Tag Archives: A123Systems

Johnson Controls looks to break with Saft

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Last week, Johnson Controls (JCI) filed a petition to dissolve its joint venture with the French battery-maker Saft, which is opposing the proposed breakup. According to a Saft press release, JCI would like to expand the markets for JCI-Saft beyond the originally planned automotive applications, while Saft would prefer the JV not encroach on areas “where Saft is already strongly positioned and enjoys a rapid development.” The JV has found some traction in the automotive market, including agreements to supply batteries to both Ford and Daimler, and both sides indicated that the recent events will not compromise current supply and development relationships.

The dissolution of JCI-Saft would significantly shakeup the intensely competitive electric-vehicle battery market. While governmental support has primed an aggressive build-out for lithium-ion (Li-ion) batteries destined for electric vehicles, growth has been slow and the number of players grabbing firm supply contracts are few and far between (see the report: Small Batteries, Big Sales: The Unlikely Winners in the Electric Vehicle Market – client registration required). LG Chem has emerged as a clear front-runner, while other substantial suppliers like SB LiMotive and JCI-Saft have found more limited success. Trailing the pack are emerging suppliers such as A123 and Ener1 (see also the May 11, 2011 LREVJ – client registration required) which have taken major financial hits due to overly aggressive estimates regarding their electric-vehicle businesses. JCI likely surveyed the landscape and saw that it would be wise to target applications outside of the automotive realm to find more market opportunities for the JV’s Li-ion batteries.

While the consequences of the falling-out remain to be seen, this scenario shows that both parties don’t view the automotive market as the strong growth opportunity that likely drove the original partnership. JCI realizes that it has already missed out on the opportunity to take the initial front-runner position for automotive applications, while Saft appears not to value the automotive market as a big enough opportunity to risk exposing its utility business to JCI via JCI-Saft, where it could be forced to cannibalize existing business.

Additionally, virtually all the major Li-ion producers have recognized that applications outside of automotive will be crucial to justify the major build-out of capacity – with grid storage the most common target. Examples include A123 and Altair Nanotechnologies, both of which made rapid shifts to grid applications once their automotive efforts slowed. While grid storage could be a significant area of growth for Li-ion (see the report: Grid Storage – Islands of Opportunity in a Sea of Failure – client registration required), it remains nearly as uncertain as the automotive market, as the U.S. Federal Energy Regulatory Commission (FERC) still has not determined how energy storage for the grid will be regulated. FERC is considering a pay-for-performance framework in the regulation market, which could potentially place a premium value on Li-ion batteries’ ability to balance supply and demand (frequency regulation). A final determination, however, is not due until sometime in 2012. In the meantime, battery-makers must place bets in both automotive and grid storage knowing that each holds as much peril as promise.

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Will PetroAlgae and Gevo poison the IPO pond for other biofuel and biomaterial developers?

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In early August, PetroAlgae filed for an immodest $200 million IPO with the U.S. Securities and Exchange Commission (SEC). The filing contains a number of aspects that warrant closer scrutiny.

The company grows “selectively bred” strains of an aquatic algae-like plant called duckweed in open ponds. PetroAlgae claims its process yields up to 14,000 gallons of oil per acre per year (see the March 24, 2009 LRBJ – client registration required), and that its production is “economical versus $20/barrel oil.” Its prospective yield compares favorably with competitors’ claims, like Solix’s 2,200 gallons of oil per acre per year. But unlike Solix, PetroAlgae has had no success producing oil.

According to the company’s S-1 filing, it experienced net losses of $8.3 million, $20 million, and $30.3 million in 2007, 2008, and 2009, respectively, on zero dollars in revenue, ever. Even firms with much more significant product revenues have struggled in the current market. Solyndra withdrew its filing (see the June 24, 2010 LRSJ*), A123Systems’ stock is off over 60% from its initial pricing, and Codexis has shed 40% of its IPO value in just four months. So accompany with no revenue to date and very uncertain prospects for producing an economically competitive product is unlikely to be a winner. Despite its lofty claims, expect PetroAlgae to either withdraw its IPO, or flop mightily.

Gevo, which also filed for an IPO in early August, is looking to raise $150 million. Underwriters include UBS, Goldman Sachs, and Piper Jaffray. Gevo develops yeast to ferment corn, cane, or cellulose-derived sugars in order to produce butanol and isobutanol (see the August 11, 2009 LRBJ*). This filing does not come as a surprise, as we heard from our network several months ago that a Q3 filing was forthcoming (see the April 27, 2010 LRBJ*). This news comes only a few days after Gevo announced the acquisition of a Minnesota ethanol facility it planned to retrofit into an isobutanol production plant. The retrofit will cost $17 million, and will produce 18 MGY of isobutanol when complete in Q1 2012. According to Gevo’s S-1 filing, its net accumulated deficit is $50.3 million, with a net loss of $8 million in Q1 2010 alone. 

Although Gevo’s (relatively) capital light business model is a reason for praise, its S-1 indicates that it will need to invest another $17 million in the Minnesota plant to retrofit. That’s in addition to the $20.7 million for the plant itself – a steep bill to foot with no revenues in sight for almost two more years, even if all goes as planned. In its filing, Gevo reports it “expects our relationships with customers such as Total Petrochemicals, Lanxess, Toray Industries, and United Airlines to contribute to the development of chemical and fuel market applications of our isobutanol.” The relationships that Gevo develops with these companies (and other commercial chemical and fuel companies) will make or break the company – but the large losses and long time to revenue its asking investors to stomach might be enough to sink this IPO.

Both offerings are indeed risky in this environment, as we have seen Codexis shares drop from $13 per share at IPO to about $8 currently. Clients should maintain some healthy skepticism as these two firms prepare for risky and uncertain public offerings. Although Gevo has a better chance of success than PetroAlgae, both firms have the potential to poison the biofuels and biomaterials pond for years to come. On the heels of Codexis’s shaky debut, it won’t take much more bad news for investors to sour on the biofuels space. What’s more, with other recent IPOs like Tesla (see the June 23, 2010 LRPJ*) and IPO candidates like Bloom Energy (see the June 30, 2010 LRPJ*) looking uncertain, on top of disappointments like A123 and debacles like Solyndra, the “cleantech” theme risks ending its run as a Wall Street darling.

*Client registration required

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Nano-enabled battery makers on the Lux Innovation Grid

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Graphic of the WeekEnvironment and energy, or “cleantech,” applications have become a target for more and more companies developing nanointermediate products, such as batteries for electric vehicles. Developers targeting this segment incorporate nanomaterials like lithium titanate and lithium iron phosphate nanoparticles into battery electrodes.

In a recent report*, Lux Research summarized the opportunities of this space, and applied its proprietary assessment tool, the Lux Innovation Grid, to compare the field of competitors and identify its most likely winners. The Grid scores each company on three attributes – technical value, business execution, and maturity, and then assigns a relative position on the Lux Innovation Grid’s four quadrants.

Overall, the report found little technological differentiation between firms targeting this segment. A123Systems, alone, pulls away from the pack due to its solid business execution. Like many of its competitors, the company develops nanostructured lithium iron phosphate battery electrodes for the automotive market. But A123Systems was the only nanotech company to go public in 2009, and signaled one of the year’s most successful IPOs in any technology category.

Electrovaya, which scored highest in technical value, is developing nanostructured polymer electrolyte technology for three different battery cathode chemistries. A relatively strong revenue-to-employee ratio of $41,538 and a strong partnership list that includes Tata Motors also help distinguish it from the competition.

Alone in the Long Shot quadrant is K2 Energy Solutions that, despite two recent battery-development deals, hasn’t yet landed a large partner in the lucrative automotive sector. The aforementioned deals include a $30 million grant from the Chinese government for a joint venture with DLG battery, and another with an undisclosed customer in personal mobility (e.g. scooter and e-bikes).

Also, Altair Nanotechnologies’ status has changed for the worse since Lux issued its report in March. With a Q1 burn rate five times its 2009 annual revenues and a stock price below $0.40, Altair is in danger of being delisted from NASDAQ by the end of 2010. Although an updated score for Altair is as yet unavailable, its position on the Grid has likely drifted into Long Shot territory.

* Source: Lux Research report “The Governing Green Giants: Makers of Cleantech Nanointermediates on the Lux Innovation Grid” (client registration required)

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