BASF (OTC: BASFY.PK)

BASF: An Unlikely Company Aiming to Ride the Fast-Growing Hybrid Market

Stock of the Day by Investment U Research Team
Wednesday, December 16, 2009

In 2008, Americans bought about 480,000 hybrid cars. And that number is expected to jump to 11.28 million by 2020 – increasing by 23 times in just 12 years.

There’s little doubt that this is one of the fastest-growing markets – and one company is set to take advantage of this boom. However, it’s probably not a company you’d think of.

As the worldwide leader in petrochemicals, BASF (OTC: BASFY.PK) is poised to command the industry in manufacturing lithium-ion batteries for hybrids.

President Obama has set a goal to put one million plug-in hybrid electric vehicles on the road by 2015. And recent forecasts suggest that the market for lithium ion batteries for use in transportation will grow from $875.6 million in 2010 to nearly $8 billion by 2015. This is a conservative assessment, too, as it only accounts for one-fourth of the amount of hybrids that are expected to be on the market by 2015, according to the Department of Energy.

While the rest of the petrochemical industry is struggling, BASF is taking advantage of this market opportunity by finding new ways to profit. The company is set to emerge from the recession in better shape than its peers – and investors can take advantage.

BASF Launches Into Lithium

The Department of Energy’s (DoE) Argonne National Laboratory and BASF have signed a worldwide licensing agreement to mass-produce and market Argonne’s patented composite cathode materials to advanced lithium-ion battery manufacturers.

The battery is small, lightweight and long-lasting. And while it’s currently used in computers, cell phones and other portable devices, recent efforts have focused on fitting the technology for cars. This would enhance efficiency, acceleration and range in hybrids.

Initially, BASF will conduct further lithium-ion battery material application development in its Beachwood, Ohio facility. But with help from the U.S. government, BASF hopes to be the primary marketer of lithium-ion batteries for hybrid cars in America.

Under the American Recovery and Reinvestment Act – Electric Drive Vehicle Battery and Component Manufacturing Initiative, the DoE has given BASF $24.6 million to help fund construction of North America’s largest cathode material production facility in Elyria, Ohio.

Better yet, the grant represents half the expected cost of the facility. Further development and commercialization of cathode materials will result in advanced batteries that are higher-performing, longer-lasting and safer when compared to the existing technology that has conquered the market for nearly two decades.

And car manufacturers are waiting for this technology to penetrate the market.

BASF Set to Go Shopping

With a strong balance sheet and a decisive management team intent on sharpening the company’s focus, BASF is likely to seek acquisitions in 2010, according to Deutsche Bank AG.

And given its move away from the traditional petrochemical side and into automotives and electronics, it opens up a whole new batch of companies for BASF to work with.

As for the company’s share price, there’s plenty of room to grow there, too. In the first half of 2008, before the recession hit, BASF shares reached a high of $75. Right now, the price is almost $15 lower.

Rather than a sudden leap, however, growth is likely to be steadier, as the hybrid market matures and BASF completes construction of its lithium-ion plant. However, BASF shares could hit the $80-$90 range over the intermediate-term, as its batteries gain presence in the emerging hybrid market.

Sheena Martin

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