The Technology That Will Replace 148 Billion Barrels of Oil

BYD e6 - Electric Car
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Most investors didn’t notice when, in September 2008, Warren Buffet paid $230 million for a 10% stake in Hong Kong-based battery maker BYD Co. Ltd. (HKSE:1211.HK).

Now, of course, we all wish we’d been paying attention…

In the 18 months since, BYD share price has increased by upwards of 300%, from $8.01 before the announcement to $28.15 today. And the value of the investing icon’s portion of shares increased to ~$640 million.

But Buffet’s interest in this little-known Chinese stock isn’t the main story here. He simply helped to focus a beam of light onto an industry that could serve as a major profit play for years to come.

The real story is a technology market that’s heating up in a big way: batteries. The market for rechargeable batteries alone is expected to zoom to $51 billion by 2013.

And yet the battery gets far less attention than solar and wind power, its higher-profile (but less technologically advanced) cousins.

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

And as supplies diminish, we’re certain to see oil prices blast well above the current level of $108.09 a barrel.

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

Billions Bet on “Third Element” Technology

The July 2008 record oil price of $147 a barrel served as a wake-up call for the car-driving consumer. But it was also the jolt that shifted the plug-in-auto industry into high gear.

In response to surging oil prices, U.S. President Barack Obama promised to invest at least $150 billion into alternative energy during his term of office. And a big chunk of the $787 billion stimulus bill will finance development of new, rechargeable battery technology for Plug-in Hybrid Electric Vehicles (PHEVs).

The technology in question is lithium-ion.

Sometimes referred to as the “Third Element” – because of its No. 3 position on the Periodic Table of Elements – lithium is the lightest metal in existence. Scientists believe it was one of the few elements synthesized in the “Big Bang” that created the universe.

Lithium carbonate is a very refined form that packs four times the energy punch of lead-acid batteries and twice that of nickel-metal hydride batteries. Until recently, it was a minor commodity used mostly in glass and mood-stabilizing drugs.

But not anymore.

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, of course, is capital.

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

And that’s just a down payment.

The $25 billion Advanced Technology Vehicles Manufacturing Loan Program will make sure the industry itself continues to develop.

While these allocations will nurture the development of lithium-ion technologies, other programs will make the hybrid vehicles market bloom.

You see, hybrid and electric vehicles currently cost more than gas-guzzlers, due to expensive and heavy batteries and multiple engines.

So starting this year, U.S. buyers of commercial PHEVs are eligible for a federal tax credit of up to $7,500, plus a separate $2,000 credit for installing a home charging unit.

There’s growing investment at the state level, too: The California Air Resources Board just announced $3.7 million in rebates for buyers of zero-emissions and hybrid auto purchasers.

That should help cut down fears about affordability… and just in time, too.

According to a report by Pike Research, the lithium-ion transportation battery industry will grow from $878 million in 2010 to nearly $8 billion by 2015.

Automakers have seized 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) launched a hybrid version of its S-Class sedan last year, and the entire Mercedes lineup soon will be available in hybrid. Daimler is teaming up with BYD to develop electric cars for the flourishing Chinese market.
•    Nissan Motor Co. Ltd. (OTC:NSANY) retooled its Smyrna, Tennessee, factory to produce pure electric vehicles. Nissan expects to sell as many as 50,000 units of the hybrid 2010 Altima in its first year. But what’s got everyone talking is the Nissan Leaf, its first lithium-ion car. The hatchback will debut later this year in Japan, Europe, and the U.S.
•    Ford Motor Co. (NYSE:F) is rolling out the all-electric Transit Connect commercial fleet van in 2010 and plans to invest $550 million to retool a Michigan truck plant to manufacture an electric Focus in 2011.
•    General Motors Co. (OTC:MTLQQ) is counting on lithium-ion batteries to power the Chevy Volt, its revolutionary and much-hyped PHEV, set to debut in November 2010. The vehicle will cost about $40,000.
•    Toyota Motor Corp. (NYSE:TM) plans to begin retailing a lithium-ion powered plug-in Prius in late 2011 and a short-distance all-electric car in 2010.
•    Mitsubishi Motors Corp. (TYO:7211) has been developing EV technology since the 1970s. Its environmental-award-winning i-MiEV will be available in April for about $51,000.
•    Honda Motor Co. Ltd. (NYSE:HMC) just announced plans to introduce a lithium-ion powered hybrid Civic within the next several years, as well as Acura luxury cars and other models. February 2010 sales of the Honda Insight and Civic Hybrid increased 54% and 37% over the previous month.
•    Even Volkswagen AG (VOW.DE), which has stayed out of electric vehicles, plans to convert 3% of sales by 2018.

A Global Power (and Profit) Play

For further confirmation that PHEVs are more than just a passing fad, look at the dozens of governments across the globe pouring massive amounts of capital into related markets.

The British government just stated it will extend $581 million of grants and loan guarantees to Ford and Nissan for green auto plants and operations in Britain. Not to mention cash payments to consumers to offset the relatively high price of electric vehicles.

In France, Renault is partnering with a utility company to build a nationwide network of automobile charging stations. The French government pledged to contribute 400 million euros to the project.

Even the Middle East is getting involved. Aabar Investments PJSC, an investment company wholly owned by the Abu Dhabi government, recently became the largest shareholder in Daimler AG. With Abu Dhabi Water and Electric Authority, it plans to set up charging points for electric-powered cars.

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

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

The “World Batteries” study, not surprisingly, predicts that China will post the largest gains, while also expecting strong sales increases 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 global battery business.

On the home front, Beijing is pushing its assault on battery power through its “20% by 2020” campaign – in 10 years, 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. It 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.

This is an article written by Horacio Marquez, Editor of the Money Map Report written for INO.com and reprinted here with permission.

27 thoughts on “The Technology That Will Replace 148 Billion Barrels of Oil

  1. I love the concept of high MPG and green technology, however it is still too expensive! The replacement batteries are still too expensive. As an investment, I think timing is important!

    1. Have to say I agree. But the costs have been coming down. I think that as peak oil comes and goes and the price of gasoline heads ever upward these technologies, even when pricier will make sense to use.

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  3. I think we definitely need increased focus on alternative energies to provide diversification away from carbon based sources. I think the next generation understands as well. My 11 year old was riding in the car the other day and thought it would be cool to have a solar powered car but you would have to stop at a hotel at night. I then explained about hybrids, batteries, and converting solar energy to electricity and stored energy. I hope his vision becomes a reality.

  4. With oil prices creeping up yet again we need to make a big push to use something different.

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  6. I’m curious how they came up with the savings of 10 trillion figure and 148 billion barrels. Does that include the additional electricity expenses and costs of manufacturing and later disposing of the batteries? I’m all for renewable energy especially solar power, but I find the figures a little hard to believe.

    1. This is what I was thinking. From what I understand, manufacturing, recycling, and disposing of spent batteries is a labor/energy intensive business.

  7. I recall Buffet announcing the BYD investment. At the time we were shopping for our first hybrid, and finally chose the Honda Insight. Taking the leap to am all electric vehicle is a big step, but I think it would be easiest for households like ours, with two vehicles. There is less risk if one vehicle is used for limited range commuting, at least until the technology allows for range that is competitive with gas fueled cars.

  8. Lithium will be trumped by MAIL batteries. Metal Air Ionic Liquid. Two MIT grads at Arizona State researching it with indicated potential of 7-11 times a lithium and estimated ranges between charges of 400-500 miles and possibly 1,000 at a materials cost a little more than a lead acid battery. Naval Research Lab affirms the direction of research…

    and Dept. of Energy Sec. Chu has touted the MAIL battery R&D. Follow this research over the next few years. When the MIT guys finish tweaking which metal/molten salt misture is best then that technology will be released and lithium will be left to wither just like other previous battery advancements.

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  10. “Automakers have seized 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”

    Interesting new battery technology. I have been keeping my eyes on electric cars for a while, as I want to get one sometime in the future. I hope these become affordable to the general public.

  11. Great article and I think you are right rechargeable batteries are something that will help. The problem with those is that the very act of recharging them takes electricity which is usually made with some form of ‘dirty’ energy. That is the reason why solar, wind, and some might not like this but nuclear are such great things. They are clean, yes I know the thing in Japan but that is the first time in many years and other then the rare instance there is minimal contamination. Solar and wind are really great because even regular home owners can get in on the real solution.

  12. People seem to think that electricity is clean. Ha. Here our power company gets it by burning our garbage. I live in very sunny area. There are solar panels over the town center parking lot that help run the courthouse. Wouldn’t it be great if there was a solar panel carport that you could plug your electric car into? Now, that would be what I consider clean!

  13. That is true that batteries are being pushed as the next generation option for cars. It would have to at least be the MAIL batteries. Metal Air Ionic Liquid, (I haven’t heard of them, sounds good) or something much better. However, it seems we need to leap further to cold fusion, even anti-grav tech. We really need to push the envelope and release some real technology that we already have.

  14. I sure can’t wait on that one and if only a lot of other investors out there would be so damn kind enough on pushing through with natural resources instead.

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