Tuesday, November 11, 2014

Sevcon ( Nasdaq - SEV ) -- Electrification Takes Control

Sevcon (SEV $7.50) is a leading manufacturer of control systems used in fully electric and hybrid vehicles.  The microprocessor based units manage the performance of electric motors, batteries, and related components.  Multiple inputs need to be interpreted on a continuing basis.  Sevcon's control systems are programmed to respond to that data to provide maximum efficiency.

Sevcon has a long history in the electric vehicle industry.  It has extensive relationships with makers of off-road machines like forklift trucks, aerial cranes, and mining equipment.  It also serves the ATV, scooter, motorcycle, and city car markets.  A joint venture that was established earlier in the year laid the groundwork for expansion in China, particularly in the bus and truck segment.  A first order was received in November.  Several projects are underway in Europe with undisclosed customers to provide a new generation of hybrid controls.  A potentially larger opportunity lies in electrification of vehicle subsystems.  More vehicle elements are being powered by small batteries that sit next to the device itself.  In the past those parts were powered by the main battery.  As the battery power is dispersed throughout the vehicle, each grouping requires its own se of controls.  Sevcon is ideally suited to provide the work because the projects are numerous and small, making them ideal to outsource.  Big engineering tasks, like running the entire drive train, commonly are performed in-house by vehicle manufacturers.

Sevcon already is profitable, unlike many green energy companies.  Financial results promise to accelerate as the Chinese venture gains momentum.  That is a 50-50 arrangement with a large component manufacturer.  The partner is lining up the orders.  Sevcon will perform the engineering and manufacturing work.  Sevcon plans to build the systems in England and export them to China, reducing the potential for intellectual property theft.  Margins are expected to be consistent with the company's existing business.  The electrification potential could be equally great.  Sevcon is working on several programs already.  The company also raised money in a recent equity offering, earmarking the funds for acquisitions that could play off the company's existing relationships.

Business is growing.  We estimate fiscal 2015 (Sept.) sales will rise 32% to $50 million to yield earnings of $.55 a share (+83%).  Growth could accelerate faster in subsequent years if the Chinese relationship builds momentum.  The electrification market offers further impetus.  Those systems will go into all types of vehicles, not just battery powered ones.  In 2-3 years sales could attain $75-$125 million to yield income of $1.00-$1.50 a share.  Applying a P/E multiple of 20x to the midpoint suggests a target of $25 a share, potential appreciation of 233% from the current quote.

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Thursday, July 17, 2014

Lightbridge (Nasdaq - LTBR ) -- Powers Up

Lightbridge (LTBR - $2.80) is the leading provider of next generation fuel systems for the nuclear power industry.  The company also provides a wide range of consulting services.  Traditional reactors employ uranium fuel rods.  That approach has kept plant operators under pressure for decades due to safety, proliferation, and disposal concerns.  In recent years competition from natural gas has further impacted profitability.  Lightbridge has developed, tested, and patented an alternative fuel rod technology ("metal") that improves electricity output by 10%-17% in existing facilities.  New reactors that are fine tuned for the technology could see a 30% improvement.  The rods also run cooler than today's uranium systems -- 360 degrees Centigrade compared to 1,250.  That reduces the meltdown threat.  The new fuel also is more difficult to convert into nuclear bombs.  The U.S. utility industry has expressed growing interest in the technology as a way to improve the economics of its installed base.  Those upgrades alone could yield substantial royalty income and recurring service revenue.  New construction also has the potential to surge.  The nuclear industry was beginning to enjoy a renaissance prior to the Fukushima disaster in 2011.  Most analysts have concluded that was an isolated event caused by a non-standard design.  Construction activity has resumed around the world.  That trend could accelerate if efforts to contain global warming expand.  Lightbridge's new technology is poised to ride that wave due to its superior performance and economics.

Lightbridge is pursuing a technology license agreement with Babcock & Wilcox.  Negotiations currently are underway.  B&W is a leading provider of nuclear fuel systems for the U.S. military.  That market has slowed in recent years.  B&W hopes to leverage Lightbridge's superior technology to penetrate the revitalized commercial sector.  There are four principal suppliers of commercial fuel at the moment -- GE-Hitachi, Westinghouse-Toshiba, Areva (France), and the Russian government.  Lightbridge has worked with the Russians previously but that relationship currently is on hold as new contract language is developed.  B&W and Lightbridge could sign a formal deal by the end of 2014.  That's likely to be a non-exclusive arrangement.

The U.S. nuclear utility industry is participating in the technology's development.  All of the major operators are involved, several to a significant degree.  An independent analysis that was performed last year by Siemens reinforced that interest.  The study confirmed that Lightbridge's metal fuel likely would yield a 40% internal rate of return on investment spanning 20 years.  Nuclear utilities have suffered earnings declines with the advent of low cost natural gas facilities.  Operating costs remain lower than for natural gas (and coal).  But the capital investment required by safety regulations drives up depreciation charges.  Lightbridge's technology delivers more output from the same plant.  It also requires less downtime.  Fuel rods are replaced every 24 months compared to 18 months under existing uranium systems.

The rising interest among utilities is prompting the major fuel suppliers to examine Lightbridge.  Conventional uranium systems are likely to retain a large share of the market over the intermediate term.  But the new technology could become a bigger factor as the scale up to commercialization in 2019 continues.  More active negotiations with those groups have started.  Lightbridge may enter non-exclusive deals initially.  If the technology becomes viewed as a genuine game changer, though, a dynamic bidding war could develop.

Lightbridge plans to collect royalties if it stays independent.  The amount may vary among the fuel fabricators.  In general, the company hopes to earn 10% of the expected $60 million economic benefit each reactor is expected to enjoy -- per year.  Even at half that rate income could accumulate to spectacular levels.  There presently are 435 nuclear plants in the world, with 71 more under construction.  One hundred are in the United States.  Growth is accelerating in Central Europe, the Middle East, India, and China.  Economics likely will drive demand in North America.  The new fuel promises to restore profitability by reducing costs below natural gas and coal.  Environmental regulations may create additional impetus.  Coal already is being phased out, albeit gradually, due to high levels of greenhouse gas emissions.  Natural gas only generates half as much.  So it's a good stop-gap measure.  But two gas plants emit the same amount as one coal fired unit.  If global warming becomes a serious issue the switch to clean low cost nuclear could intensify.

Near term revenue likely will depend on consulting activities.  Those nose-dived following the Japanese debacle.  They now are regaining speed.  Technology access fees from the fuel fabricators could provide additional money, most likely from Babcock & Wilcox to begin with.  Assuming a partnership is formed pilot plant testing will begin next year.  Testing of full length rods will follow in 2016.  NRC approval could be received in 2018.  Delivery to commercial reactors is contemplated for 2019.

Lightbridge might be acquired before the full payoff is realized.  If the company remains independent, though, earnings could attain $2.45 a share or more by the early 2020s.  Applying a discount rate of 15% suggests a 2015 value of $1.05 a share.  Assuming a P/E multiple of 20x suggests a target price of $21 a share, potential appreciation of 650% from the current quote.

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Sunday, February 23, 2014

Solar City (Nasdaq - SCTY) -- Makes it up with Volume

Solar City (SCTY $77.00) is a leading installer of residential solar systems.  The company also builds larger units for commercial, military, and industrial applications.  Solar City operates exclusively in the United States.  Solar power has become more competitive with utility supplied electricity since the 2008 recession.  The cost of solar panels plummeted due to excess supplies in China.  Providing further impetus was a 30% federal tax credit contained in the 2009 federal stimulus package.  The amount of electricity produced by solar systems is greatest in warm sunny regions.  But the units have proven competitive in northern climates, as well, because those areas tend to endure much higher utility prices.  Unit volume has been robust throughout the country.

( average output per 1 kilowatt system )

Solar City usually retains ownership of the residential systems it installs.  Homeowners have the option to buy.  But pricing is structured to drive business to the company's leasing model.  No down payment is required.  Homeowners simply agree to use the solar energy.  If that runs out, then they can tap the utility grid.  The purchase contract usually sets a price below the current utility rate.  Escalators of 2%-3% a year customarily are built in.  If the solar system produces more electricity than the homeowner needs, most states require the local utility to buy it at retail rates ("net metering").  Solar cells degrade 2%-3% per year.  That reduction in output is offset by the escalating price in the lease agreement.  Revenue is expected to remain consistent over the 20 year life of the deal.  At that point customers have an option to buy the system.  Or Solar City will remove it.

The industry is highly competitive.  All the equipment that goes into a solar system is available from multiple sources.  It has standard specifications.  Installation techniques don't vary.  Local building codes have to be satisfied.  And marketing expense is steep, averaging $2,500 out of a total cost that averages $25,000.  (If they were sold the retail price probably would be around $33,000.)  Most competitors use the same pricing strategy.  But they usually sell the systems to profitable financial entities that can utilize the 30% tax credit (plus whatever the states offer).  The federal government also allows solar systems to be depreciated on an accelerated basis, over 6 years.  Those deductions are attractive to financial buyers, as well.  (The U.S. Treasury does not allow individuals to take depreciation deductions.  That gives an economic advantage to corporate entities.)

Solar City follows a high risk, high return strategy instead.  The company retains ownership of the systems, hoping it will earn a bonanza in 8-10 years.  A series of complex off-balance sheet partnerships have been established under which Solar City borrows cash from financial investors to build out its network, and gives them the tax benefits.  That reduces the amount that needs to be borrowed.  Cash flow from the systems is directed towards repaying the loans.  That pays down the debt.  But it causes operating losses to expand as volume increases.  So more cash needs to be raised to finance the next round of installations.    In 8-10 years enough income will be freed up, as today's systems are paid off, to allow the company to start reporting profits.  Income could surge in the early part of the next decade.

The largest risks are political.  The 30% federal tax credit is scheduled to decline to 10% in 2017.  Several states are considering a reduction in their subsidies, too.  It's unclear if Congress will pass a new law to restore the 30% credit.  Every percentage point removed would translate into a percentage point of lower profit margin, unless the price charged for electricity is increased.  Solar City hopes to reduce operating costs enough to compensate for any reduction.

The net metering debate creates more political uncertainty.  Utilities around the nation have begun to argue that solar and wind power are disrupting their grids' efficiency.  They also say that other customers are being forced to pay more than they should, because the utility is required to repurchase power for wholesale purposes at retail prices.  In most states the retail price is 3x the wholesale.  If solar systems can't sell their surplus electricity at full price in future years, the reduction could impair the overall economics of the lease deal.

Solar City is hoping to develop lithium battery back-ups to alleviate the net metering threat.  If the government subsidizes the batteries a move like that could prove beneficial, both to the solar companies and the grid operators.  Adding a battery would make the entire system cost more, though.  Whether there still would be enough room to discount from the utility's electricity rate is uncertain.

Low cost natural gas produced by the fracking revolution presents an economic challenge.  Solar City established its business plan before natural gas was developed in abundant quantities.  It expected electricity rates to keep increasing the way they had been.  The advent of low cost natural gas has put a ceiling on utility rates, though.  If the escalators in the company's contracts drive its price above the utility's, a variety of unforeseen problems could arise.

Longer term, next generation solar technology could make the company's installed base obsolete.  Sleeker, more efficient systems are likely to be introduced before the end of the decade.  Existing customers might be willing to live with their older units.  But they could become an albatross when it comes time to sell the house.  Maintenance and upgrades could be an expensive proposition for Solar City down the line.

Solar power is likely to become a major component in the country's energy mix.  Substantial growth is likely.  Solar now accounts for 1% of the United States's energy supply.  In ten years that figure might reach 5% or more.  If everything breaks right Solar City could become a highly profitable industry leader in 8-10 years.  Right now, though, the company is losing money on every sale.  It is surrounded by risk.  The stock's valuation is high, at 26x our estimate of 2014 revenue.  Our advice is to stay on the sidelines.

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Monday, February 17, 2014

Tasman Metals ( Nasdaq - TAS ) -- Rare Opportunity

Tasman Metals (TAS $1.10) is the leading developer of rare earth mining facilities outside of China.  Rare earths are key ingredients in electric motors, smartphones, and a wide range of other green energy and high technology products.  More than 90% of the world's current supply is found in China.  The government there has used its ability to corner the market to extract a variety of concessions over the years.  The scarcity of the material also has created pricing volatility.  China still has abundant resources of lighter rare earths, which generally are less valuable and easier to replace with alternative technologies.  Its heavy rare earth supply has started to dwindle, however, and may only have 10-15 years remaining at current rates of consumption.  Tasman Metals, relying on advanced computer simulation methods, discovered a huge reserve of heavy metals in southern Sweden in the late 2000's.  The company obtained exclusive rights to the property.  The entire reserve has been delineated with exploratory drilling.  A 40 year supply has been identified.  The initial chemistry has been positive.  Rare earths are mixed in with ores and other kinds of rocks that need to be separated out.  Rare earths also must be oxydized into a commercial form to establish the magnetic force required by the high tech products they go into.

Scale up testing will begin early in 2014.  Tasman recently raised additional capital to expand throughput and demonstrate its ability to produce high volume quantities at prices that are acceptable to the market.  Alternative solutions exist.  At this point those methods cost significantly more than rare earths.  For Tasman to be successful it will have to keep costs below those other approaches.  A handful of other non-Chinese reserves have been located during the last decade.  Two are in northern Canada.  A third lies in Greenland.  Those reserves have not been developed to date due to substantially higher capital costs than Tasman faces.  Since other options to rare earths exist, those sites may never be mined because of their remote and harsh locations.  Recycling of rare earths takes place today but represents a small competitive factor.  Approximately 1%-2% of the world's supply is generated in that fashion.

A large corporate partner is likely join the project if this year's scale up effort proves successful.  Capital expenditures to develop the Swedish mine are expected to total $250 million.  (The sites in Canada and Greenland are believed to require $1.2-$1.5 billion.)  Tasman probably could borrow most of that and develop the project itself.  Taking on a partner would reduce risk, however, and provide expertise and marketing outlets.  Several interested parties already are lined up.  Demand for the company's heavy rare earths is likely to be robust, particularly in Germany and Japan.  Some financing may be provided by "off take" agreements where customers provide cash to develop the enterprise and receive rare earths as payment down the line.

Sales could attain $125-$150 million a year once full production is achieved in 2016-2017.  Tasman still is debating whether to employ an open pit or underground mining approach.  Sales could go higher if the open pit method proves economical.  If Tasman were to operate the entire project itself fully taxed income could reach a $.75-$1.25 a share run rate, depending on how many shares it had to sell and how much it could borrow instead.  A 50-50 joint venture could yield income of $.50-$.75 a share.  Long term sales contracts probably could be signed with multiple customers, ensuring steady recurring revenue.  Rare earths are a proven commodity in the high tech industry.  Even if alternative methods for creating magnetic fields are invented they probably would face a slow adoption curve as long as reasonably price rare earths were available from non-Chinese sources.

These shares entail a high degree of risk.  Tasman may be unable to refine its heavy metals economically.  It's possible the Chinese will develop new heavy rare earth reserves, raising competition.  Lower cost alternative technologies could emerge, although those are difficult to visualize at this time.  The main risk is internal.  If Tasman can deliver the goods, exceptional investment returns are possible.  The next key milestone will occur later this year when results from the current scale up effort become known.

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Saturday, February 8, 2014

Superconductor Technologies ( Nasdaq - SCON ) -- High Wire Act

Superconductor Technologies (SCON $2.50) appears to be the technology leader in the manufacture of high temperature superconducting ("HTS") wire.  Volume production is scheduled to begin in the June quarter.  Superconductors carry 10x more electrical current than conventional copper or aluminum cables, with superior efficiency (less juice lost during transmission).  Until now the technology required cooling systems that approached absolute zero, making them impractical for business applications.  Superconductor Technologies may have cracked the code, however, enabling the higher performance to be achieved with standard cooling mechanisms that are reliable, easy to maintain, and inexpensive.  Pilot plant production has been underway for the past year.  Potential customers in several industries have been testing those wires.  Many are engineering new products in which HTS wire is the key component.  The company's production line will be modular in nature, enabling it to raise output in a methodical way if demand materializes.   Markets that are being addressed right now include electric utilities, medical equipment, high performance windmills, and electric motors.  New markets could emerge if Superconductor Technologies is able to reduce costs down the road.

An entirely new product for the utility industry could be the first application.  A leading maker of utility equipment has developed a line of "fault current limiters" that smooth out abnormal electricity flows and protect substations from failure.  The threat of faults and blackouts has increased in recent years due to a variety of factors, among them the addition of renewable energy sources that flood the system at some times and go dark at others.  The threat of terrorist computer hacking and sniper attacks pose additional problems.  Fault current limiters behave like gigantic surge protectors.  Besides guarding existing sites the new technology is expected to shrink overall capital costs by reducing the amount of back-up equipment.  Longer term, utility customers may employ superconductors in transmission cables, as well.

MRI machines represent another large possible market.  Better imaging could be obtained at lower costs.  Offshore wind farms are a likely target, too.  Wind technology has barely improved since 2000 because generation gains require longer blades and bigger generators.  HTS wires could raise power density and sharply reduce generator weight, enabling larger turbines to be constructed.  The offshore market is thought to hold the greatest potential.  Electric motor producers also are examining the technology.  Superconductor Technologies currently is working with eight prospective customers altogether.  Each one is believed to be capable of buying 100% of the company's output once production begins in Q2.

Superconductor Technologies's initial full scale production line is expected to generate $35-$40 million in sales at current prices.  A modest capital expenditure could double output, creating a full modular package yielding $75 million annually.  The company has ample space in its facility to add more lines.  Each is expected to cost $12.5 million to build.  Gross margins are anticipated to reach 60% to start and improve to 90% once efficient operation is realized.  Overall profitability is expected at the lower rate.  Selling prices are likely to remain hefty for a while due to a lack of competition, and relatively high costs.  Most customers are asking for custom designed wires, which will keep production runs short.  Superconductor Technologies hopes to establish a standard format over time, enabling longer runs and reduced expense.  That could facilitate significant price reductions while preserving attractive margins, opening up new applications.

Our estimates assume the machine will work when the switch is pulled in Q2.  Depending on what kind of delays are encountered, sales for the year could reach $10-$15 million.  Orders are likely to exceed shipments by a wide margin.  Superconductor Technologies raised equity capital last fall.  Warrants covering 10.7 million shares are outstanding, as well, exercisable at $2.57 a share.  Sufficient capital is in place to support the initial launch.  The warrants could cover the next round of spending.

In 2-3 years sales could reach $100-$150 million to provide fully taxed earnings of $.50-$1.00 a share.  Joint ventures are likely to emerge, in addition.  The potential market for affordable high temperature superconductors is enormous.  Major industrial companies are virtually certain to pursue the technology, if it can be made to work.

These shares entail a high degree of risk.  The most likely outcome is a delayed product launch.  A lengthy setback could force the company to raise additional capital, creating dilution for shareholders.  A complete failure is possible.  Success, however, could yield unfathomable appreciation.  The pilot plant worked well.  The customers are excited with the wire's performance.  The design for the production scale line is locked down.  The components are scheduled for delivery to the company's Austin, Texas facility this quarter.  The launch date hasn't budged for the past six months.  Competitors exist.  But they are pursuing different methods that have shown little sign of success to date.

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Friday, January 17, 2014

Tesla Motors (Nasdaq - TSLA) -- Stock Price Jumps After Guidance Revision

Tesla Motors (Nasdaq - TSLA) shares hopped 15.7% on Tuesday after the company revised its guidance for Q4 2014. The price was up to $161.27 in after hours trading. It had closed Monday at $139.94.

Tesla confirmed earlier in the day that it sold 6,900 cars in the fourth quarter, a new record for the company as well as a roughly 20% increase over its previous guidance for the term. We've revised our full year 2013 revenue estimate to $2.41 billion and our EPS estimate to $.42. 

Demand for the Model S remains strong enough that the company will likely meet, and possibly exceed, its goal of 30,000 deliveries in 2014. Tesla is also optimistic that it will be able to begin shipping its new SUV offering, the Model X, sometime in the fourth quarter. The Model X will be priced about 6% higher than the Model S to start, or about $74,000. However, considering most customers will likely opt for the higher performance battery and other options, we're estimating most customers will wind up paying somewhere between $105,000 and $110,000. For these purposes, let's say $107,500 per Model X. If Tesla can deliver 200-300 Models X by the end of 2014, that's another $21.5 million - $32.3 million in revenue.

Elon Musk and a Model X

Perhaps the company is being optimistic, and the Model X doesn't arrive until early 2015. It won't have much of an impact long term. Tesla doesn't disclose reservation statistics any longer, but the general consensus is that about 7,000 orders were put in for the vehicle through the end of the fourth quarter. 

The price jump came despite Tesla also issuing a "recall" for a Model S charging adapter, which in some cases have heated up to the point of melting and have resulted in short circuiting and possibly fire. We put "recall" in quotation marks because no parts actually need to be replaced. The problem is being addressed with new software that Model S owners download and install to the car, so think of it more as an update. Tesla shouldn't fret too much about fire concerns as long as the incidents are few and far between. After all, gasoline powered cars can catch fire too.

The better-than-expected sales in the fourth quarter bode well for 2014 and beyond. The company is aiming to manufacture 30,000 cars in 2014, roughly 50% more than 2013. Tesla's factory in Fremont seems capable of getting the cars assembled. The main impediment has been getting its hands on the lithium battery packs. A new deal with Panasonic is expected to lower costs and give Tesla more battery inventory, but the pact won't alleviate the shortage in the near term.

Demand for the batteries will skyrocket once Tesla begins work on its third vehicle, a more affordably-priced car that's tentatively known as Model E. The car is still only being discussed, but the company is aiming for a $33,500 sticker price. Tesla is also considering building a factory of its own to meet battery demand.

Tesla shipped about 1,000 cars to Europe in Q3 2013, and is hoping to begin selling to Asia in 2014. The company is still expanding its network of Supercharger stations in America and Europe. There are 65 stations in North America, and 14 in Europe. The stations can give a battery a full charge in an hour, or top them off in about 20-30 minutes, free of charge. The Supercharger network still needs to expand considerably to make it more convenient for local drivers. The company boasts that a Model S can be driven across country without having to pay for a recharge. Realistically though, how many times will a person use the car to drive cross country? An average of once seems like a high estimate.

Current Supercharger network
Planned Supercharger network by year's end 2015

The difference between the network as it stands now (top) and what it projects to in 2015 (bottom) appears striking upon first glance, but the chargers are still spread far enough apart that using them for local driving will be a nuisance unless the car owner lives relatively nearby. Once the Model E arrives, though, owners could utilize the chargers to take long-range trips or vacations for free (though it'd be significantly more time consuming than flying). Tesla will keep adding the charging stations, which cost $150,000 - $300,000 per site, but don't require an attendant to monitor them.

Sevcon ( Nadaq - SEV ) -- Back in Control

Sevcon (SEV $7.25) is a leading independent provider of control systems used in electric vehicles and in other applications that employ electronic motors.  Over the past year the company has expanded into the hybrid engine market, as well.  Sevcon's microprocessor based controls convert and regulate the electrical energy generated by a vehicle's power source to maximize the performance of the unit's motor.  Sevcon does not make battery packs or the motors themselves.  High volume manufacturers normally perform the entire process in-house.  Sevcon works with more specialized niche producers who require custom solutions.  Over the past decade the company established a strong position in the off-road industrial vehicle market.  That included electric fork lift trucks, aerial lifts, mining vehicles, and a variety of other work machines.  Sevcon additionally made significant inroads in the electric motorcycle market.  More recently, Sevcon supplied the control systems for a tiny "city car" manufactured by Renault.  That model failed to win market acceptance, in large part due to the weak economy in Europe.  But the partnership created the expertise Sevcon needed to pursue additional vehicle programs.  The company also branched off and recently began to penetrate the high potential hybrid vehicle market.

Meantime, profitability has been restored following the unexpected Renault downturn.  The French car maker ordered 90% fewer control systems in fiscal 2013 (September) than it did the prior year when the Twizy initially was introduced.  Costs have been reduced, despite the fact more engineers were hired last year.  Existing programs are returning to life, except in the mining area.  The fork lift and aerial lift segments have been especially robust.  The motorcycle business has been solid, too.  Earnings improved 62% in Q4 (September) to $.13 a share.  Sales advanced 11% to $8.87 million.  Several OEMs were added to the client roster last year.  Most of those won't contribute meaningful revenues in the current year, as their new vehicles go through the engineering process.  Substantial gains are possible over the next 2-3 years as those new vehicles reach the market.

China offers exceptional opportunity.  Sevcon declines to identify its business partners until the vehicles they are working on achieve commercialization.  The company has devoted significant effort to the Chinese market over the past few years, though.  It's believed that several relationships have been developed.  The Chinese government recently implemented a major electric vehicle initiative, primarily to help improve the pollution situation in its larger cities.  Electric buses will receive an $80,000 per unit subsidy under the new regime, making them far more economical than diesel or natural gas alternatives.  Sevcon's long experience in the mining and industrial equipment area provides an established track record it can leverage when pursuing those contracts.

Sevcon also has moved aggressively into the hybrid automobile market in Europe.  Electric cars have become popular and could garner 5% of the entire auto market during the next decade.  Hybrids hold much greater potential, though, because they have unlimited driving range.  A wide array of approaches are in development across the auto industry, combining gasoline, battery power, natural gas, and fuel cells to provide high performance, acceptable cost, great mileage, easy refueling, and top notch reliability.  Hybrid's market share may increase 5% a year beginning in 2015-16 and keep rising at that rate until it reaches 50% in the mid-2020s.

If Sevcon can catch either of those waves results could surge over the long haul.  Spectacular stock price performance is possible in light of the company's modest share count.  A recent board of directors change may foreshadow some joint ventures or other strategic moves.  Three new members were added in December.  Our 2-3 year projections are speculative due to the secrecy surrounding the company's R&D programs.  Realistically, though, sales could attain $50-$75 million to provide earnings of $.75-$1.25 a share.  (The high end figure assumes the sale of an additional 1.5 million shares to finance growth.)

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