With the craze over the new lithium-ion-powered car producer, Tesla Motors, Inc. (Nasdaq:TSLA) hitting the headlines, it might be a good time to revisit the battery industry. Following the suppliers, or raw materials used could give savvy investors a head start in a growing industry.
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Lithium ion batteries use various materials depending on the purpose, but generally cobalt, nickel, manganese and lithium are the primary elements. According to Tesla's website, other materials used include aluminum and copper in its Japan produced roadster batteries. Japan is also the location for production of its newest Modes S batteries, which will be produced by Panasonic Corp. (NYSE:PC).
One company that you should look at is Johnson Controls (NYSE:JCI). It is set to release its quarterly reports on July 23, with anticipated earnings per share of 54 cents according to analysts. This is more than double the EPS in the same period one year earlier.
A123 Systems (Nasdaq:AONE) develops technology for battery systems needed in transportation, power grid storage and other consumer markets. It lost the bid to produce batteries for the Chevy Volt back in January of 2010, but bounced right back. In March it signed an agreement to produce lithium ion batteries for Navistar Inc. (NYSE:NAV) electric vehicles. This is just one of several clients they have dealt with, which also include Black & Decker, Daimler, BMW, Delphi, Shanghai Automotive Industry and Fisker Automotive. (For more about the IPO, check out A123 Systems IPO Soars.)
It seems that A123 Systems are winning the bids, and then producing quality results which extend the deals. In its last four quarters revenues have been increasing but there is yet to be a profit. In its fourth quarter and full year ending December 31, 2009 there was a 22 cent loss per share on $24.5 million in revenue. A123 has only been trading publicly since September of 2009 with an IPO of $13.50. For the three months ending March 31, 2010 there was a net loss of 27 cents per share on $24.5 million in revenue. I would like to see this company start generating profit before taking any positions.
Investing in cobalt is not very easy unless you get into some small cap miners. Seeing as cobalt is a byproduct of nickel and copper you will be getting exposure to these elements if you were to invest in a company such as Rio Tinto plc (NYSE:RTP) or Alcoa Inc. (NYSE:AA) but these might not give you the full exposure you are looking for. On June 15, Rio Tinto announced a $469 million investment in a nickel and copper mine (Kennecott Eagle) with expected production to start in 2013. Nickel production is expected to average 17,300 tons per year and Copper is expected to be 13,200 tons per year. (Learn more in Commodities: The Portfolio Hedge.)
Nickel is another component of lithium ion batteries and can be added to your portfolio. Barclays Capital Inc iPath ETN DJ-AIG Nckl A (NYSE:JJN) attempts to mimic the returns of the Dow Jones-Nickel Total Return Sub-Index. The major producers in Manganese are BHP Billiton Ltd. (NYSE:BHP) and Vale S.A. ADR (NYSE:VALE) which also provide major exposure to nickel.
The Bottom Line
Lithium ion batteries are not just for vehicles, they are in the millions of cellular phones, cameras and laptops we use every day. When the economy starts gaining strength, these types of devices will be replaced with the newest model, electric cars will be purchased and batteries will be shipped. Not to mention the electric storage needed for alternative energy sources such as wind and solar, these companies could see the benefits.