Thursday, January 14th, 2010
A Look at China's Electrifying Battery Market
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New Energy Systems Group (OTC:NEWN), China Sun Group High Tech Co. (OTC:CSGH), China Ritar Power Corp. (NASDAQ:CRTP), and other Chinese battery manufacturers could see substantial upside amid government incentives to switch to electric power despite some efforts to curb electric bike usage.
LiON Battery Demand Only Growing in China
Global battery demand is projected to increase about 5% annually through 2010 but China will record the largest gains and surpass the U.S. as the largest market share, according to many analysts and economists.
The China Battery Industry Association predicts that demand for portable and green technology will fuel a 30% annualized growth in demand for lithium-ion batteries in China alone over the next five years.
The majority of this growth is driven by government mandates that are focused on improving environmental standards. In fact, China’s five-year development program lists lithium-ion battery development as its third objective.
In addition to providing these batteries to the global consumer electronics market, China has also been pushing for applications ranging from electric vehicles to electric back-up power for many of its infrastructure projects.
Lead-Acid Demand Remains Uncertain
Despite the rapid growth projected for batteries in China, the future of lead-acid batteries may be less than certain due to a new law limiting their use in so-called e-bikes, according to the China Electrical Equipment Industrial Association.
E-bikes have become a sensation in China due to their affordability and lack of a requirement for a drivers’ license. The growth led to a 25% annualized growth rate in recent years, but amounted to approximately 20% of the country’s lead consumption.
As a result, China’s Standardization Administration said that e-bikes can no longer go more than 12 miles per hour and must weigh no more than 88 pounds. This is expected to severely limit demand for the bikes, and also limit demand for lead-acid batteries.
Investment Opportunities in the Industry
Two of the fastest growing lithium-ion manufacturers in China are New Energy Systems Group (NEWN) and China Sun Group High Tech Co. (CSGH). Meanwhile, one large lead-acid manufacturer that could weather the storm is China Ritar Power Group (CRTP).
China Sun Group has developed a unique lithium iron phosphate battery that has improved safety, longer cycle and calendar life, high peak power ratings, and lower environmental impacts. Moreover, the company continues to trade at an attractive multiple given its growth.
See also “Power Up Your Portfolio with China Sun Group”
New Energy Systems continues to show sales despite the lackluster economy, and recently acquired Shenzhen NewPower Technology Co., Ltd. The acquisition is expected to add $27 million of revenue and $2.5 million in net income in 2010 despite a purchase price of just $14.7 million.
The Takeaway…
- China’s battery market is growing faster than the rest of the world, particularly when it comes to lithium-ion batteries.
- China’s lead-acid market may slow in 2010 thanks to new regulation on so-called e-bikes that could limit demand substantially.
- China Sun Group and New Energy Systems are two stocks to watch in the lithium-ion sector, and both are trading at attractive valuations.
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-- Written by Rick Telfur
