Larry, I think Red Chip's and your estimates regarding line 1 are substantially outdated - and I remember hearing the same numbers from David Archibald over a year ago. Most specifically, DA indicated that the line 1 production capability should be roughly 1.2 million laptop batteries, producing roughly a 40% gross margin (at a $ 20 selling price). I think that the selling prices currently being discussed with OEMs are around $ 75 ($ 2.50 per watt hour for a battery with a minimum 30 watt hr capacity), and as a result the gross margins are significantly > that 40% figure. Just a guess, but I think they are in the 60%-70% area.
I also think that the machine's capacity has been upgraded to be able to produce in excess of 2 million good batteries per year. Using a 12% GSA, 3-5% for depreciation, and een as much as 10% for other indirect overhead, one can reach a 30%-40% pretax margin. The tax rates should be less than 20% due to the NI and offshore U.S. status of the controlling corporations. One can reasonable deduce 25%-30% after tax margins. So, yes, one can cover the entire burn rate with line 1 operating at less than full capacity, which is I believe what Dawson indicated.
Now FMK has been an incurable optimist about Valence. But I personally think his calculations regarding the potential earning power of the company will prove to be right on track - once the company gets its contracts.
And if you are skeptical - then stay on the sidelines. I certainly wouldn't ask any skeptics to invest if they don't/can't see the risk/reward here. If the company gets a contract, then there will be plenty of time to buy in at double digit levels. |
