- Highpower International, Inc. (NASDAQ: HPJ)
In the past 20 years we have experienced an unprecedented growth in the demand for mobile electronic devices. Digital cameras, computers, mobile phones, tablets; these products are no longer something consumers want, they are something that they need, to exist in the world as a modern human being. But how is it that we have moved into this brave new world?
Not so long ago, devices such as these were completely impractical and difficult to comfortably fit on a table, let alone in someone’s pocket. However, the sleek, trendy gadgets found in science-fiction, even as far back as Star Trek: The Original Series, with its legendary flip out communicator, had already embedded the idea of amazingly light, portable devices in the public consciousness.
Soon after the digital revolution, there was a feeling that the old 20 pound computers could not cut it anymore. Once the initial buzz of the PC boom wore off, the public were saying: “These devices are great, but now make them one tenth the size and portable.”
As Moore’s Law predicted, electronics got smaller and smaller as time went by. But there was something missing, that final piece of the puzzle, without which it would have been impossible to create any kind of device which was portable and still light and slim enough to match the consumers wildest dreams.
And then it happened. In 1991 the key that would free us up from our wall sockets was released: The lithium ion battery. These days lithium batteries permeate every aspect of our lives. Because of them, electronic devices have quite literally entered our minds, in the form of VNS implants in the brain which help to control diseases such as epilepsy and Parkinson’s. In the process of finding their way into every part of our lives, they have captured our imaginations as well.
It was amidst this backdrop of expansion and growth that I began to learn about Highpower International. In terms of diversification, the company has a wide range of products all across the battery sector; they produce batteries for electric cars and buses, bicycles, wearable devices, phones, laptops, right down to simple consumer batteries for small electrical items. And Highpower certainly isn’t a one hit wonder, with a healthy client list which includes Apple, Nokia, Energizer, Acer and China Southern Power Grid, to name just a few.
Founded in 2001, they have enjoyed many years of successful, sustainable growth and have been a publicly listed company since June 2008 on NASDAQ under the ticker symbol HPJ. Having already pioneered the landscape in leading clean energy technologies in China, Highpower is positioned to benefit from growing demand and continues to lead in battery and clean energy solution markets around the world.
I was invited to take a look around one of Highpower’s factories and try to come to grips with how these batteries work. The Company produces every type of battery you can imagine, in all shapes and sizes. Batteries are even custom built based on the needs of a specific customer. These specifications range from small aesthetic needs to huge industrial ones.
Highpower produces both lithium polymer and cylindrical batteries. I learned that one of the most important and widely used batteries in the industry is 18650 cylindrical battery (18mm diameter, 65mm height). They are essentially oversized AA batteries and have been used in products for many years. They are robust, safe and of high capacity for their size. And if a further capacity is needed, they can simply be packed into greater numbers.
The cylindrical shape is essential for its functionality, which allows the battery to withstand high internal pressures without deforming. However, this also comes with limitations. Most of this relates to aesthetics; their shape makes them difficult to fit into devices like laptops, phones and cameras, for example. For these, Highpower makes polymer cells because they are flat they can also be powerful and give smart phone finish that everyone wants.
But there's more to lithium battery production than that. There are different anode and cathode materials and the metal used is not just lithium, it can be lithium cobalt, or iron, or manganese. The engineers often tinker around with the “lithium soup” until its electrical properties are as needed. Because of the many different variations of the make-up, the possibilities are endless, with as many different types of battery existing as the products they are used in.
What all of this adds up to is that, Highpower is not reliant on one particular industry or product. Companies in the battery manufacturing industry, have very little demand side risk. If, for example, we all had to stop using mobile phones tomorrow, the battery industry wouldn’t crumble overnight.
Highpower are insulated in ways many companies can only dream of. There are little seasonal fluctuations in demand and no pioneering technology around the corner to replace them.
It’s true that we live in a rapidly changing market. A company can bring out a new product which is the best thing since sliced bread, within months it is copied or made obsolete by a new one. You need only cast your mind back to the lovable fax machine, or the pager. Such issues do not affect the battery industry. If you’re looking for an industry with little demand side risk there are fewer better examples than that of batteries.
Laptops, phones, tablets, cameras. Nothing short of some kind of trans-global apocalyptic scenario is likely to affect demand, but what about the future? Where is the next exciting development in the industry? Where might we expect large growth in demand for lithium ion batteries? Where is my exoskeleton suit?
No one is going to be looking like Iron Man or Tom Cruise in Edge of Tomorrow, Dancers who dance on battery powered prosthetic limbs, pacemakers, keep hearts beating and Google glasses, project digital displays into our field of vision. It’s hard to say where man ends and machine begins but the technology is just not economic right now.
Maybe you haven't driven an electric vehicle yet but I’m certain you will have come across the electric bus or taxi. You’d be forgiven for thinking there was some pioneering new technological breakthrough making it all possible. Before looking into the industry, I very much thought the same. But most of the success of this technology is down to the industry's golden child, the 18650. Yes, nothing more than oversized AA batteries! And the technology has existed for decades.
It has improved though every year; the batteries have increased in efficiency by around 8%. This, coupled with advanced software was enough and the tipping point where it was cost effective to produce electric vehicles finally came.
BMW, Ford Fiat, Honda, Mercedes, Nissan, Porche, all the big players in the automotive industry are now entering the electric vehicle market. This is the part when it gets really futuristic. Some of the vehicles being released even have the capability of driving themselves, although the technology is being shelved within the vehicles firmware until all the legal implications for insurance are worked out. It seems electric vehicles are likely to become synonymous with self-driving technology.
Where does Highpower fit into all of this? Well, they have fulfilled a contract to provide 157 buses in the Shanghai region with batteries. Why is this important? New legislation requires that 10% of all bus renewals have to be electric. On top of that, all buses must be renewed after a period of 8 years. To meet this mandate, the Chinese government requires 4000 new buses from 2016 onwards. For Highpower to have already put itself forward and begin meeting this demand puts the company in a very strong position.
Seeking big government projects within China is the pillar stone of Highpower's business strategy. The need for electronic buses exists not only in China but in the whole of South East Asia and as far as India. With China's preference for homegrown companies, this is a very exciting time for Highpower indeed.
As well as this, there has also been progress with solar power. China and other governments around the world are massively increasing their reliance on solar energy. China alone installed 12 GW of new photovoltaic (PV) generation capacity in 2013, a massive 232% increase on the previous year. Companies like SolarCity have teamed up with Wall Street to begin the process of installing solar panels on people’s homes and feeding the electric back to the grid.
For anyone who is unsure as to what happened with the solar industry, the short version is this: China decided to help facilitate the mass production of solar panels, crippling many Western companies. Sadly, a lot of these went bust. However, the ones that were left had to innovate and re-think their business models. So now solar cells are more economically viable and affordable to consumers than ever before, with the reduction in cost meaning demand has skyrocketed. And so too has the demand for batteries to store the energy that they create.
This was one of the biggest problems holding solar power back. Every solar panel and every power plant needed huge batteries to manage and store energy. Those huge, toxic lead batteries were just not going to cut it financially. But, as with the electric vehicle, it was only a matter of time. The price of lithium batteries fell, their capacity increased and again the threshold of viability was passed.
With the slow march of technology and the increase in efficiency, solar is no longer the plaything of the rich and famous, wanting to one-up their neighbors and keep up with the Joneses. Now, those with average, middle, to lower incomes can afford to go to companies like SolarCity. And they go there not to save the planet, or to get one-up on their peers, but because it saves them money on their monthly electricity bill.
For the battery industry this was like Christmas coming early. Instead of a chicken in every pot, think of a 10kwh electronic storage system (ESS) lithium battery in every home. And these batteries, used everywhere from individual homes to massive solar power plants, have the implications to grid energy distribution as well. This is something that the battery industry is very excited about.
ESS, are pretty sophisticated pieces of equipment. You need a big, relatively intelligent battery when using solar energy. It needs to be able to manage the storage of electricity when light conditions are good and then safely, reliably and quantitatively release it when it is in need.
The reason this has implications for grid energy suppliers is that it’s hard to regulate the distribution of energy over a large area. Power traditionally comes from one source and sometimes has to travel a large distance to reach a home. There is also the problem of “bottle necks” or specific times where energy demand is very high. Distributing ESS across and area allow grid operators to get a lot more efficiency out of their power distribution.
Governments are already rolling these out in preliminary stages with the intention of scaling up. Highpower made its most recent mark on this market in its latest victory, by securing a contract to produce 100KWH (ESS) for China Southern Power Grid Co., Ltd. (CSPG), the world’s largest utility supplier. This is part of a wider project to modernize China’s national power grid. Highpower is positioning itself to take part in these huge projects, and with China's history of undertaking massive infrastructure upgrades and what it spends on them, it’s a fantastic position to be in.
How did Highpower get here? How did it make a splash in an industry where many other companies have failed? The answer is research and development, economies of scale and having a modern management style. The best example of how this has worked for them is the issue of battery safety.
Battery safety is something that has always plagued the industry and is something that has held a lot of companies back, especially in China. But Highpower has taken western investors and management teams and cherry picked researchers and employees from all over the world to come up with a labor force that has insulated itself against problems that can come from working in this high-tech industry.
Needless to say, it is incredibly important to produce safe batteries. If one of your batteries melts down and causes a fire, or even falls short of the mark in capacity, the huge OEM tech industry that dominates the consumer market will not touch you. In the complicated world of lithium ion battery production, safety is an area where so many companies have fallen short. However, through careful planning and design, Highpower has managed to avoid these issues. Let’s take a quick look at some of the people who have made Highpower such a strong leader in the market.
Having set the bar in R&D and power storage innovations, Highpower’s award winning team of experienced leaders have made a huge contribution to the success of the company. Over the years, they have continued to employ a diverse range of experts, combining many years of expertise and innovation to build a company truly deserving of its place at the forefront of battery production.
A shining example of this impeccable leadership is the company’s chief scientist, Peter Cheng. With over 10 years of experience in R&D of lithium batteries, polymer cell, cell materials and electrochemical systems, he holds an impressive background. Peter had worked on cooperative projects with the likes of Apple, Motorola, Samsung, Nokia and Microsoft to name a few, and has contributed to leading innovations in battery design and storage.
Highpower clearly sees battery production as not only being profitable, but also a highly worthy cause, one which holds great promise for reducing our impact on the environment. Highpower is setting its sights on these huge national contracts within China, with its strong track record, even a single one of these contracts would land the company millions of dollars in revenue. While still having its roots in safe reliable companies like Philips, Sony, Foxconn, Acer, Logitech, Nokia to name but a few.
For someone who wants a safe investment with little demand side risk in growing and exiting sector, the battery industry and Highpower is where the growth is.
by Robin Phipps, UK Economist who has been living and working in China for the past 3 years.
For more information about Highpower International, Inc., please visit: www.HighpowerTech.com
The company paid consideration to SNN or its affiliates for this article.