Quick-Charge Necessary at Ener1?

• The Company: Ener1, a maker of hybrid vehicle batteries.
• The Filing: Form 10-Q filed with the SEC on August 14, 2008.
• The Finding: In a recent letter to shareholders, Ener1 Chief Executive Charles Gassenheimer shared his view that each dollar of capital expended at its automotive battery subsidiary EnerDel would return between $4.00 and $6.00 in annual revenues. A significant claim- - as Ener1 has generated minimal revenue to date, for its battery technology is still in development.

The Upshot: A German proverb says: “Mules are always boasting that their ancestors are horses.” Ener1, however, has no such legacy to fall back upon. For the six-months ended June 30, Ener1 spent about $5.8 million on battery R&D and recorded battery sales of $512,000, according to its second-quarter regulatory filing.

Hybrid electric vehicles (HEVs), like the Toyota Prius, currently employ a combination of gasoline and nickel metal hydride (NiMH) batteries. The next generation of HEVs is looking at lithium-ion (Li-ion) technology, for nickel demand is driving up the cost of the raw material and Li-ion holds the potential to store twice the energy charge at one-half the size/weight. EnerDel’s battery is but one of several available options on the Li-ion platform being pursued by battery makers. The Li-ion industry landscape is crowded, with the company up against established companies, such as Samsung SDI and Johnson Controls, and well-capitalized private companies, like A123 Systems.

Management believes that its Li-ion battery for HEVs offers significant competitive advantages, such as performance (higher charge capacity) and smaller size. In addition, the company claims its battery chemistry, which uses lithium titanate for the anode material, is safer and does not experience thermal problems — fire — that sometimes occurs in Li-ion batteries used in consumer electronics (remember exploding laptops).

Although automakers like Toyota, Ford, and General Motors have made firm commitments to Li-ion/gas hybrids, plug-in hybrids, and pure electric vehicles, none has done so with EnerDel. In its current roadshow presentation, the company claims that its Hague Road, Indianapolis plant has the capacity to produce 300,000 hybrid electric vehicles battery packs per year. To date, however, EnerDel has announced only one deal, a $70 million contract with automaker Think Vehicles of Norway — and as performance testing is still pending, even this supply commitment is questionable.

The Question: Can Ener1 differentiate its EnerDel Li-ion technology and demonstrate actual evidence of commercial support for its battery products?