Investing in Electric Plug-in Companies

Thanks all for the valuable information!

I will definitely limit investment in ZAAP. Their cavalier attitude about diluting stock value through continued heavy issuance is a giant red flag.

After researching it, Valence looks exceptionally well placed. Will definitely add that one into the mix.

Just this past week I saw the notices about A123 going public. It should be an exciting opening day for them given the strength of their relationships with the big dogs.

Looks like Warren Buffet has been reading our posts. :)

http://www.nytimes.com/2008/09/30/business/worldbusiness/30battery.html?_r=1&ref=business&oref=slogin

The New York Times nytimes.com
September 30, 2008

Buffett Buys Stake in Chinese Battery Manufacturer
By KEITH BRADSHER
HONG KONG — The investor Warren E. Buffett announced on Monday that he had agreed to buy a 9.89 percent stake in a Chinese battery manufacturer that plans to sell electric cars in the United States by 2010.

The MidAmerican Energy Holdings Company, will pay 1.8 billion Hong Kong dollars — about $230 million — for the stake in the battery maker, the BYD Company. Mr. Buffett’s Berkshire Hathaway owns 87.4 percent of MidAmerican.

Based in Shenzhen, a mainland Chinese city adjacent to Hong Kong, BYD is one of the world’s largest makers of rechargeable batteries for cellphones and other uses. The company also has a fast-growing auto-making unit that accounts for nearly a third of its revenue and makes fuel-efficient compact and subcompact cars for the Chinese market.

The president of BYD, Wang Chuanfu, said that the alliance with Mr. Buffett was not just about raising capital for the manufacturer, which relies heavily on short-term debt.

“If BYD were to enter the North American market, Mr. Buffett’s investment would enhance the BYD brand name,” Mr. Wang said at a news conference in Hong Kong late Monday.

He added that BYD would sell cars in the United States and might even move up its plans for entering the market in 2010, by using Berkshire’s money to accelerate research.

David Sokol, the chairman of MidAmerican, said at the news conference with Mr. Wang that Berkshire Hathaway wanted to address climate change and considered electric cars as a way to do so. “This is a technology that can really be a game changer if we’re serious about reducing” emissions of carbon dioxide, the main gas associated with manmade global warming, Mr. Sokol said.

MidAmerican, a collection of electric utilities in the Midwest and West, sees plug-in electric cars as the best approach because the United States already has the infrastructure to supply electricity for recharging almost anywhere, Mr. Sokol said. By contrast, plans for hydrogen-fueled vehicles would require the installation of many hydrogen-fueling centers.

MidAmerican also sees promise in BYD’s battery technologies for storing wind energy and solar energy, Mr. Sokol said. Difficulties in storing energy for when the wind is not blowing or the sun is not shining have limited the deployment of these renewable energy technologies.

More broadly, Berkshire Hathaway wants to tap into China’s engineering talent and is doing so through BYD, which has 11,000 engineers and technicians among its 130,000 employees.

Mr. Buffett did not attend the news conference, but said in a statement that he was impressed with Mr. Wang’s record as a manager.

BYD cars on display at auto shows in China have tended to buttress the notion that the company’s expertise lies more in batteries than automotive design.

Gasoline-powered BYD models already sold in China are unmemorable economy cars with little of the styling flair on which Western automakers pride themselves. The uneven purple paint on one BYD car displayed at a recent Chinese car show drew a gaggle of amused American auto executives who made derisive remarks.

But expertise in automotive design and manufacturing is easy to acquire. Other Chinese automakers have hired Italian designers, while layoffs at Western automakers mean that many talented engineers are available.

Battery expertise is much harder to find. Mastering battery technology is regarded in the auto industry as the linchpin to the production of electric cars with the range, horsepower and torque needed to compete with gasoline-powered cars.

Mr. Sokol said that MidAmerican was impressed by BYD’s ability to produce electric cars that have a range of almost 190 miles on a single charge, and can be 80 percent recharged in 15 minutes. BYD plans to start selling electric cars in China at the end of this year.

BYD is working on all-electric cars, in which all of the power to move the vehicle comes from a series of batteries attached to an electric motor. That distinguishes them from hybrids like the Toyota Prius, which use an electric motor and battery to supplement the power from a gasoline engine.

General Motors plans to introduce in 2010 its electric car, the Chevrolet Volt, which is designed to be plugged in for recharging like the forthcoming BYD car. The Volt will also carry a 1.4-liter engine fueled by gasoline or a blend of ethanol and gasoline to recharge the battery when it starts to run low, a feature that BYD has not yet accepted as necessary.

BYD is using lithium-ion batteries. Japanese automakers have struggled to make sure that such batteries do not overheat and cause fires, an extremely rare occurrence but one with potentially deadly implications.

Mr. Wang said that his company’s batteries had a singular design that would not cause problems. “Even after a collision, it will not explode,” he said.

While Mr. Wang did not mention it, BYD may also have an advantage by starting with sales of electric cars in China. Unlike in the United States, automakers have very little financial liability for defective products in China, although the government does require recalls when products are demonstrably unsafe.

Mr. Sokol said that Berkshire Hathaway first became interested in BYD on a suggestion from Charles T. Munger, a longtime adviser to Mr. Buffett who is also the chairman of the Wesco Financial Corporation, another Berkshire Hathaway subsidiary.

Mr. Munger has invested his own money in a diversified fund, which he does not manage, that has owned shares in BYD for years. He was impressed by BYD and suggested to Mr. Buffett and Mr. Sokol that Berkshire Hathaway should take a stake, but then Mr. Munger recused himself from any further consideration of the possible investment, Mr. Sokol said.