March was a big month for Canadian fuel cell stack and system supplier Ballard, with a number of major deals edging the company closer to profitability.  Not only did it announce its move into the Chinese market, through its distributor Azure, for its large scale distributed generation system ClearGen, it also signed an agreement with Volkswagen to develop fuel cell stacks for the automaker’s fuel cell vehicle program.  The most interesting – if least valuable in terms of upfront money – development was the announcement that the South Africa-based PGM Development Fund will make a strategic $4 million investment into Ballard.  In the scheme of things, $4 million is not a huge amount, but the move is significant nevertheless.

The PGM Development Fund is a vehicle for Anglo American Platinum (AmPlat) to make strategic investments into technologies it sees could help the South African economy, and the wider economic development of Africa.  South Africa is the largest producer of platinum-group metals in the world and AmPlat, along with Impala Platinum and Lonmin, controls over 75% of the world platinum market.  These three companies have a long-term view of world development.  If it takes up to 20 years to open a new mine shaft, the planning horizons involved have to be similarly long term.

According to the Johnson Matthey publication “The Platinum Book,” the current demand for platinum comes from four main sectors: auto-catalysts, jewelry, industrial applications, and precious-metals investing.  Longer term, the platinum industry is looking to the fuel cell sector for increased demand.  Navigant Research calculates that today the use of platinum in the fuel cell sector is less than 1,000 ounces annually, but that is growing.  Within the next 10 to 15 years it is unlikely that demand from the fuel cell sector will reach a large bar on a graph like this one, but it will increasingly soak up excess platinum from the market, with companies moving to lending platinum, as is the current norm in the automotive sector. Lending of platinum is when companies pay to loan the metal, instead of outright ownership. At the end of the use of the material it is returned to the owner company, often for refining, and loaned out again. This works with platinum in a number of industries as it does not dissociate over time.

Market Interests

Ballard is the globally dominant low-temperature fuel cell stack supplier.  It controls over 60% of all PEM stacks worldwide, excepting Japan, and it is likely to remain the leader for some time to come.  By taking a stake in the leading supplier of platinum-loaded fuel cell stacks, AmPlat is securing market access for its product.

The funding will also buy AmPlat influence in the future development of Ballard.  We will almost certainly see increasing interest from Ballard in the South African market: within the next 2 years or so a joint venture, based in South Africa, and then longer term manufacturing capability located in-country.

After all, through clear marketing and promotional activity, platinum miners have been manipulating market interest and uptake in platinum for decades.  It was only a matter of time before they started to influence the fuel cell sector as well.  We suspect this is one of the opening salvos in an increasing interest and activity from platinum miners in this sector – and don’t be surprised if Ballard starts more aggressively promoting fuel cells in general.

Henrik Fisker, the co-founder of EV maker Fisker Automotive, has resigned his post as executive chairman.  The move is not uncommon, especially in the plug-in electric vehicle (PEV) industry.  Fisker joins Martin Eberhard of Tesla, Kevin Czinger of CODA, and Shai Agassi of Better Place as founders of next-generation automakers who are no longer part of the company they created.  The departure of the founder is often a necessary function of the company’s growth, as visionary perspectives of the market and the product must eventually give way to more market-driven and realistic outlooks.  Little information concerning the specific differences Henrik Fisker had with management is available; however, the circumstances that led to the split are well documented.

Fisker Automotive was founded in 2007 by Fisker and Bernhard Koehler in association with Quantum Technologies, which designed the plug-in hybrid (PHEV) drivetrain for the company’s first vehicle, the Karma.  The company’s goal was to bring the Karma to market by late 2009.  Fisker got a federal loan from the Advanced Technologies Vehicle Manufacturing (ATVM) loan program in 2009 to develop the company’s second vehicle, a lower-cost PHEV, the Atlantic.

The company’s product strategy and business model seemed sound.  Like Tesla, Fisker aimed to dilute the premium price of electric vehicles into the costs of a high class luxury vehicle.  The Karma developed a cult-like following, high profile investors, like Leonardo DiCaprio, and drivers, including Justin Bieber.  Where things went wrong for Fisker was the company’s inability to execute on its ambitious plans, plus a string of misfortune.

The company launched into the teeth of the financial crash and the ensuing recession.  After drawing $193 million on the ATVM loan, Fisker’s credit line froze after it failed to meet specific milestones set as conditions of the loan.  Nevertheless, Fisker powered through and began deliveries of the first Karmas to customers in July of 2011, missing its launch date by a 1.5 years.  Unfortunately the loan and the late start were not the end of the company’s problems.

Bad Karma

Fisker announced a recall at the end of 2011 because of problems concerning the vehicle’s battery pack supplied by A123.  Then, two Karmas mysteriously caught fire in mid-2012 – one while sitting in a garage, the other while parked in a grocery store parking lot.  The fires sparked the second recall to replace the low-temperature cooling fan that caused the fires.  Then the company lost over 300 vehicles to hurricane Sandy in November 2012, not long before its battery supplier, A123, declared bankruptcy.  Production of the Karma was halted indefinitely.

Unfortunately for Henrik Fisker, the company’s troubles are a reflection of the state of affairs in the PEV industry: it’s all about the battery.   Now, like A123, Fisker will most likely become a Chinese subsidiary.  The car and the business model aren’t likely to change; if anything the Karma and possibly the Atlantic could be in store for some much needed good news concerning production.  The luster and appeal of the vehicle, however, could fade along with the company’s founder and champion.

The ChargePoint/Ecotality joint venture, announced last week, underlined the fact that the EV charging sector is experiencing a bout of consolidation.  Earlier, Car Charging Group acquired New York-based Beam Charging, which will strengthen its presence in New York City.  This will be especially interesting if Mayor Bloomberg’s commitment to add 10,000 public parking spots by 2020 comes to fruition.  Better Place closed operations in North America and Australia.  In the United Kingdom, Chargemaster acquired Elektromotive last year.  These were two of the biggest charging equipment providers in the United Kingdom, so Chargemaster’s move positions the company well for the growing U.S. market.

This inevitable consolidation will continue, and it’s healthy for the industry.   There are too many companies chasing after too small a market right now.  This is not to say the EV charging market is small – please, no more stories on the “dying EV industry” – but Pike Research has found that there are well over 100 companies competing in the EV supply equipment (EVSE) sector globally.  These include not just companies that sell their own EVSE units but also “third party providers” that sell and service EV charging equipment made by others, like CarCharging Group.  Many of these companies are competing primarily for the commercial charging market – that is, units installed for use at offices, fleet depots, apartment buildings, parking garages, and a slew of public facilities like airports and retail outlets.

Globally the market for EVSE was around 180,000 units in 2012.  Half of those were residential units, so that means just 90,000 in commercial sales.  It doesn’t take complicated math to figure out that, if the market were evenly divided among the 100-plus companies offering EVSE, that would be a pretty small revenue base.

Catch-Up Time

Looking at the U.S. market alone, we estimate that sales of commercial EVSE were around 20,000 in 2012.  These units serve a total fleet of plug-in vehicles that reached around 71,000 at the end of 2012.  That is simply not enough demand to maximize utilization of these EV stations.  The PEV market is growing fast, so station utilization will rise and begin to match the expectations of the EVSE providers.  But for the near term, the EVSE market is out ahead of PEV sales, and the market will struggle to sustain the number of players wanting a piece of it.

So more consolidation is ahead, as companies look to secure a single geographic market or expand their portfolio of EVSE offerings by partnering with companies that have complementary technology.  For the moment, the industry would do well to focus its resources on the current EVSE equipment and networks in order to give PEV drivers the most seamless user experience possible.  This means keeping track of the basics, such as making sure equipment is working when drivers show up.  But it also means focusing on “interoperability:” making it easy for drivers to find and use all available EVSE units, something that the industry has been working on – by featuring stations from competing providers on a network app or enabling drivers to pay for charging without needing a network pass – but is still a long way from achieving.

What is the proper mythological metaphor for A123 Systems? Some might conjure up Icarus for the venture capital highflier whose business model melted in the heat of competition.  Or maybe Sisyphus, for being asked to perform a series of impossible tasks, each ending in failure.

Now, however, the most apt myth would be the phoenix—the bird that regenerates from its own ashes.  A123 is now officially a subsidiary of Wanxiang America, an Illinois-based auto parts supplier and the American arm of the Wanxiang Group of China, and has officially risen from the ashes of bankruptcy.

What will the new A123 look like? The company hasn’t declared any official moves yet, but here are a few of the things I’ve heard from industry participants about the strategic directions that a re-born A123 will likely take:

More cash.  Wanxiang isn’t just giving A123 a lifeline.  It is injecting a significant amount of capital into its new U.S. subsidiary.  That capital will go toward qualifying for new projects (sometimes vendors have to show a certain amount of financial health to be able to bid on large capital-intensive projects).  It will also help to underwrite a new research and development project.

New chemistries.  A123 will work on developing the next generation battery chemistry, though its nano-engineered lithium iron phosphate chemistry will continue to be produced and supported for the applications it is best suited for.

Emphasis on systems integration.  A123 will continue to be a player in the automotive sector, where its batteries are already scheduled to go into several Chinese models and the Chevy Spark EV, as well as developing a technology solution for the microhybrid segment.  On the grid storage side, the company will emphasize its systems integration capabilities.  Rather than just be a manufacturer of cells, the company wants to provide complete systems, including controls, inverters, voltage regulators, fire suppression systems, and transformers.  It’s a smart move considering that cells are quickly becoming a low-margin commodity.

So where does the new A123 Systems fit into the newly transformed energy storage landscape? Actually, it fits pretty well.  During the bubble years of the energy storage  industry (2010 to 2012), many companies crashed and burned— literally.  A spate of fire events spelled doom for a handful of startups that had otherwise promising technologies, and the expected flood of utility orders never arrived.  Batteries are still too expensive to make sense for most applications.  Now the lineup of vendors active in the area has been winnowed while at the same time manufacturing capacity has been dramatically enlarged, leading to cheaper batteries thanks to economies of scale.  A123 is re-entering a market that appears to be opening up, and it is doing so in an environment with fewer competitors.  A123 couldn’t have picked a better time for its mythic rebirth.