By Jack Lifton
I’ve noticed over the years that whenever I write or speak about a metal, which is not well known to the investment community, or the public, but I think should be, I can gauge the interest I have generated by the length of time between my article being published, or my speech being concluded, and the first question: “What’s the play in...?” So I am going to use this article to inaugurate a new policy. I will tell you my answer to the question above before I start. The answer is Honda [NYSE:HMC].
Before I explicate my reasoning let me give you some background to show you how I reached this conclusion:
First of all the Honda Motor Co., Ltd., a truly global Japanese owned and operated, and Japan based, OEM car, truck, motorcycle, motorbike, aircraft and boat maker is, when all of its various internationally located company owned and operated engine plants’ production is totalled, the world’s largest manufacturer of internal combustion (IC) engines. Honda makes 14 million IC engines a year just for cars and trucks; it makes a similar number of engines, in addition, for the other vehicle applications listed above.
Honda’s U.S. website, prominently notes that it first began marketing an in-house designed and built engine in 1974, which was able to meet the then newly mandated, required for 1976, U.S. emissions requirements for an IC engine without the need for a catalytic converter.
Late last year, the engineer who was in charge of the development of that 1974 low emission IC engine, now the CEO of Honda in Japan, Takeo Fukui, announced that Honda would market in the 2010 model year a four cylinder IC engine, which would meet 2010 U.S. mandated emissions levels without the need for a catalytic converter, or, in case the more stringent California emissions rules for 2010 were adopted, it would require a lightly loaded catalytic converter, and in either case a small car being powered by this new engine would use less platinum group metals, as little as none at all, than used by Honda in 2008 for the same displacement engine running at the same weight loads.
While four of today’s Big Five global car and truck makers, General Motors (U.S.), Toyota (Japan), Ford (U.S.), Honda (Japan) and the Nissan-Renault Group (Japan-France) have made public commitments, withdrawn them, and made them again to market hybrids, plug-in hybrids, all battery powered, fuel cell powered and/or hydrogen fuelled vehicles, utilizing what they call light(er) weight, higher power density, lithium chemistry based rechargeable storage batteries, Honda has been more circumspect.
Admittedly last year Honda announced that it would produce only hybrid motor vehicles by 2018, and although I cannot find where, or if, it has withdrawn from that commitment, I do find that just last week the brilliant engineer-CEO of Honda, Mr. Fukui, made an announcement about a production ready next generation affordable Honda hybrid that may be ignored by the herd of OEM automotive CEOs and their faithful industry press, but must be carefully examined by the readers of Resource Investor.
On March 24, 2008, Automotive News, the bible of the American OEM automotive industry, carried a story entitled, “Fukui: Nickel battery is best for hybrid.” With the subheading, “Honda won’t follow rivals down lithium road-for now.”
The article is worth reading in its entirety just to get the viewpoint of a leader, not a follower, in the global OEM automotive industry, on practical step-by-step solutions to political issues of correctness that manifest themselves as engineering problems such as emissions reduction and reduced dependence on imported fuel.
Honda’s CEO, Mr. Fukui. Does not, in any way, dismiss rechargeable lithium storage batteries as a possible future solution to the industry’s political problems rather he says:
“Lithium ion batteries are still not usable from our [italics mine] perspective. In terms of reliability and durability, I must say there still remain some concerns. I don’t think they are necessarily best suited for mass-produced vehicles…. Timing wise, I would say there is no possibility we would resort to lithium ion batteries in the new hybrid due next year [2009].”
Investors may want to hedge their bets on lithium ion batteries. This would mean holding some Honda shares in a portfolio built on rosy predictions of the imminent arrival of hybrid and battery powered cars and trucks utilizing only rechargeable lithium ion batteries.
You should be aware of the fact that everyone but Honda has burned their bridges to being able to build or obtain the raw materials to build rechargeable nickel metal hydride batteries.
They have done this by what is known in the industry as “single sourcing” lithium batteries for limited mass production. General Motors has chosen Hitachi of Japan as its first lithium ion battery supplier, Daimler has chosen Continental AG for the same role, Nissan has chosen NEC (Nippon Electric Company), Mitsubishi has partnered with GS Yuasa Corp. (Japan) and Toyota has bought out, and taken the work in-house from, its original battery development partner, Panasonic (a unit of Matsushita).
Panasonic also originally completed for Toyota the development of the first truly mass produced battery for hybrids based on the rechargeable nickel metal hydride battery invented at Detroit’s Energy Conversion Devices, Inc. in the 1980s, and tested and rejected originally by GM for upgrading the all electric EV1 thus giving Toyota the opening to introduce the original Prius hybrid, without any competition.
The Prius assembly plant in Japan has so far used one and 1.5 million rechargeable nickel metal hydride battery packs and achieved with them some of the lowest numbers of service issues ever seen in the OEM automotive industry. In fact most of the original Prius rechargeable nickel metal hydride battery packs have exceeded their 8-year 100,000 mile warranty and are still functioning.
Honda, almost alone today, still has multiple suppliers looking at lithium ion batteries for the future, which emphasizes that Honda is still sceptical about the practicality of the technology, and it is still working with the now Toyota-free Matsushita on advanced nickel metal hydride batteries as well as with Japan’s Sanyo, which today supplies General Motors with all of the nickel metal hydride batteries it currently uses on all of the hybrids it sells at the moment.
GM, for one, claims that its nickel metal hydride battery packs come from Chevron Ovonic Battery SYStems (COBASYS), but, in fact, COBASYS only assembles components mainly from Sanyo and certainly does not manufacture state-of-the-art nickel metal hydride electrode alloys.
The main drivers for a battery system to replace nickel metal hydride are range and performance. The current Prius under battery power alone can only travel one or two miles, but when its hybrid system is functioning it can consistently run at 80 miles per hour and its (gasoline) fuel requirement is one gallon for every 46 miles at 80 miles per hour; a friend of mine just got a 2008 Prius and these results are his in trips between Detroit and Washington, D.C. (1,200 miles round trip) and between Detroit and Orlando, Florida (2500 miles round trip). I believe that the car has a relatively small gasoline tank, but the Prius appears to have a range of nearly 300 miles even with a 6-gallon fuel reservoir!
Honda believes and its CEO states that the bulk of the mass produced cars of the future will be smaller and lighter than those of today, and that the product mix of the future will be modelled on the needs of western city drivers and short range commuters and the requirements for travelling on the congested roads of Asian countries such as India, China and even Russia where cars will mostly be for transportation rather than status.
Honda therefore sees the move to lithium ion batteries, which is only to allow larger cars to be hybrids and still mimic the performance and range of their IC powered predecessors, as premature, considering the safety and reliability issues, which have by no means been resolved.
