John Petersen
The second quarter was brutal for publicly traded energy storage
companies which saw their stock prices fall by an average of 24.1%
after a first quarter drubbing of 16.2%. Frankly I’m astonished that
investors are chasing a battery-powered IPO like Tesla Motors (
while ignoring the energy storage technology developers that will make EVs possible,
and perhaps cost-effective, while making other alternative energy technologies stable.
At times like these I need to remind
myself that energy storage is the beating heart of cleantech and take
comfort in the fact that while
Sachs
began covering advanced batteries as a sector on June 27th,
focused on the energy storage sector for almost two years.
The following table provides comparative second quarter performance
data and key valuation metrics for the 17 pure-play energy storage
companies I track. All values have been adjusted to reflect disclosed
material changes since the last reporting date. In the working capital
columns, I’ve included my subjective assessment of working capital
adequacy based on historical operating results and capital spending
plans. The “Blue Sky” value is the spread between the book value shown
on a company’s balance sheet and its current market capitalization. For
this quarter only, I’ve included Tesla as an honorary member because
it’s blue sky premium equals 118% of the blue sky premium for the 17
energy storage companies combined.
The following graph compares the composite price performance of my five
tracking categories with the Dow Jones Average since November 2008,
when I first started tracking the sector.
The following table summarizes the portfolio performance a hypothetical
investor would have realized over the last three months if he invested
$1,000 in each company and the three broad market indexes on March 31,
2010.
| Broad Market Indices | -11.29% |
| Cool Emerging Companies | -31.47% |
| Cool Sustainable Companies | -10.71% |
| Cheap Emerging Companies | -35.19% |
| Cheap Sustainable Companies | -17.94% |
| Chinese Battery Companies | -25.23% |
Cool Emerging Companies
My Cool Emerging Companies category includes four companies that are
developing cool but expensive energy storage technologies that are not
yet commercialized. The companies in this category are Ener1 (
Valence Technology (
Altair
Nanotechnologies (
and
Beacon Power (
The
Cool Emerging group fell an average 31.47% in Q-2 and have fallen
an average of 58.65% since November 14, 2008.
The following table provides quarterly price information for each
company’s stock and is accompanied by a graph that illustrates their
relative price performance compared with their closest peers and the
Dow.
Valence, Ener1 and Beacon do not have sufficient working capital to
support their operating losses and capital spending plans for more than
three to six months without relying on financing transactions where
shares are sold into the public market on a regular basis for the
purpose of providing working capital, which can put significant
pressure on stock prices. Until their working capital positions
improve, I’d be cautious.
While Altair will likely need additional financing within the next
year, it does not appear to have any pressing needs and its low market
capitalization of $31.6 million and miniscule blue sky
premium of $1.7 million leave significant room for outsized gains if it
successfully implements its business plan.
Cool Sustainable Companies
My Cool Sustainable Companies category includes three companies that
manufacture cool but expensive energy storage devices and generate
substantial recurring revenue. The companies in this category are A123
Systems (AONE),
Maxwell
Technologies (
and
Ultralife (
The
Cool Sustainable group fell an average 10.71% in Q-2 and have
fallen an average of 2.47% since November 14, 2008
The following table provides quarterly price information for each
company’s stock and is accompanied by a graph that illustrates their
relative price performance compared with their closest peers and the
Dow.
In the Cool Sustainable category Ultralife strikes me as a bit of a
sleeper because of its diversified product lines and customer base. It
has larger revenues and smaller losses than either of its peers and is
currently trading at a modest discount to book value. It certainly
merits further analysis.
Cheap Emerging Companies
My Cheap Emerging Companies category includes two companies that are
developing effective and objectively cheap energy storage technologies
that are not yet commercialized. The companies in this category are
Axion Power International (
and
ZBB Energy (
The
Cheap Emerging group fell an average 35.19% in Q-2 and have fallen
an average of 43.51% since November 14, 2008.
The following table provides quarterly price information for each
company’s stock and is accompanied by a graph that illustrates their
relative price performance compared with their closest peers and the
Dow.
ZBB does not have enough working capital
to support its operating losses and capital spending plans for more
than three to six months without relying on financing transactions
where shares are sold into the public market on a regular basis for
the purpose of providing working capital. ZBB’s recently announced
financing plans are more company friendly than others I’ve reviewed,
but future pressure on its stock price cannot be ruled out. Conversely
its miniscule market capitalization of $7.3 million and very small
blue sky premium of $3.3 million leave significant room for outsized
gains if it successfully implements its business plan.
In the two emerging company categories, Axion Power is the only company
with enough working capital to support a couple years of operations and
significant expansion of its manufacturing capacity.
Cheap Sustainable Companies
My Cheap Sustainable Companies category includes four companies that
manufacture effective but objectively cheap energy storage devices and
generate substantial recurring revenue from product sales. The
companies in this category are Enersys (
Exide Technologies (
C&D Technologies (
Active Power (
The
Cheap Sustainable group fell an average 17.94% in Q-2, but gained
an average of 76.43% since November 14, 2008.
The following table provides quarterly price information for each
company’s stock and is accompanied by a graph that illustrates their
relative price performance compared with their closest peers and the
Dow.
Chinese Battery Companies
My Chinese Battery Companies category includes four companies that
manufacture a variety of energy storage devices including lead-acid,
NiMH and lithium-ion batteries, and generate substantial recurring
revenue from product sales. The companies in this category are Advanced
Battery Technology (
China BAK Batteries (
China
Ritar Power (
and
Hong Kong Highpower (
The
Chinese Battery group fell an average 25.23% in Q-2, but has risen
an average of 36.69% since November 14, 2008..
The following table provides quarterly price information for each
company’s stock and is accompanied by a graph that illustrates their
relative price performance compared with their closest peers and the
Dow.
China BAK is very weak from a working capital perspective and has not
publicly disclosed its plans to remedy the problem. Until its working
capital position improves, I’d be cautious.
My Murky Crystal Ball
For two years I’ve been telling readers why energy storage will be a
core enabling technology for the cleantech revolution and cautioning
that valuations in the cool technology groups were less attractive than
valuations in the cheap technology groups. On that basis alone, I’ve
consistently suggested that the cool technology groups were likely to
stagnate or underperform on a go-forward basis while the cheap
technology groups were likely to outperform. I think the comparative
price performance charts say it all.
These are heady times because times and technologies are changing
rapidly and risky times because many of the highest profile
technologies like electric vehicles are not cost-effective and may
never reach that goal. In my opinion, the biggest challenge for energy
storage investors is separating business reality from press release
hype and establishing a realistic timeline for expected changes in the
energy storage sector.
During the information and communications technology revolution, we got
used to the idea that Apple (
new product and sell millions of copies within a few months. In
cleantech the development timelines will be longer and until we build a
substantial experience base with some of these exciting new technologies, adoption rates will
be slow and uncertain. One of the most useful graphs I’ve seen for energy storage
and cleantech investors is set forth below.
My last table is arranged in declining order of blue sky premiums and
summarizes where I believe the pure-play energy storage companies I
track fit on the technology adoption lifecycle graph.
For my investment dollar, the companies that have already crossed the
chasm, together with developers like Maxwell and Axion that have a
reasonable shot at mainstream commercialization in the next 12 to 18
months are a far better bet than others that face a three to five year
development cycle.
Disclosure: Author is a former
director of Axion Power International (
and
holds a substantial long position in its stock.
Credit: 
Image via 
