Sponsored Link:

The Technology That Will Replace 148 Billion Barrels of Oil

By Horacio Marquez
Contributing Editor
Money Morning

Not many investors noticed in September 2008 when Warren Buffet took a 10% stake in Hong Kong-based battery maker BYD Co. Ltd. for $230 million.

They should be noticing now.

Shares in BYD, which also makes cell phones and automobiles, have quintupled in a little more than 12 months, meaning that Buffet’s investment is now worth more than $1.5 billion.

But Buffet’s interest in this little-known Chinese stock isn’t the main story here. In fact, the investing icon is simply focusing a bright spotlight on an industry that could serve as a major profit play for years to come.

The real story here is battery power, a technology market that’s heating up in a big way. Just the market for rechargeable batteries is expected to zoom from $36 billion in 2008 to $51 billion in 2013.

And yet the battery market gets less attention than solar or wind power, its higher-profile (but less-technologically developed) cousins.

Modern battery technology is the keystone of the global push to find an energy alternative for oil. In fact, a specific new category of rechargeable batteries is actually a “breakthrough” technology that has the potential to replace as much as 148 billion barrels of oil over the next 50 years, a potential savings of $10.4 trillion – even at current prices.

And oil prices will certainly blast well above the current $78.50 a barrel as supplies diminish.

Sign up below…and we’ll send you a new investment report for free:

“Credit Crisis Report.”

What these numbers don’t tell you is that there’s a powerful catalyst at work, one that’s behind the big push to develop new, rechargeable battery technologies: the electric – or “hybrid” – car.

Billions Bet on “Third Element” Technology

While last year’s record oil price of $147 a barrel served as a wake-up call for the car-driving consumer, it was also the catalyst that shifted the plug-in-auto industry into high gear.

In response to the oil price surge in 2008, U.S. President Barack Obama promised to invest at least $150 billion on alternative energy during his term.

But a big chunk of his $787 billion stimulus bill will finance development of a new, rechargeable battery technology for Plug-in Hybrid Electric Vehicles (PHEV).

The technology in question: Lithium-ion.

Sometimes referred to as the “Third Element” – because of its No. 3 position on the Periodic Table of the Elements, lithium is believed to have been one of the few elements synthesized in the “Big Bang” that created the universe.

Now it’s a key ingredient of the new class of rechargeable batteries needed to jump-start the plug-in car market. The other ingredient is capital.

President Obama’s American Reinvestment and Recovery Act allocates $2 billion for the development of battery systems, components and software for advanced lithium-ion batteries and for hybrid electric systems. Another $300 million will support an Alternative Fueled Vehicles Pilot Program.

While those allocations will nurture the continued development of lithium-ion technologies, another program is aimed at hybrid-vehicle buyers: Starting this year, buyers of commercial plug-in electric vehicles can receive a tax credit of up to $7,500.

And that was just a down payment: The $25 billion Advanced Technology Vehicles Manufacturing Loan Program will make sure the industry itself continues to develop.

Automakers have latched onto lithium-ion battery technology as the road to the future. Right now, nearly every automaker on the planet is gearing up to flood the market with some form of electric-powered car:

  • Daimler AG (NYSE: DAI) plans to roll out a hybrid version of its S-Class sedan later this year. The entire Mercedes lineup eventually will be available as hybrids in the next five years.
  • Tesla Motors Inc., of San Carlos, Ca., has already delivered the Tesla Roadster, a stunning electric two-seater that sells for more than $100,000.
  • Nissan Motor Co. Ltd. (ADR OTC: NSANY) retooled a factory in Smyrna, Tenn. to produce a pure electric vehicle. Nissan expects to sell as many as 50,000 units of the hybrid Altima in its first year.
  • Ford Motor Co. (NYSE: F) is bringing out the pure electric Transit Connect commercial fleet van in 2010 and plans to invest $550 million to retool a Michigan truck plant to manufacture a pure electric Focus in 2011.
  • Chinese carmakers Hafei and Coda are planning to bring a mass-produced electric car to market in California in fall 2010.
  • And General Motors Corp. (OTC: MTLQQ, NYSE: GRM), is counting heavily on new-technology lithium-ion batteries to power the Chevy Volt, its revolutionary and much-hyped PHEV, which is due to debut next year.

A Global Power (and Profit) Play

For further confirmation that the PHEVs are more than just a passing fad, look at the money being invested by governments across the globe.

Aabar Investments PJSC, an investment company wholly owned by the Abu Dhabi government, recently bought a 4% stake in Tesla Motors from Daimler. And Aabar Chairman Khadem Abdulla al Qubaisi says the fund is planning several more electric-vehicle ventures with Daimler.

“When we acquired our stake in Daimler in March, we identified a number of potential areas for co-operation between our two businesses. One of these was a desire to focus on the development of electric vehicles,” al Qubaisi said.

But here’s the real kicker: Aabar Investments is using Abu Dhabi oil revenue to finance its foray into these oil-supplanting battery technologies.

Worldwide demand for batteries of all types – both non-rechargeable (primary) and rechargeable (secondary) is projected to advance at roughly a 7% annual clip through 2010, reaching $73.6 billion, according to a study published by The Freedonia Group, a Cleveland-based market-research firm.

Not surprisingly, the “World Batteries” study predicts that China will post the largest gains, while sales increases are also expected to be strong in India, Indonesia, South Korea, Poland, South Africa, Brazil and Russia.

But it’s the China market that promises to put a real charge into the worldwide battery business.

On the home front, Beijing is pushing its assault on battery power through its “20% by 2020” campaign, meaning that 20% of China’s power needs will be served by renewable-energy technologies.

From a global standpoint, China is using its big advantage in labor costs to establish a leadership position in the worldwide battery market, and already has more than 50 factories cranking out product.

It’s an aggressive plan, to be sure, but it’s also cohesive and complete. And Beijing has the cash to make it happen.

[Editor's Note: Although it's a new technology, there's a clear leader in the lithium-battery-technology market.

The company's profit potential is stunning.

And Money Morning Contributing Editor Horacio Marquez has found it.

The firm in question is a global player with a solid market cap and is well known within the hybrid-vehicle sector. But surprisingly few investors know about the company, or have ever even heard its name.

It's no surprise that Marquez uncovered this gem, since he's forged a reputation for spotting profit plays long before the institutional money piles in. This profit-creating talent was one that Marquez displayed time and again during his years on Wall Street and is one that he now makes available to the subscribers of his Money Map VIP Trader investing service.

To learn more about this company - to get in ahead of the masses - and to find out more about Marquez's Money Map VIP Trader, please click here.]

News and Related Story Links:

October 21st, 2009

Why Gold Will Surpass $2,500

Few investors realize that inflation is the least of the factors driving the bull market in gold. Other factors, like Venezuela's crackdown on gold exports, are likely to push prices higher. Find out how to play each of the "7 Key Drivers" in our Money Morning Publisher's Series report... Go here to get it for free.




This entry was posted on Wednesday, October 21st, 2009 at 4:00 am and is filed under Horacio R. Marquez, Main Essay. You can follow any responses to this entry through the RSS 2.0 feed. Due to the amount of comments we receive Money Morning will not be able to respond to all questions. If you have not already registered to leave a comment, once doing so you will receive Money Morning's Daily Email.

There Are 4 Responses So Far. »

  1. Comment by Marcelo Abreu on 21 October 2009:

    It would be worthy for Brazilian readres to compare the potential of this industry with the actual perspectives of biofuels such
    as sugar-cane ethanol and other energy sources based on extensive agriculture and low investment in technology.

  2. Comment by James @ Electric bike company on 22 October 2009:

    The increase of electric use in this manner will improve food supplies because we will need less fields for biofuels, which in my opinion is also a short lived energy source because battery tech just gets so much more funding.

  3. Comment by Michael Dehn on 26 October 2009:

    Great Article, mentions lithium, but seems to miss the importance of cobalt. On a 1:1 ration chemically with Lithium in the battery, and at 3 times the weight, and approximately 7 times the price per pound, cobalt prices going forward will be really driven of the price of lithium ion batteries (or Li-Co batteries).
    And with 50% of the world’s supply of cobalt coming from the DRC, it is apparent that North American Supply is critial. Producers such as Xstrata, Vale and Sherrit all have domestic (North American) production and/or refining capacity/capability, but these are typically byproduct sourced cobalt primarily dependant on the nickel price.
    True primary source cobalt in North America will likely come Puget Ventures project in Ontario, Canada, and Formation Capital’s Idaho project in the US.
    It seems the hype around lithium prices has moved many stocks to 52 week record highs, and cobalt stock prices have lagged. It will be interesting to see where the cobalt price ends up in the coming months, and to see what annual production in 2007 versus 2008 and 2009 really looks like so forecasting for 2010 can be more accurate. With cobalt (and moly) starting to trade on the LME in the new year, cobalt will see some new eyes looking at it as an investment vehicle.

  4. Comment by Julie on 26 October 2009:

    The other ingredient in a lithium ion battery, other than capital, is cobalt.

    See the comments by Dr Irving Mintzer principal of MEG LLC, an energy consulting firm as he described a “nightmare scenario” at the Critical & Strategic Metals Summit in Washington DC this week. He is quoted saying that more supply of cobalt and neodymium are required.

    The missing piece of the equation – safe, secure supply of cobalt.

Post a Response