 million barrels of crude a day are trying to kill us through whatever means possible. But Americans are finally figuring out that we can’t raise our standard of living selling subprime loans to each other, and that a new direction is needed.

Mention government involvement in anything these days and you get a sour, skeptical look. But this ignores the indisputable verdict of history. Most of the great leaps forward in US economic history were the product of massive government involvement. I’m thinking of the transcontinental railroad, the Panama Canal, Hoover Dam, the atomic bomb, and the interstate highway system. If the government had not funneled billions in today’s dollars into early computer research, your laptop today would run on vacuum tubes, be as big as a skyscraper, and cost $100 million.

I mention all of this not because I have a fascination with obscure automotive technologies or inorganic chemistry (even though I do). Long time readers of this letter have already made some serious money in the battery space. This is not pie in the sky stuff; this is where money is being made now. I caught a 500% gain hanging on to Warren Buffet’s coat tails with an investment in the Middle Kingdom’s Build Your Dreams (BYDFF) two years ago (click here for the piece at http://www.madhedgefundtrader.com/june_26__2009.html ). I followed with a 250% profit in Chile’s Sociedad Qimica Y Minera (SQM), the world’s largest lithium producer (click here at http://www.madhedgefundtrader.com/february_3__2009.html ). Next came Xide Technologies (XIDE), with a 70% pop (click here for http://www.madhedgefundtrader.com/february_19__2010.html ). These  are not small numbers. I have been an advocate and an enabler of this technology for 40 years, and my obsession has only recently started to pay off big time.

We’re not talking about a few niche products here. The research boutique, HIS Insights, predicts that electric cars will take over 15% of the global car market, or 7.5 million units by 2020. Even with costs falling, than means the market will then be worth $225 billion. Electric cars and their multitude of spin off technologies will become a dominant investment theme for the rest of our lives. Think of the auto industry in the 1920’s. (BYDDF), (SQM), and (XIDE) are just the appetizers.

All of this effort is being expended to bring battery technology out of the 19th century and into the 21st. The first crude electrical cell was invented by Italian Alessandro Volta in 1759, and Benjamin Franklin came up with the term “battery” after his experiments with brass keys and lightning. In 1859, Gaston Planté discovered the formula that powers the Energizer bunny today.

Further progress was not made until none other than Exxon developed the first lithium-ion battery in 1977. Then, oil prices crashed, and the company scrapped the program, a strategy misstep that was to become a familiar refrain. Sony (SNE) took over the lead with nickel metal hydride technology, and owns the industry today, along with Chinese and South Korean competitors.

We wait in gas lines to “fill ‘er up” for a reason. Gasoline has been the most efficient, concentrated, and easily distributed source of energy for more than a century. Expect to hear a lot about the number 1,600 in coming years. That is the amount of electrical energy in a liter (0.26 gallons), or kilogram of gasoline expressed in kilowatt-hours. A one kilogram lithium-ion battery using today’s most advanced designs produces 200 KwH. Stretching the envelope, scientists might get that to 400 KwH in the near future. But any freshman physics student can tell you that since electrical motors are four times more efficient than internal combustion ones, that is effective parity. The additional savings that no one talks about is that an electric motor with five moving parts has no maintenance cost versus the endless bills generated by the 300 overcooked parts in a gasoline engine.

This kind of performance doesn’t come cheap. Lithium-ion batteries currently cost $1,000 per KwH to produce. That means that the 600 pound, 24 KwH battery pack that will power my soon to be delivered Nissan Leaf costs $24,000, more than two thirds of the vehicle’s total $32,000 price tag. Hence, the need for government subsidies to get private industry over the cost/production hump. Nissan, Toyota, Tesla, Fisker, and others are all betting their companies that further progress and economies of scale will drive that cost down to $300 per KwH. That will make electric cars cheaper than conventional hydrocarbon powered ones. Take crude up to $150-$200/barrel, which I believe is a virtual certainty in coming years, and the global conversion to electric happens much faster than anyone thinks.

Yes, it seems to be all over for the US but the crying, unless Nobel Prize winner and Energy Secretary Dr. Steven Chu has anything to say about it. In a desperate attempt to play catch up, President Obama has lavished money on alternative energy, virtually, since the day he arrived in office. His stimulus package included $167 billion for the industry, enough to move hundreds of projects out of college labs and into production. However, in the ultimate irony, much of this money is going to foreign companies, since it is they who are closest to bringing commercially viable products to market. Look no further than South Korea’s LG, which received $160 million to build batteries for the Volt. Also, Finland’s Fisker, which scored $528 million to refurbish an abandoned GM Pontiac and Saturn plant in Joe Biden’s home state of Delaware in order to build its hybrid electric Karma vehicle.

Fortunately, the US, with its massively broad and deep basic research infrastructure, a large military research establishment (remember the Darpa Net), and dozens of still top rate universities, is in the best position to discover a breakthrough technology. The Energy Department has financed the greatest burst in inorganic chemistry research in history, with top rate scientists pouring out of leading defense labs at Los Alamos, Lawrence Livermore, and Argonne National Labs. There are newly funded teams around the country exploring opportunities in zinc-bromide, magnesium, and lithium sulfur batteries. A lot of excitement has been generated by lithium-air technology, as well as much controversy.

In the end, it may come down to whether our Chinese professors are smarter than their Chinese professors.  In 2007, the People’s Republic took the unprecedented step of appointing Dr. Wan Gan as its Minister of Science and Technology, a brilliant Shanghai engineer and university president, without the benefit of membership in the communist party. Battery development has been named a top national priority in China. It is all reminiscent of the 1960’s missile race, when a huge NASA organization led by Dr. Werner Von Braun beat the Russians to the moon, proving our Germans were better than their Germans.

Consumers were the ultimate winners of that face off as the profusion of technologies the space program fathered pushed standards of living up everywhere. I bet that’s how this contest ends as well. The only question is whether the operating instructions will come in English—or Mandarin.

To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sun, 01/16/2011 - 17:52 | 880387 HyperLazy
HyperLazy's picture

Oops, a tad late but load up on Zinc!

 

http://www.youtube.com/user/zincairinc

Wed, 01/12/2011 - 03:19 | 869449 DutchZeroPrinter
DutchZeroPrinter's picture

Central planning didn't work in USSR and it doesn't work in the US and it won't work in China. The author should read Human Action and rewrite this article.

Tue, 01/11/2011 - 15:58 | 867869 Drag Racer
Drag Racer's picture

this article is complete horseshit.

Tue, 01/11/2011 - 15:29 | 867786 speconomist
speconomist's picture

There's no such thing as clean coal. ;)

Tue, 01/11/2011 - 14:39 | 867604 TBT or not TBT
TBT or not TBT's picture

"Stretching the envelope, scientists might get that to 400 KwH in the near future. But any freshman physics student can tell you that since electrical motors are four times more efficient than internal combustion ones, that is effective parity. "

===>   Uh-huh, and the energy in the battery will come from where?

That's another question that freshmen physics students...the ones who will actually graduate with degrees in physics...will also bring up.    Right now the energy in the battery comes either from:  

A) charging up the battery using a gasoline engine 

B) regenerative braking   or  

C) for plugins from burning coal to make steam to push turbine blades to turn a generator to drive electricity onto a somewhat lossy electrical grid to drive a somewhat lossy charger in your garage.

Note that the energy recaptured in B) originally comes from A) or C).

Ergo, even assuming the battery technology gets as good and cheap as you'd like it, you still need good cheap plentiful A) or C), or good substitutes for those.

 

Tue, 01/11/2011 - 14:16 | 867522 Gigliola Cinquetti
Gigliola Cinquetti's picture

Trust the germans to be very very very competitive in this race . They already set a world record recently .

http://www.allvoices.com/contributed-news/7153627-audi-a2-electric-car-said-to-set-record-travel-on-a-single-charge

The lithium metal polymer battery in that car is also german (DBM Energy) and estimated to have a 300 wH capacity (pretty close to the 400 wH target)

Mercedes Benz is also investing heavily in its own battery technology .

Tue, 01/11/2011 - 14:00 | 867454 Mercury
Mercury's picture

Good luck repealing the laws of thermodynamics.

And my Lithium Ion tool batteries last about three years with regular use - why should I expect much beyond that for an electric car battery?

Sold to you.

 

Tue, 01/11/2011 - 13:49 | 867438 New Revolution
New Revolution's picture

"Laissez faire liberatarian approach now in vogue in America"???    WTFing America are you talking about?   It's certainly not the one I live in that is oppressed by a completely out of control Kleptocracy that has things so tied up that you couldn't get a crust of bread past the bankers and big corps that dine on the American Taxpayer on a daily basis.   There's no innovation because there's no means for the entreprenuer.   The America I live in consumes itself and bears no relationship to the America you describe.   Just where the hell do you live?

Tue, 01/11/2011 - 14:12 | 867510 AnAnonymous
AnAnonymous's picture

The America I live in consumes itself

 

Correction: consumes the world.

Tue, 01/11/2011 - 13:54 | 867453 ATG
ATG's picture

Disneyland?

Ron Paul 2012

1776 the answer to 1984

Tue, 01/11/2011 - 13:48 | 867426 ATG
ATG's picture

Caveat emptor

MHFT must think people don't read his links

For those who don't, out of 11 ideas boasted today,

two went up a year later, SQM and GLD

Seven went down or sideways

About as good as MHFT idea of converting CDOs held to AltA and Subprime Mortgages

Also, last we checked, SQM was a Chilean Company, putting a lie to China having 97% of strategic minerals

Scratch a liberal and find the big lie

 

Tue, 01/11/2011 - 13:48 | 867436 AnAnonymous
AnAnonymous's picture

Scratch a liberal and find the big lie

 

Correction here: scratch a US citizen and find the big lie. Because what is true in the US save the duplicity?

Tue, 01/11/2011 - 13:38 | 867408 proLiberty
proLiberty's picture

 

"In the end, it may come down to whether our Chinese professors are smarter than their Chinese professors."

There is more to this than being a smart professor.  A few years ago, I remember how the government-industrial-educational complex trembled in their boots at the news the Japanese government was going to employ their finest and brightest to lead the world in Artificial Intelligence.  And where did that go?  Not nearly as far as it had been hyped.

When government presumes to be able to successfully choose winners and losers, most often it fails miserably.  Government, especially a communist one that would rather see tens of millions dead than give up power, is everywhere and always a political animal.  As such, it only makes economic decisions for political reasons.  Government cannot make economic decisions for economic reasons. 

Tue, 01/11/2011 - 13:46 | 867395 AnAnonymous
AnAnonymous's picture

No significant advance since x?

 Considering that submarines dive cruise mode was powered by batteries, WW2 and stuff, looks like usual propaganda from the author.

 

It is all reminiscent of the 1960’s missile race, when a huge NASA organization led by Dr. Werner Von Braun beat the Russians to the moon, proving our Germans were better than their Germans.

Consumers were the ultimate winners of that face off as the profusion of technologies the space program fathered pushed standards of living up everywhere. I bet that’s how this contest ends as well.

 

Shameless propaganda. The US is built on an expansion model, always more to transfer from.

Space was supposed to be the New Earth to expand into. It returned a negative. Transfer from Space to Earth was to be scarce. While transfer from  Earth to Space was to be the main side of the relationship. 

Selling as a victory the by products of a failed project as vital as the Space conquest was in terms of sustainability of the US model,  is pure non sense.

Like a guy who failed a job interview, bought candies on the path back to home, and tells family how the failure to the job interview is great because it gave an opportunity to buy candies. 

Tue, 01/11/2011 - 13:29 | 867380 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Great article.

Tue, 01/11/2011 - 13:28 | 867378 proLiberty
proLiberty's picture

"Hence, the need for government subsidies to get private industry over the cost/production hump." 

Sorry, but it DOES NOT get it over the hump.  The hump is there nevertheless!  It is just that we have induced government to impose the cost upon a third party.  If that cost-shifting mechanism is to just print the money, that mechanism is simply to dilute the value of all dollars in circulation. 

Electric (coal powered) cars will face the same ecnomic fate as wind power and ethanol.  Government cannot sustain the subsidy forever.  When the subsidy ends, the "hump" then is fully exposed and economic reality exerts itself. 

If electric (coal powered) cars are so great, they must stand on their own economic feet.  They very well may be great, but it is not worth wasting hundreds of billions of dollars of government money to find out a few years earlier than the market would have otherwise have told us anyway.

 

Tue, 01/11/2011 - 14:01 | 867370 cowdiddly
cowdiddly's picture

Best article I've ever read from you Leo. I think you are finally on to the real tech race. Solar? well............................ Only one itsy bitsy problem. Now that everyone is losing their house, What is the apartment landlords going to say about that 2/0 gauge welding cable coming out out the window. Also, If this is a race between countries, are not 97% of the rare earths needed for battery production in the hands of one playa? Looks like someone has at least a two year head start. 

Tue, 01/11/2011 - 13:19 | 867355 AR15AU
AR15AU's picture

If we got rid of the EPA, we'd be light years ahead of China in rare earths, coal, nuclear, etc. American voters clearly don't want to win the industrialization race.

Tue, 01/11/2011 - 13:19 | 867354 mick_richfield
mick_richfield's picture

"The laissez faire, libertarian approach"

not.

And ... Fed delenda est.

 

Tue, 01/11/2011 - 13:17 | 867351 malikai
malikai's picture

On the one hand, I am diametrically opposed to government meddling with what should be private ventures. As a Libertarian I find the concentration of power and curruptability of government funding in any industry terrifying.

On the other hand, there is no sane argument that the technological breakthroughs you mention as being sponsored by government would have otherwise been made at the pace they were, without government involvement. Having cognitive dissonance sux.

If only the US government wouldn't have blown so many trillions of dollars propping up their corrupt buddies on Wall Street, I would have much more faith in the ability of the US to produce results similar to what was produced during the space race.

I hope the next technical breakthroughs come from the US. However, I wouldn't bet the house on it. Especially considering our recent track record of saving the corrupt at the behest of the honest.

Also note, most people here realize that global warming is an absolute scam. In the future, if you want people here to actually read your articles fully, it would be better to keep that tidbit out. Remember, the real energy problem is not AGW, but resource depletion/economical access.

Tue, 01/11/2011 - 13:36 | 867401 AnAnonymous
AnAnonymous's picture

I would have much more faith in the ability of the US to produce results similar to what was produced during the space race.

 

The whole space race was driven by the belief there would be a new space to expand into. It returned a negative.

The US then used the money to support what expansion they can where they can.

Tue, 01/11/2011 - 13:12 | 867334 66Sexy
66Sexy's picture

buy palladium bitchez!

Tue, 01/11/2011 - 13:02 | 867313 Dr. Porkchop
Dr. Porkchop's picture

I don't know how EVs are going to ever get anything other than a small market share. A society that is steadily becoming less affluent and mired in debt is going to make all the necessary investments in infrastructure to make this work? What about the electrical grid? Where would the extra juice come from to handle the charging demand?

Right now there are two things that you can do to improve ICE effeciency that are totally free; Drive less, and don't drive like a douchebag (slow down).

Those things, however, go back to what CHS said about making trade offs. Presidents are fond of saying that the American way of life is 'non-negotiable'.

Tue, 01/11/2011 - 13:17 | 867345 66Sexy
66Sexy's picture

The american way of life is becoming extinct; its fueled by credit and a working class that do not earn living wages. A living wage is now about 5,000 per month; most working stiffs make far far less than that on an hourly wage; holed up in shared accomodations, eating top ramen and chef boyardee. not exactly what i'd call a "way of life"... at least thats the future of it, without those credit cards to "put off" the costs of filling gas tanks for those cummutes to the city, and wall mart junk that falls apart because of corporate consumer cyclicism.

 

There is no profit in morality.. no benefit to our corporate dictatorship masters to building products that actually last.

Do NOT follow this link or you will be banned from the site!