What's Behind Apple's Fuel Cell Battery Decision

In response to Juan Carlos Zuleta's comments on a recent article published by The Guardian that behind Apple’s decision to opt for fuel cell technology for its most advanced laptops, iPads and iPhones was lack of any meaningful progress in lithium resource development in Bolivia, a commentator contended: “I'd very much like to know what is the hard evidence for this assertion.”

The comentator reply came by the same day I published my latest seekingAlpha.com piece entitled: “Apple Takes the Lead: Laptops, iPads and iPhones without Lithium? It couldn’t have been more timing, because it gave me the opportunity to put together a couple of views I have been working on for the last four years or so.

Here is his rejoinder:

“My own perception is that Apple is looking for a safeguard in case the many competing uses of lithium place them in a situation of lithium shortage in the next 10-20 years or so. Most predictions about lithium availability take Atacama's production for granted. Indeed, without significant production from the driest desert on earth none of them make any sense. But what if Atacama fails to deliver all the lithium necessary for all the different competing uses in that time frame? I have reasons to believe that that could in fact be the case.

This has nothing to do with reserves - a point made 5 years ago by a commentator we both know. It pertains to availability of a key element in brine production nowadays: water. It is a bit ironic that while in Atacama the largest Li producers in the world are just about to run out of water, in Uyuni we have excess water, which is making it real hard for people in charge of the lithium pilot project to come by with any meaninful results after more than 3 and half years of unfruitful experimentation.

That is why I have suggested that in order for Uyuni to be feasible we must move towards an integral approach to exploit all evaporite resources contained in the largest salt lake of the planet, and also go beyond solar evaporation. The only way - that I know of - this can be done is with a huge source of energy; natural gas, for instance. And here Bolivia has a clear advantage over Chile and Argentina. So if Bolivia keeps delaying its entrance into the market, don´t you think this is introducing much uncertainty into it so that major players (such as Apple) are becoming nervous about lithium availability in the coming years?”

Interestingly enough, only two days later the government of Bolivia has acknowledged for the first time the limitations of solar evaporation, enhancing the use of chemicals, and opening the possibility of using natural gas for the exploitation of lithium and other evaporite resources of the Salar de Uyuni. Nevertheless, there remains to be seen whether the pipeline is finally built and the necessary change of direction comes forward.

All of this seems to be taking place while Apple has begun implementing an ambitious plan to expand their business to China. In fact, following a recent article, a version of the Apple’s iPhone built for China Telecom’s networks has received approval from the China Radio Management office which will soon put the smartphone in the hands of customers of China’s third largest mobile operator.

This will allow Apple to raise its market potential for iPhones in China from about 197 million subscribers (20%) to 320 million subscribers (33%). The hype for the iPhone 4S iPhone 4S in China has reached its highest point on Friday, January 13, 2012, when Apple stores in Beijing and Shanghai sold out and the company was forced to halt its sales. Meanwhile, Apple is preparing for a “structured hype” to unveil the iPad 3 in China. Lastly, we have no information on sales of Apple laptops in China although there is some evidence for the U.S. - that can be extrapolated for China as well – that tablets will eventually replace laptops.

The above developments may have at least two investment implications. First, as can be seen in the following chart, Apple´s share prices appear to have been positively affected by all the recent events; they have in fact climbed to the highest levels attained since May 2008. Hence prospective investors may find it extremely atractive to start investing in Apple while current shareholders may want to increase their stocks right now.

Second, it doesn´t yet seem to be a good idea to invest in possible fuel cell suppliers because many of them remain private companies and very few of them are profitable options. Following a recent article: “There is still not a single, pure-play, public fuel cell company, that has experienced anything close to profitability”.

Moreover, as a web site on the field indicates in its Industry Review 2011, “the ultimate goal of selling millions of portable fuel cell devices is only likely to be reached once the fuel cell can be integrated into laptops and phones, similar to the lithium-ion batteries of today”. It then goes on to say that: “Tablet computers would be an appropriate format for the integration of fuel cells in portable electronic devices, with miniaturization not such a critical factor as for modern mobile phones. Durability, grid independence and long run times provided by fuel cells are particularly valued in this type of mobile device”.

In this connection, the document states that even a small part of the market of iPads would be crucial for the industry. This appears to be in sharp contrast with Apple’s approach. As it has been recently known, Apple plans to use fuel cells in its upcoming iPhone 5 but has yet said nothing about its iPad.

In 2011, Fluid Computer Systems (FCS), a start-up company, was close to introduce this kind of product into the market. It developed a protoype of a fuel cell integrated into a windows 7 based tablet computer but, unfortunately, failed to come up with a commercially viable product and, according to fuelcelltoday.com, it “was forced to cease trading after its financial backers withdrew, citing concerns over competing with established giants in the tablet industry”.

One needs to wonder at this point whether Apple would be interested in acquiring what’s left of FCS in its attempt to “potentially accelerate the development and integration needed for wider adoption of fuel cells in consumer electronics”.

Source: Juan Carlos Zuleta, ForexPros.com