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Toyota EV

Maxwell Technologies And The Battery Race With Toyota (NASDAQ … – Seeking Alpha

In my last piece on Maxwell Technologies (NASDAQ:MXWL), the US maker of ultracapacitors and energy storage solutions more generally, I spent some time considering management’s enthusiasm for being more embedded in the growing electric vehicle (EV) market. On the surface, this would seem like a great idea – the EV market is small now, but appears to be destined for solid, perhaps even spectacular growth (as an aside, I just came across fellow SA contributor Matt Bohlsen’s coverage of the EV industry and recommend it). With people like Matt covering the specific industry, I won’t delve into the growth figures here, but I think it is now pretty safe to say a sort of snowball effect has begun and there is legitimate momentum building toward an EV future. The combination of news items such as Volvo’s decision to end its use of the internal combustion engine within the next few years and Tesla’s (TSLA) roll-out of its Model 3 make it seem like the era of the EV is around the corner, getting closer every day. There is one news item that has flown under the radar slightly (relative to Tesla and Volvo, at least), involving Toyota Motor Corp (TM), and I believe it may have particular bearing on Maxwell (note: Maxwell reports earnings next week for Q2 2017, but I am not attempting an earnings preview).
Toyota EV
Near the end of July, the story of Toyota’s decision to push ahead with a production target in 2022 of a new EV platform using a solid state battery technology started to attract some more press, including Reuters and Forbes. There is plenty that is unknown yet, but the crux of the story is that Toyota is close to a viable solid state battery that can 1) recharge in minutes, 2) be safer than existing batteries, and
With Tesla, BMW, Nissan and Chevy scaling up EV production already, Toyota will have to hustle to catch up, and solid-state could certainly help. This advance represents something of a holy grail for battery makers, and has been notoriously hard to pull off. . . The company is paying particular attention to the pack- and system-level improvements made possible by solid-state technology, which can then influence overall vehicle design. Toyota will have to hustle to meet the early 2020s deadline, but the science is clear about what the payoff will be. Autonomous driving has been garnering considerable attention, but solid-state batteries could become the new automaker arms race to watch.
Toyota is not the only company working on improved battery tech, and that brings me back to Maxwell Technologies. Specifically, Maxwell has been putting a significant chunk of its R & D efforts into getting ready to commercialize a dry electrode innovation within an automotive setting, and this project is clearly one on which Maxwell is making a bigger bet. Maxwell CEO Franz Fink has stressed it multiples times over the last year, going back to the second quarter of 2016, and according to the most recent earnings call, the hope is for Maxwell’s development to be in production by 2021-22. That target has not changed since August 2016, when Fink first shared about it -this is what he said at the time:
Let me now discuss exciting news around our dry electrode car technology. . . Over the past two years we have identified a path to adopting our core technology for amplifications in energy storage. . . We believe that our fundamental dry electrode technology when applied to lithium ion batteries can bring significant performance and cost benefits. . . With the automotive industry on the verge of a paradigm shift towards electrification, global players in the automotive and battery industry are seeking differentiators to set them apart as leaders in this new frontier. Several of them have been evaluating our technology and their preliminary findings seem to confirm our belief. . . Last month (July 2016) we signed a 12-month joint development agreement with one of the world’s leading automotive OEMs to develop a proof-of-concept that if successful could lead to the world’s first electric drive train based on our technology targeting at 2021 automotive platform launch. We’re working on this jointly funded program as our partner to complete proof of concept around electric vehicle design and expect to enter into a broader collaboration and commercialization agreement if the concept is proven in 2017.
The timing appears to at least roughly correspond with Toyota’s ambitions, and I believe Maxwell’s success or failure could ride on critical factors that are not known yet.
The technical factors will be vitally important, and to that end it is possible to read a publicly available abstract of a presentation Maxwell engineers gave in May 2016 for The Electrochemical Society. Hieu Duong, Arek Suszko and Haim Feigenbaum explain:
This unique electrode manufacturing process . . . begins with dry raw materials compounding and maintains its liquid-free state throughout the subsequent processing steps to ultimately produce a robust high-performance ultracapacitor electrode. . . Maxwell is currently engaged in research and development efforts to expand the application space of its dry electrode process technology to include battery electrode manufacturing. Cell performance using prototype dry coated lithium-ion battery electrodes has been demonstrated under two DOE funded programs. . . This unique electrode process technology offers significant saving in manufacturing cost and helps curb CO2 pollution during the battery electrode manufacturing process. By eliminating the use of any liquids/solvents, and the associated coating and drying complexity inherent in wet processing, the dry electrode process is environmentally friendly, and can be readily installed and commissioned with a much lower start-up capital investment. Thus, dry electrode manufacturing is economically attractive and socially responsible.
Exactly how that will stack up as a value proposition in comparison to Toyota’s product (or anyone else’s coming to market in the next 4 years) will be key. Maxwell anticipates being able to save an OEM a few hundred dollars per vehicle, up to perhaps a thousand dollars, compared to currently available batteries. For that cost savings, the question will be what is the OEM getting in return, and does it compare favorably with the Toyota battery? Of course, it is possible Toyota will not be selling its batteries other than in its own vehicles, although it is just as possible that Maxwell could likewise be tied to an exclusive deal.
Maxwell has not kept it secret that is working with at least one unnamed automotive OEM and tier-1 supplier in a joint development agreement, and touts the savings impact for OEM as well as range improvements, as in this standard slide from its recent investor presentations:
Maxwell investor slide
Conversely, at this point it is not known if Toyota’s technology was developed by them directly, or in partnership with a second party (like BMW, as the Forbes article implies). If Toyota has exclusive rights to use the solid state battery and if it will be open to selling the batteries to other OEMs (assuming for now it is their decision) will be other factors determining the degree of potential direct competition.
Conclusion
On the old Fox TV show “The X-Files,” there was often a poster visible in the office of the character Agent Mulder with picture of a UFO on it and the words “I want to believe,” and the phrase went on to become the subtitle of the 2008 X-Files movie.
I want to believe X files
That tagline could well sum up my view on the investment thesis for Maxwell. I am coming at this from the position of someone who follows Maxwell out of general interest. I do not currently have a position, but I have been long in the past and I would consider going long again. The management team for the last year has been consistently optimistic and rosy about its prospects with the dry electrode technology being a major breakthrough for the company. I want to believe . . . and yet, I cannot bring myself to commit, nor give a rational reason why I think anyone else should or shouldn’t. There is undoubtedly opportunity in this space, but stories like the Toyota announcement give me severe second thoughts about owning Maxwell. While it may have other reasonably attractive qualities, by the company’s own admission, the medium term is all about auto.
Regardless of the approach Toyota takes, Maxwell, as the vastly smaller player, is no doubt going to have to be able present an even more compelling case for its dry electrode approach than was already required. With Toyota’s capacity to put its marketing muscle, production expertise, and other resources behind its product, other comers will likely be at strong disadvantage, especially if Toyota is willing to take losses on it in the short run, a luxury not everyone has.
Attempting to compare the two, so much is simply outside of Maxwell’s control. Without knowing more about the OEM and Tier-1 partners, investing in Maxwell becomes purely a guessing game. If it is really an OEM partner on anything of a scale in same universe as Toyota, or one with an established presence in the EV market, that could be all Maxwell needs for this project to thrive even in the face of tough competition. On the other hand, if the existing partners get cold feet and are not ready commit when the time comes, then we may never find out Maxwell’s solution would do. With the Q2 call in a few days, all I can suggest is to stay tuned.
This article was written by
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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