Tax Payer Investment in Advanced Batteries

by Debra Fiakas CFA

For better or worse various government agencies in the United States have provided significant financial support for advanced battery development and production.  The federal government has a goal of deploying one million plug-in hybrid electric vehicles by the year 2015.  The replacement of gas-burning cars and trucks is expected to reduce economic dependence upon foreign oil and reduce carbon emissions that threaten our health and climate.  We all understand this line of reasoning.

Public funds for battery development have been channeled through a mix of contracts for products and services, research grants, loan guarantees and indirectly through tax credits.  Indeed several of the companies mentioned in my last few posts on advanced battery developers have supplemented shareholders’ capital with proceeds from government contracts, grants and loans  –  A123 Systems (AONE:  OTC/BB), Valence Technologies (VLNCQ:  OTC/PK), Johnson Controls (JCI:  NYSE).

A special report published in August 2012 by the U.S. General Accounting Office found six public agencies involved in advanced battery development in thirty-nine different programs.  In the fiscal years 2009 through 2012, these agencies invested just over $1.3 billion dollars in the battery sector.  A significant portion of public support appears to have been focused on lithium-ion technologies for electric vehicles.   There were also awards for stationary power storage, air space and under-water vehicles.  Government agencies have also supported a range of storage ideas, including flywheels and capacitors.

Source: Fiscal Year 2011 Annual Progress Report for Energy Storage R&D, January 2012, GAO

Additionally, beginning in 2009 the DOE invested $1.5 billion in twenty projects for advanced battery manufacturing and battery recycling.  These funds were made available through the 2009 American Recovery and Reinvestment Act (ARRA).  The $2.8 billion provided by the 39 agencies and the ARRA represented approximately 0.03% of federal spending in the last three fiscal years.  To put that in perspective that would be equal to $15.42 out of the pocket of an individual making the U.S. median income of $51,413 (beginning of 2012).

As a middle-income taxpayer, as an investor what would you expect for $15.42?

As usual the GAO has been looking out for tax payers to determine if their money is being invested wisely.  In preparing its last annual report on funding for advanced battery development, the GAO paid particular attention to whether disbursements by the six agencies and thirty-nine programs were duplicative.  The GAO found plenty of overlap in terms of technology areas and applications.  However, each project appeared to have fulfilled agency-specific requirements, bringing to an end any concerns for duplication and waste.  Like investments in space travel, computer networking and geo-positioning, much of the resulting technology is expected to eventually end up in the private sector.

Taxpayers want to know more than just whether government agencies duplicate each other’s efforts.  They also want to know if the monies actually accomplished policy objectives.  This takes us to yet another GAO report about the twenty programs funded by the 2009 ARRA called the Fiscal Year 2011 Annual Progress Report for Energy Storage R&D published in January 2012.

It turns out all projects were initiated for battery and materials manufacturing facilities funded by the ARRA.  As hoped for, production was launched at several facilities by the end of 2011.

•     General Motors (GM:  NYSE) pack assembly facilities in Brownstown, MI
•     A123 Systems (AONE:  OTC/PK) systems cell and pack assembly in Livonia, MI
•     Johnson Controls (JCI:  NYSE) cell and pack assembly in Holland, MI
•     Saft Group (SGPEF:  OTC/PK) cell and pack assembly in Jacksonville, FL
•     EnerDel (private) cell and pack assembly in Indianapolis, IN
•     East Penn Manufacturing (private) advanced lead-acid battery plant in Lyon Station, PA
•     Celgard separator material production at Charlotte, NC
•     Toda America (cathode production plant in Battle Creek, MI
•     Pyrotek anode production plant in Sanborn, NY

There were also some technology and performance achievements among the development programs receiving public funding.

•     K2 Energy Solutions reached energy density targets with 45-Ah energy cells based on LiFePO4.
•     LG/CPI demonstrated prototype lithium-ion cells using advanced magnesium-rich composite cathode materials, resulting in increased cell density over LG Chem’s previous baseline.
•     Johnson Controls (JCI:NYSE) developed a new plug-in hybrid electric vehicle prismatic cell system that offers twice the all-electric vehicle range.
•     Quallion achieved 30% higher specific power with a hybrid battery with separate high power and high energy modules.
•     SK Innovation achieved exceptional cycle life with a production-ready 25-Ah high-energy electric vehicle cells.
•     Maxwell Technologies (MXWL:  Nasdaq) developed an asymmetric capacitor with greatly increased energy density with proprietary dry process electrodes.

There is a much longer list of technology achievements in the GAO report, which in sum provides a bit of solace for two constituencies.  Taxpayers can rest assured their hard earned tax dollars have nudged our country a bit closer to an economically independent nation with a healthier, cleaner environment.  Perhaps these accomplishments are not enough, but ‘something’ has been accomplished and ‘something’ represents a positive return on invested tax payer dollars.

Investors are the other constituency that should be ‘all over’ the GAO report.  It provides insight into key sources of demand for advanced batteries.  More importantly the report sheds some light on a few companies with technologies that are heads above products on the market today.    
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.