Pricing looks great.
If these are the 1000 mAH cells, then at $10, the price is roughly $2.60 per wH.
I originally used $1.65 per wH when I first analyzed Valence as an investment in the May-July 98 timeframe on this thread. In the August, 1998 conference call, Lev said we would get $2.50 per wH. But given the overall weakness in Li-ion pricing last fall and winter, I stayed with the more conservative $1.65 per wH for my analyses.
I used a gross margin of about 50% with $1.65/wH, so I had a COGS estimate of about $0.85 per wH. I think Red Chip used about $1.50 per wH, and a correspondingly lower gross margin in the fall of 97. So they had the COGS close to my estimate of $0.85 per wH. Of course, this depends a lot on how loaded the plant is... a fully loaded plant spreads the 'cost of depreciation' across more units. To be conservative, one might use $1.00 per wH as COGS instead of 85 cents per wH.
Since last fall/winter, pricing for Li-ion units has improved substantially, especially prismatic Li-ion. Today's announcement confirms some very good pricing for our Li-poly, about $2.60 per wH for cellphone units. Laptop cells should be priced even higher per wH, according to discussions I had with Lev when I visited Henderson in mid-October.
Now even completely stupid people should be able to see how I arrived at the 65% gross margin I discussed on this thread several weeks ago (and was loudly criticized by MGV and Larry Brubaker, our "local battery pricing experts"). If the COGS is $0.85 per wH, and prices are $2.60 per wH, then the Gross Margin will be over 65%!!!
Of course, this assumes the plants are fully loaded... I used the 65% gross margin (in the posts that were so roundly criticized) with the $250 million run rate we should see in late 2000 or early 2001. The key to hitting this run rate is the new assembly equipment Valence ordered from their new German supplier around August/September, and which should be delivered next fall. Lev and one of his engineers were really excited about what essentially is Valence's third generation of assembly equipment.
So high gross margins depends on good demand and good pricing, and today's announcement helped confirm both.
Paul |
