Tesla Buys Battery Maker for 50% Markup... This One Could Be Next
Earlier this week, Tesla Inc. (NASDAQ: TSLA) made headlines when it acquired San Diego-based ultracapacitor and battery maker Maxwell for $218 million at a share price of $4.75 — a 56% premium to the company's previous valuation of $140 million.
While Maxwell is primarily known for manufacturing ultracapacitors, Tesla's interest was more focused on its new acquisition's dry electrode technology to use in Li-ion battery cells.
One of the greatest advantages Maxwell's dry electrodes bring to the equation is a much higher capacity retention rate.
Its batteries have proven to retain as much as 90% of their capacity through 1,500 charge cycles, a marked improvement over Tesla's existing battery arrays.
Tesla commented on the acquisition:
We are always looking for potential acquisitions that make sense for the business and support Tesla’s mission to accelerate the world’s transition to sustainable energy.
This news demonstrates two facts that have long been known to Tesla insiders:
The issue of battery performance has been and remains one of the company's biggest concerns, not just in the interest of its vehicle line, but also to boost the performance of its distributed power storage system, the Powerwall.
It's not afraid to shell out some money, even at a substantial markup to market price, to address that concern.
However, the acquisition of Maxwell is by no means the end of the story for Tesla's quest to build the perfect battery.
Dry electrode technology will help improve its battery arrays incrementally, but for a truly paradigm-shifting evolution, Tesla will have to turn to another technology: artificial intelligence.
A few weeks back, I first wrote to you about another tech company, this one based in Canada, that has been using advanced AI algorithms to improve the performance of electric motors.
This tech firm has figured out a way to apply intelligent current management to the coils within electrical motors to increase efficiency and torque output, depending on the given speed of the motor.
The First Major Evolution of the Electric Motor Since Michael Faraday's Prototype
This innovation might seem hard to grasp for the layman, but it's such a substantial improvement over standard "dumb" motors that it's now being heralded as the first major evolution of electric motor technology since the very advent of the device almost 200 years ago.
In simpler terms, it was like going from a child's tricycle to a competition ten-speed.
The implications for this tech, called dynamic power management (DPM), are enormous, as it affects billions of devices in use around the world, from the smallest electrical motors, like the kind that make your cell phone vibrate, all the way up to the massive power generators that hydroelectric dams use to turn rotational force into electricity.
In fact, more than half of the total energy produced by humanity is consumed by electric motors, and a staggering 99% of it comes from electrical generators — making DPM perhaps the most influential, not to mention valuable, application of artificial technology we've seen yet.
But why am I talking about DPM and electrical motors when we started this conversation about batteries?
First Came the "Smart Motor"; Now Meet the "Smart Battery"
Well, here's where it gets really interesting for the battery market, and for Tesla.
This small Canadian company, whose valuation is just one-tenth that of Maxwell prior to the acquisition, recently applied its dynamic power management approach to the lithium-ion battery — the very same kind of battery Tesla puts in its cars, and the very same type Maxwell's dry electrodes will now help improve.
DPM, applied to the lithium battery, will produce up to a 10% improvement in efficiency in terms of charging and discharging.
It works by isolating weaker- and stronger-performing cells (a typical Tesla battery array contains more than 7,000, all of which perform at varying levels of efficiency) and applying charge accordingly.
It's the very same concept it uses to make motors more efficient, more powerful, and more reliable, only now with batteries.
Combined with its motors, a complete system equipped with DPM will dramatically outperform anything Tesla has today, rendering its cars and its power storage systems hopelessly obsolete.
We have you covered! Sign up for Tech Investing Daily's FREE newsletter, Wealth Daily, today and gain first access to actionable stock market commentary, regular IPO updates, and weekly technical analysis. Plus, if you sign up right now, we'll immediately send you our free report: "Seven Strategies For Tech Investing."
Tesla's Game of Catch-Up
Unless, of course, Tesla takes the plunge and spends a couple hundred million to acquire this technology — something the company has the ability and inclination to do, as evidenced by this week's purchase of Maxwell.
So, that leaves the final question: Is a buyout what this Canadian company's shareholders are ultimately awaiting?
Perhaps, but not necessarily. You see, this company already has an existing relationship with a major North American manufacturing firm to put this technology into a wide array of heavy-duty industrial and commercial products.
I'm talking about big-ticket items including high-speed trains, wind turbines, and electric motor retrofit kits designed to convert standard gas-powered cars to electric.
It already has licensing agreements to do this, and the work is already underway... and more deals are in the works to bring this technology to an even wider range of products and consumers.
Moreover, this tiny Canadian company already trades on the public markets, which means its shares are already liquid.
Perfect Timing, Perfect Positioning
In short, it doesn't need Tesla to grow or to make its shareholders rich. It just needs to keep doing what it's doing, and soon enough, the market will catch up to the potential.
Tesla, on the other hand, just may be desperate for this kind of innovation.
And because this innovation is largely software-based, it may also be quite willing to take the plunge.
Like I said, shares are cheap now, but they won't be for long. Tesla bought Maxwell for $218 million last week.
A similar price paid for this new Canadian firm would constitute close to a 2,000% gain for existing shareholders, but even that sort of premium would be a major bargain for the world's biggest electrical vehicle maker, considering what it stands to gain.
A smart investor will take heed and get in now, before this happens.
Get the rest of the story on this company here by accessing my in-depth presentation completely free of charge.
Fortune favors the bold,
Coming to us from an already impressive career as an independent trader and private investor, Alex's specialty is in the often misunderstood but highly profitable development-stage microcap sector. Focusing on young, aggressive, innovative biotech and technology firms from the U.S. and Canada, Alex has built a track record most Wall Street hedge funders would envy. Alex contributes his thoughts and insights regularly to Wealth Daily. To learn more about Alex, click here.
The Best Free Investment You'll Ever Make
After getting your report, you’ll begin receiving the Wealth Daily e-Letter, delivered to your inbox daily.