Chinese Rescue of Battery Maker Saves U.S. Jobs, CEO Says
Comment of the Day

August 10 2012

Commentary by Eoin Treacy

Chinese Rescue of Battery Maker Saves U.S. Jobs, CEO Says

This article by Alan Ohnsman and Hasan Dudar for Bloomberg may be of interest to subscribers. Here is a section:
There is definitely a growing concern about foreign-controlled or -owned companies attempting to gain a foothold into our supply chain in the United States,” Stearns said. “We need to make sure the federal government isn't an unwitting accomplice to the theft of our own national secrets by providing them with multimillion-dollar government grants and loans.”

A123, which has posted at least 12 straight quarterly losses, needed a financial lifeline after struggling with costs from a recall of batteries for plug-in hybrid luxury carmaker Fisker. A political debate over the Wanxiang agreement is inevitable, according to Michael Lew, an analyst at Needham & Co. in New York.

“If you already have lawmakers talking, you can pretty much assume how it's going to play out,” said Lew, who recommends holding A123 shares.

An acquisition of A123 “raises more troubling questions about the direction of this government-led effort,” Becca Watkins, spokeswoman for Representative Darrell Issa of California, the House Oversight and Government Reform Committee chairman, said in an e-mail message.

Eoin Treacy's view A123 Systems is the latest company in the battery and renewable energy sector to have failed the simple test of generating enough sales to cover costs even after receiving substantial government funding. Ener1 was another high profile battery manufacturing failure that filed for bankruptcy in January having received funding of approximately $118 million. Advanced Battery Technologies appears to be under similar pressures.

Allowing for the possibility of failure is an essential component of capitalism but geopolitical concerns have entered the fray. Some would prefer that whatever technology was developed by these companies is acquired by domestic interests so that it will add value to the US economy. Understandably there is a high degree of reticence in allowing the remains of a federally funded company to slip into the hands of a major geopolitical competitor. This is particularly acute when applied to China because of the substantial supports it provides its own companies and its ability to compete on price. Its entry into the wind power sector is but one example of this competitive advantage.

There are clear winners and losers in the battery manufacturing sector. EnerSys Inc generates more revenue in Europe and Asia than from the USA and almost as much from restive power as from the motive power sector. The share rallied impressively from the October lows to test the 2007 and 2011 highs. It ranged mostly below $35 from March but broke upwards this week and a clear downward dynamic would be required to question potential for additional upside.

Elsewhere in the US sector Johnson Controls has returned to test the psychological $25 area where it has found at least short-term support. A sustained move below the late July low near $24 would be required to question potential for an additional bounce. Tesla Motors has returned to test the progression of higher reaction lows and will need to hold above $25 if medium-term potential for continued higher to lateral ranging is to be given the benefit of the doubt.

Samsung SDI has held a progression of higher reaction lows since October and is now testing the region of the 200-day MA. Provided it continues to hold above the KRW140,000 region, the ranging uptrend can continue to be considered consistent.

BYD is also noteworthy. The share trended lower between early 2010 and October falling from near HK$80 to $11 in the process. It has lost downward momentum over the last 10 months and rallied this week to break the short-term progression of lower rally highs. A clear downward dynamic would be required to question potential for a further bounce.

This article from Bloomberg dated last month details how General Electric has entered the market for industrial batteries and may also be of interest. The share continues to test the upper side of its base and a clear downward dynamic would be required to question potential for a successful upward break.

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