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Will Valence's European Bet Win It a Profit?

Valence Technology (s VLNC) has been working to bring phosphate-based lithium-ion batteries to large-format applications such as vehicles since 1989. In other words, it’s essentially been waiting for the electric-car market to take off for nearly two decades.

But the company thinks its waiting period is over. It says it has found a real – not potential – market for electric vehicles across the pond. And company officials are betting that Europe, not the U.S. or Asia, will be the ultimate winner in the race for the electric car.

Valence makes lithium-iron-phosphate and lithium-iron-magnesium-phosphate batteries for hybrid and electric commercial vehicles. It claims its batteries can fully charge and discharge more often than regular lithium-ion batteries, and also are less likely to catch fire (phosphate is a key ingredient in fire extinguishers).

Valence began to focus on Europe about two years ago, when it realized that automakers there already were launching electric delivery vans and hybrid buses, CEO Bob Kanode said. “We were looking for a market where we could sell and we found Europe, with its incredible designs and very strong government and public support,” he said. “[Europeans] are absolutely dedicated to alternative-energy solutions and view this [electric vehicles] as maybe their last opportunity to make a difference in the automotive sector.”

Among other customers, Valence this year signed sales deals with Smith Electric Vehicles, a UK maker of electric commercial vans and trucks; PVI, a French manufacturer of electric buses and other vehicles; and Oxygen SpA, an Italian company that makes an electric scooter called Cargoscooter. Companies such as Modec, a UK-based supplier of electric delivery vans, and Wrightbus, a UK Wright Group subsidiary that makes double-decker buses, also are testing Valence batteries. Through these relationships, Valence is building connections to large automakers, such as Renault, which is a PVI partner; Peugot, which is an Oxygen partner; Volvo, which is a Wrightbus partner; and Ford and Isuzu, which are Smith Electric partners.

The company has already grown large in size — it has the capacity to make 100 metric tons of cathode material per month and about $20 million worth of battery packs per quarter. Valence plans to eventually expand from commercial vehicles into consumer cars, and also is working with UK and Spanish utilities to bring backup batteries to the electrical grid, Kanode said.

Still, Valence’s success in Europe has yet to translate into a profit. The company in November posted a second-quarter net loss that grew 26.5 percent to $6.2 million, or 5 cents per share, from $4.9 million, or 4 cents per share, in the year-ago quarter. At the same time revenue rose 3.5 percent to $5.8 million from $5.6 million in the same quarter in 2007.

And the company faces several challenges. For one thing, battery limitations mean that electric vehicles have shorter ranges than their gasoline counterparts, and that could limit the market. For example, most of Valence’s partners get ranges of more than 100 miles, Kanode said. Automakers such as GM and DaimlerChrylser have previously said they are aiming for alternative vehicles that can travel at least 300 miles before refueling, to be comparable to gasoline cars. Drivers are accustomed to being able to drive long distances on a single tank, and range could be even more of an issue with electric cars, which can take hours to recharge.

Electric car advocates argue that most drivers don’t need long ranges. After all, most European commuters travel less than 60 kilometers (about 37 miles) daily, or less than 19 miles each way, with 80 percent of German car owners driving 50 kilometers (about 31 miles) or less each day, according to GM. “We often give people that are testing us surprisingly more range than they want,” Kanode said. “It’s not a problem.”

Also, Valence is developing more efficient lithium-vanadium-phosphate and lithium-vanadium-phosphate-fluoride batteries, he said. Higher efficiency could increase the batteries’ runtime (and the vehicles’ range).

Meanwhile, the economy could slow the hybrid- and electric-vehicle market. In November, U.S. hybrid sales fell 50 percent from the same month last year. Earlier this month, Norwegian electric-car maker Think Global halted production, and in October, Menlo Park, Calif.-based Tesla Motors announced layoffs and the delay of its next model.

The uncertain economy could make it more difficult for Valence to raise more money to expand and also could hinder some of Valence’s customers from attracting funding to buy its batteries, Kanode said. “Nobody knows what this market is going to do,” he said.

Nonetheless, Valence expects support for electric vehicles will stay strong in Europe, regardless of the economy. “People view it as an absolute necessity to reduce dependence on foreign oil and everyone is very concerned about the environment and determined to reduce their footprint,” Kanode said. “We don’t see any slow-up at all. It’s a very different environment from the United States.”

4 Responses to “Will Valence's European Bet Win It a Profit?”

  1. Mr. Lawson;

    What is your idea of the future of Valence? if they don´t get a BIG contract in this times ( I mean big BMW, Ford, GM etc.) if not now…when?, I´am a 3 years investor (losing 65% of value in my position).

    Why they are not selling? in my opinion they have almost 400 patents and ONLY in patents rights to other manufacturers they should de earning millions.

    There is no lack of money Mr. Berg is a Forbes 400 list member perhaps he is angry but money will appears. Regards.

  2. Why has this article included the now tired ‘range anxiety’ debate?

    Range is easily solved, increase batteries capacity. The Tesla has an EPA certified range of 240 miles, that’s enough to last your average driver a week between charges despite the fact most cars spend over 80% of the time parked and potentially being ‘charged’.

  3. Dev Lawson

    Interesting attempt to rewrite history.

    First of all, VLNC has not been working to bring phosphate batteries to the vehicle market since 1989. Back then, it was trying (and failing) to bring different batteries to market for cellphones and laptops. They didn’t even have a phosphate battery until the mid-2000’s.

    Second, Kanode claimed that the order from Smith Electric vehicles (Tanfield) would be worth $70 million in its first year. Well that first year is almost over, and so far it has been worth $4 million. Tanfield is laying off employees and its stock price has plunged from 120 pence to 4 pence. It also shelved plans to expand production to the US. “We don’t see a slow-down at all” Who’s he kidding?

    Kanode also claimed that VLNC revenue would increase by 500% this year. In the September quarter, product sales were actually down from the previous year.

    VLNC has been touting the various iterations of its batteries for 20 years. It has announced numerous “orders” that resulted in little or no revenue. During that time it has never generated significant revenue, and never earned a single penny of profit. It has turned over $500 million of investor’s money into negative $65 million of shareholder’s equity, and its balance sheet is so bad that it received a going concern warning from its auditors.

    As far as the vanadium batteries, it has been touting them for 10 years, but has yet to produce any.