Donaghy noted that Valence has shipped some 70 MWh of Li-ion battery capacity since 2005—equivalent to 200,000 batteries, or enough for 1,500 3.5 ton trucks. “We believe we are the number one shipper of lithium phosphate batteries in the world right now,” he said.

There are a number of companies offering lithium phosphate R&D. Our differential is in the magnesium, which is a doping compound, which enhances the performance in cycling and durability. We have test data showing that at 100% depth of discharge, we can hit 2,800 cycles with 80% of start of life capacity.

For reference, a typical lead acid battery can survive 500-800 cycles while 2,800 cycles is almost 8 years of use assuming one cycle a day. The USCAR/DOE long term goal is 5,000 cycles.

Valence’s Saphion technology, commercially introduced in 2002, refers to the processes and materials used in developing the novel patented lithium iron magnesium phosphate cathode materials. Epoch technology is Valence’s energy management platform. Introduced in 2007, Epoch is the cell control logic enabling integration of electronics, firmware and software.

Valence currently has two manufacturing facilities in China, both wholly-owned; each facility is 50,000 square feet and located next to each other. The first plant is the cathode materials plant; Valence uses two or three proven partners to manufacture the cells, Donaghy said. The second is the module/pack manufacturing plant. Two global fulfillment centers—one in Rotterdam and one in Dallas—can ship product to customers within 72 hours.

Valence is strengthening its automotive accreditation by working towards TS 16949 accreditation in 2010. ISO/TS 16949 is the quality management system created by the International Organization of Standards to monitor the design, development, production and servicing of automotive components.

Valence is investigating manufacturing opportunities in EU and the States and plans to take advantage of any local subsidies.

We don’t want to abandon China, there is a lot of infrastructure set up there already [but] we feel that our manufacturing is scalable and transferable and we can set something up very quickly.

—Mark Donaghy

Smith Electric Vehicles. One of Valence’s most prominent commercial vehicle customers is Smith Electric Vehicles. The two companies have had a relationship since 2005. Valence maintains a team of seven application engineers on the ground in Ireland. “We have a lot of time working with Smith as we believe technical support is a key to smooth integration,” Donaghy said.

The Edison (left) and the Newton (right). Click to enlarge.

Valence is sourced with two of Smith’s vehicles: the Edison and the Newton. The Edison is a 3.5 ton 100 miles+ range van and the Newton is 7.5-12 ton truck with 100 mile range used by local delivery services and courier services. They are usually delivery vehicles working within a neighborhood, and are on the road for 6-8 hour a day and are recharged overnight.

The Smith web site does not explicitly specify battery capacity but within their vehicle data sheets they do have a note stating the Edison’s default weight is based on a 40 kWh system and the Newton’s default weight is based on either an 85 or 135 kWh system. Both the Edison and the Newton come in refrigerated versions. Smith’s warranty for the battery system is five years or 1,000 charge cycles—whichever comes first. In order to price a vehicle you need to contact a sales agent.

When asked about battery product pricing, Donaghy replied “Everyone wants to know price, we would agree that we need to get the cost of the energy down. Volume and technology improvements with allow us to do that.” At today’s prices, with a 40 kWh system, a vehicle manufacturer would likely be paying $35-$45,000 for a battery solution which would include the modules, the control electronics, energy management systems, diagnostic kits and firmware. “We would aim to halve that,” Donaghy said.

Although the battery systems is not inexpensive, Donaghy says “For a commercial fleet operator they can see the benefit because they will be operating their vehicles for 14 years or more. After four years they’ll be cost neutral; these guys understand the cost of their fleets down to the pence per mile.”

In Great Britain vehicles are heavily taxed via fuel taxes, the value added tax, registration fees and location specific congestion charges and the cumulative effect of these taxes can have a significant impact on a vehicle’s operating cost. In May 2008, the Telegraph newspaper in the UK reported that British drivers paid 57 pence/liter or $2.99/ gallon of diesel in excise tax which doesn’t include the value added tax.

According to the US DOE/EIA, the US average total tax for a gallon of diesel was $0.43/gallon in January 2009. In the UK, electric vehicles are exempt from London’s £8/day congestion charge. The Smith website mentions that Sainsbury, a UK grocery store with on-line food ordering, aims to have 20% of their home delivery fleet electrified by 2009.

Smith Electric Vehicles is a division of the Tanfield Group. According to Tanfield’s most recent annual report, 2007 filed in April of 2008, Smith is the world’s largest supplier of electric vans and trucks. In 2007 they sold 260 vehicles worth approximately £26 million and were expanding their capacity in the UK to be able to convert 3,000 vehicles in 2008. Intermediate filings over the past year indicate, like most vehicle manufactures, Smith is suffering from excess capacity due to the global recession.

UK Business Secretary Lord Mandelson behind the wheel of the Smith Ampere electric van, based on the Ford Transit Connect. Click to enlarge.

In February of 2009 Smith Electric announced an agreement with Ford Motor Company to provide an electric version of the Ford Transit Connect Van for the North American Market. The vehicle is slated to arrive at select Ford dealers in 2010. Smith is setting up a subsidiary operation, 49% owned by Smith, to produce the vehicles in North America (earlier post) and the subsidiary is evaluating several different battery suppliers with Valence actively pursuing the contract.

Valence has also entered into a long term agreement with PVI, which integrates electric vehicles for Renault Trucks. Valence signed a supply agreement in December 2008 and started shipping battery packs shortly afterwards. The Maxity, a 7.5 ton truck, will account for most of the volume and Valence projects revenues of as much as $3 million in 2010 from the PVI contract.

Valence is pursuing business with leading EU automotive OEMs and Donaghy claims one of them has told him that “Phosphate represents the lowest cost, most readily available and scalable high performance Li-ion chemistry that we know of ...”

Battery chemistry. Battery chemistry is frequently a trade-off in power, the ability to accelerate, and energy storage or range. While iron phosphate systems have excellent power capability, the energy is low because of the low cathode voltage (3.2V for Valence cells). By comparison, nickel-based Li-ion systems have a cathode voltage of 3.8V. The low energy characteristics could impede the use of iron phosphate systems in longer range plug-ins or electric vehicles.

Valence is trying to persuade OEMs to consider vehicles with a maximum range of 30-40 miles which would still cover the majority of commutes while minimizing battery investment. Valence sees future families having two cars: a plug-in hybrid electric vehicle for longer trips and an all electric commuter car.

In terms of future cathode chemistries, Valence is exploring lithium vanadium phosphates and lithium vanadium fluoro phosphates. “We are finding incredibly good results, a huge advantage in terms of energy, coupled with the inherent safety that lithium iron magnesium phosphate enjoys,” according to Donaghy.

Hydro-Quebec lawsuit. Valence is currently the defendant in an intellectual property dispute with Hydro-Quebec which purchased selected patents from the University of Texas, where Professor Goodenough originally developed the iron phosphate system. Valence was hoping to have the suit dismissed but their motion has been denied. One of the reasons for the judge’s decision to deny Valence’s dismissal request was the judge’s unfamiliarity with key technical terms in the suit.

As a result, a Markman hearing has been scheduled for 4-5 May 2009. The purpose of a Markman hearing, which derives its name from Markman v. Westview Instruments, Inc., 52 F.3d 967 (Fed. Cir. 1995), is to hear argument and, if necessary, receive evidence on the scope of the claims in the patent allegedly infringed.

Although acknowledging the Hydro-Quebec dispute, Donaghy says “We are very comfortable with [our] patent portfolio... we have over 400 international and domestic patents both on our materials and our processes...We were cleared in the EU last year. [from another patent dispute].”

Finances. Valence posted sales of $20.8 million in 2008, and as of 4 March 2009 their stock market capitalization was $196 million. Valence may have liquidity concerns. The following statement comes from their latest 10Q report:

At December 31, 2008, the Company’s principal sources of liquidity were cash and cash equivalents of $8.5 million...The Company expects that its sources of liquidity will not be sufficient for the next twelve months...the Company will need to arrange for additional financing within the next three to six months to fund operating and capital needs.

In the past, the company has gotten cash infusions from Mr. Carl Berg, Chairman of the company’s board and principal stockholder.

Donaghy is limited in how he can respond to questions of financial health but he did say: “We have a healthy portfolio of investors. Obviously, we would like to see our share price improve, but wouldn’t everybody. We are comfortable with our pipeline right now in terms of the number of opportunities we are looking at. I joined Valence in the EU 13 months ago and I was the fifth member of staff, we now have 15 employees in our European headquarters. [In total, Valence has more than 470 employees worldwide.] In a global downturn that is not supposed to happen, but we are busier than we have ever been.”