When Technology Threatens Demand

Market potential is often the paramount or only triggers for investors to buy stock in companies.  Certainly, strong demand can drive sales and subsequently earnings, which logically should boost the company’s share price.  However, blindly counting on sales opportunity or the appearance of demand can be risky.  It is important to consider the possibility of new competition coming to market.  Who remembered MySpace after Facebook rolled out?    Worse yet, a technological innovation could render obsolete the flagship product underlying stock a market favorite.  How many 8-track or cassette tapes are in your music collection?  Perhaps you do not even have any compact discs anymore and rely only on ‘downloads from the cloud.’

Few industries are more impacted by technological innovation than the battery sector.  Energy storage supports power for lighting, thermal and transport.  It is also crucial capability in heading off global warming.  Consequently, considerable investment is pouring into energy storage innovation.  Yet investors often look at battery companies as if their product will experience exceptional demand into infinity.  Suppliers of battery materials seem to get the same myopic benefit of the doubt.

Following is a selection of battery technologies under development.  Before dismissing any of these, remember that the battery market well developed and several companies are well established.  Acquiring and deploying new technologies occurs at a faster pace today than just a couple decades ago when batteries were largely confined to flashlights and yes a parade of music players featuring one medium or another.  As a consequence, new ideas are making their way into commercial products at a faster pace than ever.

·        Electrolyte  -  Researchers as Stanford University in California have found success with lithium metals as an alternative to graphite for the battery anode.  Others have tried before to use lithium metals because they hold about as much electricity per kilogram as a conventional lithium ion design.  However, lithium metal anodes have reacted poorly with liquid electrolytes, creating flammable microstructures called dendrites on the anode.  The Stanford gang has avoided dendrites by spiking the electrolyte with fluorine atoms. In laboratory testing the Stanford battery design achieve 420 cycles of charging and discharging compared to the usual 30 cycles of typical lithium metal batteries.

Fluorine is inexpensive and easy to handle, suggesting that if the battery design holds up under additional testing it could be easily commercialized.  Widespread adoption of the Stanford design would have favorable implications for along the lithium supply chain, but could put a wrench in the works for graphite suppliers.  Additionally, with significant weight and volume reduction, the battery design could significantly alter electric vehicle design and create at least temporary advantages for early adopters.

·        Anode  -  Currently lithium ion battery anodes, the negative side of the battery equation, are mostly made from graphite.  This abundant and relatively inexpensive material offers electrochemical stability and high energy density.  Unfortunately, graphite cannot be rushed for a recharge without risking a battery fire, which is a nuisance for electric car owners on the go.  Researchers at the University of California at San Diego have been working on a new anode material for lithium ion batteries composed of a string of lithium, vanadium and oxygen atoms.  They call it ‘disordered rocksalt.’  The alternative anode material can be charged quickly and safely without giving up a great deal in energy density.

While still in the development stage, the UC at SD researchers have indicated interest in commercializing their invention.  Widespread adoption of ‘rocksalt’ for battery anodes of lithium ion batteries could have implications for vanadium demand, which is often mined alongside graphite.  The researchers still have to design a manufacturing process for the anode material.  High costs could ultimately direct which segments of the battery market will be the most attractive from a commercial standpoint.

·        Cathode  -  Most cathodes for lithium ion batteries are made from lithium with a sprinkling of cobalt.  Concerns over high costs and adequate cobalt supplies have led battery makers to try alternatives such as nickel, manganese or iron phosphate.  Scientists at the Skoltech Center for Energy Science and Technology in Russia have looked beyond lithium to titanium.  Although widely available around the world, titanium has a low electrochemical potential and thus might not seem a likely candidate.  The Skoltech scientists believe they have found the right titanium recipe with fluoride and phosphate atoms.  The resulting material called titanium fluoride phosphate or KTiPO₄F has significantly higher voltage and remains stable even at high charge and discharge rates.  The Skoltech group must complete more work ahead to fully prove titanium fluoride phosphate cathode.  However, they believe they have established that the battery industry can look beyond lithium alloys for the cathode component and that titanium has a place in the battery.

 

Lithium suppliers may not need to worry yet about titanium cathodes, but the material may also see a challenge from alternative battery designs.  In the next post we consider alternatives to lithium ion batteries.    

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.