Earlier this week, the biggest automotive manufacturer in the world and owner of brands including Audi, Bentley, Lamborghini, and Porsche, as well as its own flagship make, Volkswagen, announced that it would start producing batteries as part of a massive effort to electrify its product lines.
The immediate plans include a $1.1 billion investment in a battery manufacturing plant in Germany’s Lower Saxony, with as-of-yet unnamed partners.
This decision comes as a part of a grander philosophical shift within the company and within the industry toward electric vehicles.
To do its part, Volkswagen AG is promising no fewer than 70 electric vehicles in various brand lineups by the year 2028.
This decision yet again underscores the vital importance of lithium-ion battery technology to the future of transportation.
Still in its Infancy
Last year, the automotive industry churned out more than 2 million hybrids and electric vehicles, or about 2% of the total global automobile market.
Within six years, that figure is expected to rise to 15%, as moving electrons gradually supplant hydrocarbons as the auto industry’s chief power source.
This effectively makes the battery makers no less important to tomorrow’s car industry than the oil companies themselves were to the past and current.
Only there is one major difference.
Whereas oil was a finite resource and the biggest trick was finding it, power from renewables like solar and wind power are not, making the trick in collecting and storing the power.
To dominate in the oil industry, all you had to do was get a hold of the biggest reserve and pump it cheaply enough to compete, and you would rise to the top.
The Saudis did just that with the legendary Ghawar oil field, the biggest in the world.
But to win the 21st century energy war, a competitor will need to build the best, most efficient, most reliable battery.
Powering the Next 100 Years
Whoever does will supply the entire industry, either directly or via licensing contracts.
That was Elon Musk’s plan when he built the now-famous Tesla Gigafactory, but the fact that the world’s biggest carmaker is jumping into the ring (10 million cars sold last year to Tesla’s 250,000) raises the stakes substantially.
It should come as no surprise that given this level of competition and the potential rewards to whoever comes out on top, major companies are partnering with and outright buying smaller firms with rights to advanced lithium-ion technologies and manufacturing processes.
Daimler, the parent company of Mercedes Benz, did it with power controls for its own line of lithium-ion batteries, outsourcing the technology to a third party.
This year, Tesla went out and bought the California-based supercapacitor maker Maxwell, which has perfected a novel “fibrilization” process that allows for the production of batteries without the use of toxic solvents.
A Seller’s Market
The final sale price was $288 million — more than 50% above Maxwell’s market value at the time.
The big question for strategically minded investors is who will be next in this mad rush to build the world’s best EV battery?
One potential candidate is a 32-year-old advanced materials maker headquartered in Burnaby, Canada.
This company focuses on the biggest and most expensive structure inside the battery, the cathode, and has already patented innovations that will result in batteries that:
- Take less time to create, with production time decreasing from up to a week to less than a day
- Last two to three times longer
- Deliver more energy over their service lives
At the same time, overall production costs are lowered by as much as 40%.
And this company is currently valued at less than $80 million — less than a day’s worth of revenue for some of the world’s biggest automotive manufacturers.
As an investor, those kinds of stats keep me up at night.
I just got done thoroughly researching this company and talking with management, and the result is a report that I recently published to my most exclusive mailing list.
If you want to get a free look at it, click here.