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Technology Stocks : VALENCE TECHNOLOGY (VLNC) -- Ignore unavailable to you. Want to Upgrade?

To: rli123 who wrote (24785)	8/24/2001 11:42:16 AM
From: P. Ramamoorthy	Read Replies (1) \| Respond to of 27311

rli123, Your post seems to have part of the answer: "Another thing ...: how significant is the raw material cost relative to the out-of-plant cost for these cells? Raw materials is only part of the cost of manufacturing. ... Is raw material cost 80% of the out-of-plant cost (which would be my best guess), or much less? Product cost = fixed cost + variable cost Assume fixed cost remains more or less the same, regardless of production quantity or the battery type. Variable cost varies with the production which includes the raw material cost. Stephan (and previously Lev), talk about the cost per pound of raw materials viz. Phosphate vs. Cobalt compounds. This cost is a fraction of the variable cost mentioned above. Therefore, raw material cost alone is not sufficient to gain an advantage. Lev and Stephan need to qualify these numbers when they talk about the cost advantages, since other factors such as plant yield, etc. could change the picture. For example, cobalt technology may give a higher yield. If do not mind a few simplifying assumptions, we can get a crude estimate as follows: Total product cost = fixed cost + variable cost Total product cost = 17 cents (phosphate) = 33 cents (cobalt) Assume the fixed cost for both cells is the same, say x Assume the variable cost is some multiple of raw material cost per pound, say y Phosphate at $4/kg, cobalt $32/kg or ca. 8 times phosphate cost. We can write, For phosphate production: x + y = 0.17 For Cobalt production: x + 8y = 0.33 Solving for x and y, you will find that (1) the fixed cost x = 15 cents/whr, regardless of battery type produced (assumed) (2) phosphate variable cost including the raw material cost, y = 2.3 cents/whr (3) cobalt variable cost including the raw material cost, y = 16 cents/whr Caution: this is a crude estimate to illustrate a point. Fixed vs. variable cost optimization. Low raw material cost can help a little but not a whole lot. VLNC's current position seems to be that their phosphate technology is at its best, their plant operation is the most efficient, and therefore, the cost of raw materials is to be optimized to drive the total cost lower in order to compete with an added advantage of safety. Investors do not have sufficient information to perform the analysis and come to the same conclusion. Ram