Friday 30 October 2009

Investment: Electric Cars vs Future -- Part 3

Investment: Electric Cars vs Future -- Part 3
China Opportunities

Here's a recap of the last two entries:

  1. Electric cars, supported and promoted by the many countries in order to cub global warming, will be the next battlefield for investors.
  2. Considering America, large companies like General Motor(GM), Ford and Chrysler may have more resources (borrowed money?), but small ones like Tesla and Fisker have ground-breaking technology.
  3. The barrier to entry is not high for the car manufacturing industry.
  4. The new era of electric cars will bring along a race to cheaper and greener energy to reduce CO2 emission.
The Short Run
In the short run, the biggest problem faced by the electric car industry is really how to make the car goes fast, so whoever gets the best battery wins. And a faster rechargeable battery is more important than the lifespan, which in turn is more important than the charge capacity and the size of the battery.

If the batteries are so important, at the end of the day, the first industry to benefit is the Lithium industry due to the strong demand. Since 1966, the price of Lithium in the US has gone up from a low US$7.50 per pound to 1998 US$43.33 per pound[1]. The countries with the largest Lithium reserve are Bolivia, Chile, and Argentina[2].Unfortunately, there aren't any specific Lithium production companies listed in Hong Kong. But a tip is, most of the large Lithium reserves are found in Qinghai and Sichuan. [3] There is a company listed in Hong Kong which produces rechargeable batteries for motorbikes and is looking into the possibilities of manufacturing batteries for the electric cars, but the batteries they produce uses Lead(Pb), a highly dangerous element which has caused poisonings of villagers in China[4], so I wouldn't choose that.

Solar vs Wind
Like I have said in the previous entry, Lithium battery itself doesn't solve the problem of CO2 emission and global warming, so eventually, renewable energy is the key to total success. I choose solar to be the first choice, not only because it is unlimited (except at night or in very dark rainy days), it has a much better flexibility in installation over wind (windmills). Solar panels can be big or small, can be installed in large deserts, rooftop of skyscrapers, or even in calculators or toys. Now, of course, you can't expect the solar panels on your car's rooftop can generate enough power to run the entire journey as you drive, but you sure can install the solar panels at home and use the electricity generated to recharge your car![5] But if you are going to install a windmill at your home's rooftop, you will have to see if your home is located in a very windy area or not. Solar wins.

PS: Although I said you can't expect solar panels on the car's rooftop, Toyota has a car named Prius that at least powers the air-con.[6] Who knows what it can power in the long run?

Advancing technology in crystalline silicon production
Solar power comes from the sun, but to transfer that sunlight into electricity you need polysilicon (or polycrystalline silicon). The cheaper the production price, the better. As technology advances, production cost will only get cheaper and cheaper. With the push from governments all around the world, the larger the company, the more capital they have for research and development (R&D), and the better chance for success.

Chinese Opportunity
Investors can follow the trend of the global new energy through the Wilderhill New Energy Global Innovation Index (NEX) , which "is comprised of companies worldwide whose innovative technologies and services focus on generation and use of cleaner energy, conservation and efficiency, and advancing renewable energy generally. Included are companies whose lower-carbon approaches are relevant to climate change, and whose technologies help reduce emissions relative to traditional fossil fuel use. "[7]

From its report, only one company in this index is listed in Hong Kong -- the China High Speed Transmission Equipment Group Co (0658.HK), but the price of this company is way too high, being 5 times the Net Asset Value(NAV). However, there is still another company which is very cheap (below NAV) and is unaware by the general public.

Due to the conflict of interest (because I have already owned some), I cannot tell you which company it is, but I can list out some details of this company and you can do some homework to find out.

From the interim report 2009 of this company, it is the largest polysilicon supplier in China and Asia, and currently ranked 3rd largest in the world.

Despite the economic downturn, the company managed to achieve a 250% increase in the profit attributable to owners of this company.

As China is paying more attention to the renewable energies and the development of the low-carbon economy[8], the company is looking forward to meeting their targets -- 18,000 million tonnes (MT) by the end of 2009, and 21,000MT by the end of 2010.

The company also has 66 wind generator units for its Wind Power Plant located in Xilin Gol in Inner Mongolia, which is expected to commence operation in the second half of 2009.

Its polysilicon production cost has decreased from US$66/kg in 2008 to US$36/kg for the month of June 2009, and it is expected to drop even further as technology advances.

So, is this company worth investing? You need to see for yourself and do some homework. But how about the industry?

Ask George Soros[9]. Watch him on this Bloomberg new:[10]

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