In 2013, US-listed Fuel Cell companies, including Ballard Power (NASDAQ: BLDP), FuelCell Energy (NASDAQ: FCEL), Hydrogenics (NASDAQ: HYGS) et al. posted an average triple-digit return, led by Plug Power (NASDAQ: PLUG) advancing 210%, as shown (below).
The [fuel cell] excitement was precipitated by (i) a maturing technology whose price continued to decline towards being competitive with cheaper but less efficient alternatives, and (ii) regulatory as well as industry mandates to find long term cost savings and/or improve emissions, in the case of the auto industry. Large auto manufacturers like Toyota, Honda, Hyundai began commercialization of fuel cell vehicles to meet mandates like California's Zero Emission Vehicle Program(1).
We believe the same fundamentals foreshadow a hallmark year in 2015 for companies supplying auto and other industries with 'lightweight' materials. One of the best ways to potentially capture the upside is to own Integral Technologies (OTCQB: ITKG).
Integral Technologies makes a composite plastic called ElectriPlast that is non-corrosive, electrically conductive, and 40-60% lighter than the steel or aluminum components that it could potentially displace(2). The Company sees a meaningful opportunity in using ElectriPlast in electromagnetic interference shielding and conductive devices, as shown in Figure 1 (below), though industry applications are abundant.
FIGURE 1, Opportunities for Electriplast within Vehicle Base
Source: Integral Technologies
Investors might ask, why now? Why is 2015 potentially a hallmark year for companies that supply lightweight material and why Integral Technologies?
As with fuel cells in 2013, lightweighting is a big theme among all of the major auto manufacturers. Aluminum replaced steel; carbon fiber is increasingly replacing aluminum. For example, Ford's 2015 model F-150, which accounts for 1-in-20 cars sold in the US, will be 700 pounds lighter than its 2014 model with aluminum alloy replacing the heavier steel frame(3). BMW's i3 electric and i8 hybrid models use carbon fiber extensively and find savings in a smaller battery(4):
"Because of carbon fiber, the i3 weighs just 2,655 lbs, compared to nearly 3,300 lbs of the Nissan LEAF, despite the fact that both use similar sized (22 kWh vs. 24 kWh, respectively) batteries [...] That does wonders for efficiency, handling, and performance".
An industry whitepaper(5) predicts carbon fiber becoming increasingly price-competitive, as shown in Figure 2 (below), as demand for the materials soars.
FIGURE 2, Forecast of Carbon Fiber
Source: Infosys
Carbon fiber is a major input in the manufacturing of ElectriPlast, and as prices continue to decline, ElectriPlast becomes viable and competitive as a lightweight material. McKinsey predicts carbon fiber will decline 70% by 2030 in a report titled 'Lightweight, Heavy Impact'(6), although industry and government sponsored programs like the $102 Million MAI Carbon Cluster Management research project aims to reduce carbon fiber cost by up to 90%, which would take it from $20/kg to $2/kg, versus ~$1/kg for steel.
US regulators mandating that auto manufacturers reduce emission 65% by 2025 is a major driving force behind lightweighting in the auto industry as we note in ‘Integral Technologies Could Help Ford, GM Challenge Tesla in Efficiency’. This creates a viable opportunity for Integral Technologies’ ElectriPlast to become a part of the supply chain in one or more future vehicle product lines. The opportunity is particularly meaningful because it positions Integral’s investors for potential upside that is inherently more difficult to find among large lightweight material suppliers. The potential upside is well illustrated by Hexcel (NYSE: HXL), whose shares traded at less than $7 in 2009 and recently traded above $47 after the company’s carbon fiber material was made a part of the supply chain for Boeing and Airbus’ commercial aircraft. Figure 3 (below) shows Hexcel’s 7-year price chart.
FIGURE 3 Hexcel 7-Year Price Performance
Importantly Hexcel spent years qualifying their material to these clients. Integral Technologies has partnered and worked closely with industry leaders in the automotive supply chain, including Hanwha; BASF; Delphi Automotive Systems; EastPenn.
In 2015 the onus is on Integral Technologies to generate meaningful revenues from commercialization of ElectriPlast by leveraging global partnerships that appear to have validated the Company lightweight technology. This timeline is further supported by actions such as EastPenn filing patents(7) that encompass the use of Electriplast. Industry trends otherwise support the premise that if successful at commercialization, 2015 could be to Integral Technologies what 2013 was to leading fuel cell names.
Upcoming Initiation Report
In our upcoming initiation report, we explore the lightweighting opportunity and how Integral Technologies is positioning itself to capture alpha in this burgeoning multi-billion dollar market. Investors who are interested in receiving a complimentary copy of this report may do so by visiting http://www.oneequityresearch.com/intelligence-service/ or clicking here.
One Equity Research is initiating coverage of Integral Technologies under the guidance of an active, experienced industry executive, thought-leader and former materials analyst.
References
1) California Zero Emission Vehicle Program
2) Integral Technologies Corporate Presentation
3) Ford F-150 Sheds 700 Pounds
4) BMW Wants to Bring Carbon Fiber Costs Down 90%
5) Infosys Whitepaper: Carbon Composites Are Becoming Competitive and Cost Effective
6) McKinsey & Company: Lightweight, Heavy Impact
7) Patent Search: Electriplast
About One Equity Research
One Equity Research is a leading provider of proprietary and in-depth research crafted by respected financial analysts and domain experts. Our team includes trained finance professionals with diverse backgrounds that include equity research, investment banking, and strategic consulting at preeminent firms. We distribute our research through mainstream media partners and to subscribers of our Intelligence Service. To learn more please visit http://www.oneequityresearch.com/
Legal Disclaimer: This research note has been prepared by One Equity Research, LLC on behalf of a third party, as part of research coverage services. One Equity Research expects to be compensated up to twenty thousand dollars and may receive additional compensation for ongoing coverage of Integral Technologies. This research note is not an offer or solicitation to buy or sell the securities of Integral Technologies. The report is for information purposes only, and is not intended to (and is provided explicitly on the condition that it not) be used as the sole basis to make any investment decision. Investors should make their own determinations whether an investment in any particular security is consistent with their investment objectives, risk tolerance, and financial situation.
