Chinese Regulation: Lithium Demand Constraint?

- May 19th, 2010

With more than 22 million electric bikes sold in China last year, the demand for lithium ion battery technology is under potential threat as increased transportation regulations would increase ownership costs and reduce the demands for domestic electric bicycle use.

With more than 22 million electric bikes sold in China last year, the demand for lithium ion battery technology is under potential threat as increased transportation regulations would increase ownership costs and could reduce the demands for domestic electric bicycle use.By Dave Brown – Exclusive to Lithium Investing News

Developments in the electric bicycle industry in China over the last decade have dramatically impacted lithium investors, as production has grown from a few thousand bikes a year less than 10 years ago, to more than 22 million units last year. Annual sales have reached about $11 billion, with an estimated 120 million electric bikes currently in use.

Manufacturers believe exports will grow quickly, especially to Europe and North America, which accounted for more than 70 percent of the nearly one million bikes exported last year. One in every eight bicycles sold in the Netherlands these days is electric. It is reported that Chinese manufacturers secure an average price of $377 on a marginal basis per exported bike, compared with less than $100 three years ago and just $46 for a pedal bike.

Until recently there were very few laws regulating these electric bikes, with no registration process and no driving license requirements. More and more Chinese cyclists, it seems, would like a battery and motor to turn the wheels for them. Production of ordinary bicycles, which peaked in 2006 at nearly 80 million units, has since fallen by more than 25 percent. But as with many businesses in China, the electric bike industry is plagued by over production capacity, resulting in thin margins and variable quality. More than 2,600 firms had permits to make electric bikes last year, although only around 1,000 are thought to be using them.

There were almost 2,500 electric-bike-related deaths recorded in 2007 in China, and given the increased ownership and use of the vehicles, this number would likely under represent more current data.  In theory, the government has limited electric bikes’ top speed to 20 km per hour, although in reality most can go much faster. More than a dozen cities have imposed restrictions of various types at a municipal level. At night pedestrians are at particular risk, because many e-cyclists drive without lights to save power. The government is suddenly paying attention, but the mechanism of regulation is pulling it opposite directions.  On one hand, the government needs to protect pedestrians and drivers; however, it also wants to encourage electric bicycles to curb the pollution and congestion created by other vehicles.  Struggling with reconciling these divergent mandates will certainly capture interest for lithium investors and the manufacturers of various types of lithium batteries.

Quarterly Results

On Monday, Electrovaya (TSX:EFL), lithium ion battery systems manufacturer reported a wider quarterly loss as a 59 percent rise in revenue failed to offset extraordinary one time legal and software expenses, as well as stock options incurred in the period.  The company designs, develops, and manufactures proprietary Lithium Ion SuperPolymer batteries, battery systems, and battery-related products for the clean transportation, smart grid power, consumer, and healthcare markets.

Electrovaya has observed strong share price appreciation from the start of the year, which saw prices trading at CAD $.83, to close the session on Friday at CAD $4.05.  This week has been difficult for equity markets as a result of overall negative sentiment spilling over from Europe’s financial concerns.  Weaker consumer data out of the United States and the reported quarterly loss from Electrovaya have resulted in the shares trading within a current range of CAD $3.39.

Electrovaya plans to participate in the electric vehicles panel discussion at the upcoming Barclays Capital Global Warming Solutions and Clean Technology Conference in New York scheduled for May 20th at 2:00 PM.

South Korean Expansion

EcoloCap Solutions Inc. (OTC:ECOS) reported on Tuesday the retention of Enersol Energy System Solutions, a leading battery and energy system consulting firm in the United States, to finalize its plans to build a production facility in Seoul, Korea and begin manufacturing its proprietary Nano Lithium X Battery.  The company’s Chief Executive Officer, Michael Siegel, was extremely optimistic about developing strategic alliances with other global battery manufacturers, “Following the independent test results from Exponent that confirmed the superiority of our battery technology, we are now focused on rapidly bringing the Nano Lithium X battery to market. With the help of Enersol’s experienced team, we are prudently but expeditiously developing a roadmap to maximize value for our shareholders.”

With help from Assistant Editor Vivien Diniz

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