(Lithium battery story updated with stock price update on Toronto Stock Exchange-traded lithium battery stock Electrovaya.)
NEW YORK (TheStreet) -- The global push for fuel economy has prompted a growing gravitational pull towards electric vehicles, prompting the investment community to increasingly consider the makers of rechargeable lithium batteries for these vehicles as an investment opportunity.

For the moment, nickel-hydride batteries are more commonly found in electric vehicles, but in theory, lithium batteries will eventually become the power source of choice. According to leading auto parts supplier

Johnson Controls

(JCI) - Get Report

, a growing force in the lithium battery space, lithium batteries are 30% smaller, 50% lighter, and three to four times more energy dense than nickel-hydride batteries. Furthermore, according to the company, lithium

lasts longer and is two to three times faster to recharge.

Pike Research forecasts that the market for lithium batteries for transportation will grow to nearly $8 billion by 2015 from $875.6 million in 2010. More importantly, as manufacturing efficiencies improve and access to lithium expands, the cost of lithium batteries will fall by half between 2010 and 2015 to less than $500 per kilowatt hour, according to Pike Research.

>> Lithium Battery Stocks: Who Will Rally in 2011?

A number of

U.S. stock exchange-traded companies in the lithium battery business have been working round the clock

to ready themselves for the expected expansion of the electric car market. In Canada, lithium battery pure play

Electrovaya

has surged about 173.5% year to date on the Toronto Stock Exchange. The company recently brought on former Chrysler president of global electric motorcars, Bruce Coventry, as vice president of operations, and has become the supplier of a Tier 1 automotive OEM (original equipment manufacturer).

>>Lithium Battery Stock Losers of 2010

>> Lithium Battery Stocks: Which Will Outperform in 2011?

Here, we take a look at a handful that has elicited strong enthusiasm from investors this year ...

Polypore International (PPO) Year-to-Date:

up 246%

Polypore International Market Cap:

$1.9 billion

During 2010, analysts generally had a bullish view of Polypore International, which at its Celgard division, makes battery separators used in lithium battery manufacturing applied to both consumer products and electric vehicle. The company has skyrocketed by about 246% year-to-date given its dominant position in the growing lithium-ion battery market. On Dec. 6, Polypore stock broke out to a new 52-week high after Robert W. Baird hiked its rating on the stock to outperform, partly because of the increasing optimism about electric cars. The following day, shares fell in afterhours trading when it announced the public offering of 4 million shares of common stock by certain stockholders including

Warburg Pincus

Private Equity and Warburg Pincus International Partners. The selling stockholders would receive proceeds from the offering as no shares were being sold by the company.

>> Lithium Battery Stocks: Who Will Rally in 2011?

>> Lithium Battery Stocks: Which Will Outperform in 2011?

According to Needham, the lithium-ion battery market is dominated by 3 suppliers which collectively have about 90% market share: Polypore subsidiary Celgard,

ExxonMobil

(XOM) - Get Report

subsidiary TonenChemical and

Asahi Chemical

.

>>Lithium Battery Stock Losers of 2010

For the third quarter ended Oct. 2, 2010, Polypore said adjusted net income almost doubled and met Wall Street estimates, rising 70% to $12.6 million, or 27 cents a share, from $7.4 million, or 17 cents a share the previous year. Sales increased 10% to $151.7 million, from $137.7 million the prior-year, beating the consensus target of $150.3 million. A sharp sell-off ensued, in what BB&T Capital Markets analyst Kevin Maczka called a "classic example of overly lofty expectations," in a client note. Excluding the effect of foreign currency translation, sales increased 13%.

Still, Maczka maintained a buy rating on the stock and raised its 12-month price target to $38 from $31, with the view that the stock and estimates for the stock would move higher. The company's 2010 announcement of new capacity expansion projects along with ongoing ones, he said, "supports our robust lithium growth thesis." During its third-quarter earnings call, Polypore said it would invest $32 million in additional capacity expansion at its lithium battery separator production facility in Charlotte, N.C. to meet growing electric-vehicle demand alongside a number of ongoing capacity expansions for its lithium products, including one in Charlotte and another in Korea.

Expansion projects will come on line beginning in the fourth quarter 2010.

Third-quarter results were largely in line with Ardour Capital analyst JinMing Liu's estimates, and he maintained his accumulate rating -- one notch below the buy rating and assigned to companies considered to have positive upside stock appreciation potential between 10% and 20% -- while raising the price target to $40 from $31. "We believe PPO is making prudent decisions with its capital by speeding up its production capacity expansion and reducing its debt load," Liu wrote in an investor note.

Valence Technology (VLNC) Year-to-Date:

up 35.2%

Valence Technology Market Cap:

$177.9 million

Shares of Valence Technology stock have jumped about 35% so far this year as the visibility of this lithium battery producer for areas ranging from commercial electric vehicles to industrial and marine equipment continues to improve in a variety of niche markets.

>> Lithium Battery Stocks: Who Will Rally in 2011?

>> Lithium Battery Stocks: Which Will Outperform in 2011?

"We're very comfortable that when we reach $80 million a year in revenue we will be at breakeven," Valence CEO Robert Kanode told

TheStreet

in September. "We believe as people look at our story and we continue to make progress that our stock will grow; because we think we have all the tools in place to accelerate our commercial progress."

>>Lithium Battery Stock Losers of 2010

>>Valence CEO Q&A: A Pivotal Year for Us

In September, Valence said it had signed a multi-year supply agreement with

Wrightbus,

a United Kingdom-based supplier of hybrid buses for public transportation, through at least 2016. This contract was expected to generate between $19 million to $24 million in battery sales. Prior to that, Valence in August announced that it received a $13 million order from

Smith Electric Vehicles U.S.

for all electric commercial trucks. The following month,

PepsiCo's

(PEP) - Get Report

Frito-Lay North America division said it would be deploying 21 Smith-designed electric trucks in 2010 and another 150 additional Smith-designed electric trucks in 2011 for the delivery of snacks.

Needham analyst Michael Lew, who has a buy rating and 12-month price target of $2 for the stock, believes the marketplace has accelerated in its receptive of Valence, and its investments in reliable fleet technology is beginning to pay dividends. He said however, there is no guarantee the company can lower costs and expenses enough to ensure product affordability.

>> Lithium Battery Stocks: Who Will Rally in 2011?

>> Lithium Battery Stocks: Which Will Outperform in 2011?

For the company's fiscal second quarter 2011 ended Sept. 30, Valence reported that it reduced net loss to $3.6 million, or 3 cents a share, from loss of $6.2 million, or 5 cents a share in the year-ago quarter, which was in line with expectations. A significant portion of its operating expenses, which management expects to go down in several quarters, has come from intellectual property disputes over its rechargeable lithium iron phosphate-based batteries. Needham's Lew said there is no guarantee of a favorable outcome for the company. Revenue increased 278% to $12.7 million, from $3.3 million a year ago, exceeding the average target of about $12.1 million. Valence expects its third quarter revenue to be in the range of $12 million to $14 million, which represents a leap from revenue of $4.1 million the previous third quarter, and is in line with the consensus target of $13.4 million.

>>Lithium Battery Stock Losers of 2010

Cash burn continues to be a problem for Valence -- which is not uncommon for lithium battery manufacturers as they ramp up production capacity, and analysts such as MDB Capital analyst Jon Hickman believes the company can pull through. "Though the company is currently burning cash each quarter, as orders pick up, the cash burn will decline and future equity financings should not be difficult to secure," he said in an investor note. He has a buy rating for the company and increased the stock's nine to 12-month target price to $1.75 after its second-quarter conference call.

Wm Smith analyst Rob Young, who doesn't publish ratings, raised his 12-month target for Valence to $1.90 from $1.80 following its second-quarter call. Young values the stock at a premium to its peer group on the belief the Valence has a lower breakeven point and greater plant capacity. "We're very comfortable that when we reach $80 million a year in revenue we will be at breakeven," Valence CEO Kanode told

TheStreet

in September.

Sociedad Quimica y Minera (SQM) - Get Report Year-to-Date:

up 44.7%

Sociedad Quimica y Minera Market Cap:

$14.3 billion

With its stronghold on two prized mineral assets and market leading position in several markets -- including lithium -- Chile-based producer Sociedad Quimica y Minera is seen by many as an investment poised to create handsome returns.

>> Lithium Battery Stocks: Who Will Rally in 2011?

SQM's prime possessions, from which it produces fertilizers, iodine, lithium and industrial chemicals, are the caliche ore and salar brines. According to Morningstar analyst Jeffrey Stafford, caliche ore in Chile is the world's only source of commercially exploitable natural nitrates, used in fertilizers. And anything even comparable to SQM's salar brines can only be found in only two other countries: the U.S. and China.

>>Lithium Battery Stock Losers of 2010

What's more, SQMs natural resources have low extraction costs, leading to "impressive" margins, Stafford said in an analyst note.

Although SQM has a leading position in diverse markets -- fertilizers, iodine and lithium -- the one that fascinates investors banking on a boom in the electric vehicle market -- and the continued strength in the computer and cell phone markets (lithium is frequently present as a key component in computer and cell phone applications) -- is, of course the company's lithium operations. SQM currently has about 50% worldwide market share of potassium nitrate, a high quality plant fertilizer; 25% worldwide market share in iodine production; and 30% global market share lithium production according to Stafford.

SQM is generally viewed as a high-quality company. But one word of caution from Stafford: bears note that SQM hasn't always exhibited pricing discipline: in Sept. 2009, for instance, the company slashed its lithium price by 20% in response to weaker demand. Also, SQM business is susceptible to cyclical downturns. In 2009, during the economic downturn, sales dropped by 19%. Furthermore, the company has resorted to more expensive energy sources in response to natural gas shortages in Chile, Stafford notes.

Johnson Controls Year-to-Date:

up 43.2%.

Johnson Controls Market Cap:

$26.3 billion

After suffering losses in 2009, Johnson Controls bounced back and swung back to profit in 2010 thanks to an improving global economy and strong, diverse business portfolio. For the 2010 fiscal year, Johnson Controls sales increased 20% to $34.3 billion compared with $28.5 billion for 2009, and net income attributable to Johnson Controls amounted to $1.49 billion, or $2.19 a share vs. loss of $338 million, or 57 cents a share in the year ago period.

>> Lithium Battery Stocks: Who Will Rally in 2011?

Lithium batteries aren't a big part of Johnson Control's diverse business portfolio, but for many who have been enthused about growth prospects of the electric vehicle business, the branching out of the world's largest producer of lead-acid automotive batteries to lithium-ion batteries for powering electric vehicles has certainly made Johnson Controls a tantalizing lithium battery play.

>>Lithium Battery Stock Losers of 2010

Johnson Controls currently has long-term lithium-ion hybrid vehicle battery production contracts with

Ford

(F) - Get Report

,

Daimler,

BMW

and

Azure Dynamics

, and pre-production development contracts with

Jaguar Land Rover

and

Volkswagen

(VLKAY)

. In a joint venture with battery specialist

Saft America

-- named Johnson Controls-Saft Advanced Power Solutions -- the company launched the world's first automotive lithium-ion cell manufacturing and battery assembly facility in Nersac, France in 2008.

Last year, Johnson Controls announced that it was awarded a $299 million grant by the U.S. Department of Energy to build domestic, advanced battery manufacturing capacity for hybrid and electric vehicles. The amount awarded was about half of the company's total planned investment of $600 million in domestic advanced battery manufacturing capacity and infrastructure development. Johnson Controls is the exclusive supplier of the complete battery system for Ford's first series production plug-in hybrid electric vehicle (PHEV), which will be introduced in 2012.

In October, the company and Tokyo-based electronic leader

Hitachi

( HIT) signed a memorandum of understanding to work together on several fronts in the field of advanced energy storage, including lithium batteries -- exploring potential cooperation across a wide span of initiatives including research and development, procurement, production, marketing, sales and standardization.

Although in its early stages, "in our view, the memorandum of understanding (MOU) with Hitachi (N/R) to collaborate on advanced energy storage applications is a good strategic move. The MOU could enable Johnson Controls to cover more bases in the evolving lithium-ion landscape given Hitachi's penetration into the heavy-duty market and focus on stationary applications," said Needham analyst Michael Lew, in an analyst report. He has a buy rating and 12-month price target of $50 for the stock.

>>Lithium Battery Stock Losers of 2010

Three main areas of operation where Johnson Controls plays a leading, global role are building efficiency, where it designs, produces, markets and installs integrated heating, ventilating and air conditioning systems, building management systems, controls, security and mechanical equipment; automotive experience, where the company provides automakers with interior systems including seating and overhead systems, door systems, floor consoles, instrument panels, cockpits and integrated electronics; and power solutions, where the company supplies lead-acid automotive batteries for almost every type of passenger car, light truck and utility vehicle; as well as lithium-ion battery technologies to power electric vehicles.

Johnson Control's 2010, $5.8 billion increase in consolidated net sales was primarily due to higher sales in the automotive experience business, which generated $4.5 billion as a result of increased industry production levels in all segments; higher sales in the power solutions business, which generated $0.8 billion, reflecting higher sales volumes; the impact of higher lead costs on pricing; a $0.5 billion, favorable impact from foreign currency translation; and a slight increase in building efficiency net sales.

"We view the balance sheet as strong, with long-term debt generally at 20% to 36% of capitalization over the past decade," Efraim Levy of Standard & Poor's said in an equity research report. He has a strong buy rating for the stock. In a report, Morningstar analyst David Whiston said "Johnson Controls continues to diversify itself. Ongoing profitable growth in its building efficiency and power solutions group has helped offset vicious cyclical declines in the automotive experience group." In November, the company announced the increase of its quarterly cash dividend by 23% to 16 cents a common share from 13 cents a common share.

>> Lithium Battery Stocks: Who Will Rally in 2011?

Not everyone expresses great enthusiasm for Johnson Controls' lithium battery prospects. Analysts such as Wedbush analyst Craig Irwin said that in the near term, Johnson Controls will continue to be, "hands down" the leader in lead acid batteries. However lithium batteries, at least for now, will be a "miniscule" piece of its business. "It is not an expert in lithium batteries," said Irwin. "It's not really a great lithium play on lithium hybridization." Based on sources he's spoken with, Ford, a major Johnson Controls customer, may want to further diversify its supply base.

-- Written by Andrea Tse in New York.

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