Thursday, February 04, 2010

Electric cars: A Netscape moment? Investors get out their chequebooks for electric-car start-ups TNR.v, CZX.v, WLC.v, LI.v, RM.v, LMR.v, SQM, FMC, ROC

CS. Easy money are always dangerous. Cheap advise is even more so. It is time to separate business, stock price, analyst's valuation and your money. To your surprise it could be Four different things in the end. It is time to write about the Power of Conservative view.
New markets are new by definition - nobody knows what is coming. It is time when you should be extremely careful in gathering all available information: we still remember the power of analyst insight with Enron, Worldcom and Tyco - all at Strong Buy up to the last moment of Truth. That is why we always insisting that you, our devoted readers, must be making your own decisions - it is a proven trick: there is nobody to blame. Some could even suggest that Sell could represent more opportunities than Strong Buy - you can get and analyse information and should it be different to the one provided in a research low rating can get you a very nice entry point and if you are correct in your own observations the only way from it will be up in rating. As always ability to deliver will be crucial in the end of the day and will separate winners from research victims.
Some analysts suggest after a few paid research reports, that to run a business is the same as to analyse history based on charts, they can always provide very helpful and clever "insights" what had to be done at the every turn...before. Some can even come up with valuations and ratings based on cut and paste old information from the websites, it is understandable - how can you contact all dozen companies you are writing about? Welcome to our second stage of Lithium and REE Bull market. Confusion, lack of information and creative writing provide opportunities as never before.
We are not in a Bubble with Electric Cars, not even close according to the chart from Economist below. Idea slowly makes its way into the public rim. It has made already a few small bubbles along the way like in some Lithium juniors last year, but it is a very healthy transition period which will separate serious players from Hype and Dump stories.
Availability of serious capital for Better Place and Nissan is very encouraging. You have to make your homework right in order to find the right financing opportunities in Electric Cars value chain. Newcomers on Technology or Auto making side will be evaporated overnight by Toyota situation as it is today. It is time when very risky plays on Lithium and REE supply side could provide actually more security as a sector entry with at least technology risk minimised.
We are gathering information from Las Vegas Lithium market conference and will address challengers and opportunities for that sector later. Our first take from conference organisers is that if one year ago everybody was wondering whether it will be Electric Cars and whether it will be Lithium to power their drive - now both are almost certain and people start to worry about potential oversupply. Some of these people know something about electric cars, some don't. Nobody knows about quantity. It is iPod before its launch. Will it be good, do we need it at all? Now you can tell, not before. Three presented Majors are spending time and money to prove that there is no market and place for anyone other then us. We have never come across such a generous helping from established players. Either they are moving into charity stage of the business cycle or, maybe, the problem is that they have as low as 8% in their revenue stream attributed to Lithium? Hardly an attractive entry point into the sector if you believe in iPod idea and ready to allocate risk capital. We would listen to them and park our money somewhere else, but when Toyota and Magna are buying into couple of Lithium plays sitting on the same Salar system and half of the Conference represent who is who in Japanese business we better wait - who knows, maybe after "boy band" warming up AC/DC will be on stage, it is Lithium after all and you better check the programme.
Recent market correction and some research reports suggesting extreme overvaluation of some companies involved in the sector will provide a very good entry points into solid names with people, ideas and capital to support them. It is time when quantity and quality of projects will matter as never before: there is time to Buy and time to Sell. You can not build a business based on quarterly valuations, if it is a Next Big Thing you should come and Buy when nobody cares and then buy again when everybody get exhausted in anticipation of a quick buck. This is how the value build and portfolio diversity helps to mitigate early stage risks when nothing is certain.
Last important observation from Conservative point of View on New Things, to cover all bets in case...if Warren Buffett will buy a stake or BYD, if he is busy, in any players involved in the sector, valuation could represent multiplies to any market cap and basically, please, disregard all hard wired research at that point. So now we all have at least a clue what to look for in this market.

Electric cars
A Netscape moment?

Feb 4th 2010 From The Economist print edition

THE idea of the “Netscape moment”, a fund-raising that signals the spawning of a whole new industry, is dear to Silicon Valley types who think back fondly to the browser firm’s spectacular initial public offering in 1995. So it was not surprising that in late January Shai Agassi, a former software entrepreneur, greeted a $350m investment in his company, Better Place, led by HSBC, in just those terms. Better Place, based in Palo Alto, which hopes to be the leading infrastructure provider for the world’s growing fleet of electric cars, has raised nearly $700m in two years, making it one of the biggest “clean-tech” start-ups. A few days later, lending some weight to Mr Agassi’s claim, Tesla Motors, a pioneering maker of battery-powered sports cars co-founded by Elon Musk, another technology entrepreneur, filed for an initial public offering aimed at raising $100m. There is certainly much discussion of electric cars all of a sudden, although not as much as the internet prompted in 1995 (see chart).
Two questions arise. The first is whether Mr Agassi is right in believing that electric vehicles and the industry required to support them are about to enter the mainstream; the second is whether the charge will be led by disruptive innovators like himself and Mr Musk, or whether they will end up being trampled underfoot by the traditional automotive and energy-supply heavyweights.
Investment in electric cars is being driven by tightening emissions regulations, worries about energy security and enthusiasm for the technology in China, already the world’s biggest car market. Industry forecasts suggest that by 2020 about 10% of new cars will be either entirely battery driven vehicles or plug-in hybrids, with accelerated growth thereafter.
Mr Agassi’s achievement is to have shown how it can all be made to work. What impressed HSBC, apart from Better Place’s own technology, was the quality and seriousness of its partners, including Renault-Nissan, which has committed €4 billion ($5.6 billion) and 2,000 engineers to creating a range of vehicles designed to operate with Better Place’s infrastructure, A123 Systems, a respected battery-maker, the governments of Israel, Denmark, Canada, Japan and California, and big utilities in those places as well.
In addition to installing thousands of charging points—up to 20,000 for both Israel and Denmark, the two countries where the project will first go live—Better Place is also building battery-switching stations. Renault says that its cars will do about 100 miles (160km) between charges, which is fine for most commutes but not for longer journeys. To overcome the range problem, Better Place has devised machinery that will swap one battery for another in about two minutes. Customers will buy their cars, but lease the batteries and only pay for the miles they drive.
It all sounds promising, at least for now. But in the longer term, Better Place’s model may prove vulnerable. The utilities providing the electricity are quite capable of rolling out their own charging-point networks. There are also concerns about whether the switching stations will catch on. Oliver Hazimeh of PRTM, a consultancy, doubts whether other car manufacturers developing electric vehicles will be interested in standardising their batteries along lines determined by Renault-Nissan. And building different switching stations for different cars would either be impractical or very expensive.
Tesla’s prospects are even more uncertain. The firm’s prospectus brags about the technological innovations that have made its Roadster sports car a showcase for the potential of battery-driven cars to match the performance and (eventually) the range of the best conventional cars. But its next vehicle, the Model S, a five-door luxury saloon priced to compete with BMW’s 5-series that is meant to go on sale in 2012, is a far more ambitious undertaking and one that is fraught with risk.
Tesla has about $100m in cash and a $465m loan from America’s Department of Energy, but production of the Roadster will cease next year to allow retooling of the factory, and neither the design nor the production arrangements for the Model S have been finalised. Mr Musk’s plan to make 20,000 Model S saloons a year is a huge step up for Tesla (which has built about 1,000 Roadsters to date), but a tiny number for an industry that demands scale like no other.
Mr Musk believes that Tesla’s focus and Silicon Valley agility give it an advantage over incumbent carmakers. But those incumbents are now taking electric cars very seriously indeed, and have huge engineering and financial resources, as Renault-Nissan is demonstrating. Tesla has a close relationship with Daimler, which took a 10% stake in the firm last year. It may end up a skunk works for the German manufacturer rather than a carmaker in its own right. After all, where is Netscape now?"
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