by Debra Fiakas CFA
Earlier this year, we added metal air batteries and the companies who are working to commercialize the technology on our list of promising acts to follow. The Israeli battery developer, Phinergy, was added to our Mothers of Invention Index. Back when I wrote the post “More in the Air than Spring” back in April 2013, Phinergy had attracted a bit of attention for a road test of Citroen C1 car outfitted with a technology far different than conventional lithium ion. No one knows Phinergy. It is too small and too foreign to impress U.S. investors. I did not expect anyone to really pay much attention.
In June 2013, a U.S. company with a very high profile was awarded a patent related to metal air battery technology. This has put the words ‘metal-air’ on the tongues of nearly every investor and pundit across the country – electric sports car phenom Tesla Motors (TSLA: Nasdaq). It seems quixotic for a small-fry like Phinergy to chase after unproven battery technologies. However, when the arguably most financially successful electric car producer in the country stakes a claim on the same technology, it is time to take it seriously.
Notably Tesla’s patent addresses the linkage of lithium-ion with metal-air batteries as first and second battery packs for an electric car. This is the same strategy that was being tested in the Citroen C1 by Phinergy. The idea is to extend the driving range by making available a high energy intensity power source like the metal-air battery that is better equipped for the long trip.
International Business Machines (IBM: NYSE) has the same idea in mind with its Battery 500 Project. The group’s goal is to develop a lithium-air battery system with a 500-mile range per charge. Most importantly the battery system is to be light weight – no heavier than a conventional combustion engine.
Getting a stake metal-air battery technology is challenging for the minority investor, especially U.S. investors. Phinergy is a private, foreign company. Tesla has publically traded stock but let’s face it, the stock appears unaffordable at the current price level. A stake in IBM is a play on all manner of technology and products, but batteries are a very small part of the bigger IBM picture.
In my April 2013 post I had offered Arotech Corporation (ARTX: Nasdaq) as an alternative to play metal-air battery technology. Arotech is profitable and trades at 9.8 times trailing earnings. The company has concentrated on military applications for its rechargeable zinc-air battery technology, selling the Soldier Wearable Integrated Power Equipment System (SWIPES) to the U.S. DOD. Combined, its lithium battery and zinc-air batteries and systems account for approximately one-fourth of total sales. Earlier in September Artotech raised $6.0 million through an underwritten offering of its common stock. Expect acceleration in Arotech’s development activity. More likely Arotech will begin trolling for an acquisition that improves its position in the military market.
Metal-air battery technology still has a ways to go before it becomes common place. However, Arotech has proven it commercially viable in a niche market. Phinergy and apparently Tesla have proven it workable in the electric automobile. It is only a matter of time before the rough edges are hammered out and a very large consumer car market becomes reality.
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.
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.