Hitachi Expanding Hybrid Cap

By Zacks Investment Research on July 4, 2009 More Posts By Zacks Investment Research Author's Website
Hitachi Ltd. (HIT: 31.44 +0.45 +1.45%), a Tokyo-based global conglomerate, is expected to supply advanced lithium-ion batteries to General Motors (GMGMQ.PK: 0.82 -0.0875 -9.64%) in 2010 for use in its gasoline hybrid-electric vehicles (HEV). The deal with GM will increase Hitachi’s production capacity for lithium-ion and expand its business in the automotive-related field. It will also meet rising demand for gas-electric cars.

Hitachi expects the global market for HEVs to expand from 690,000 units in 2007 to 1.5 million units in 2010. As a result, Hitachi estimates the demand for HEV lithium-ion batteries to overtake that of the current mainstream nickel metal hydride batteries by 2015. Toyota Motor (TM: 74.09 -1.21 -1.61%), which currently uses nickel-metal hydride batteries, will start using lithium-ion batteries for its plug-in hybrid cars for the first time.

The company has boosted capacity to handle demand. Currently, Hitachi produces 40,000 lithium-ion batteries per month and expects to increase production to 3,000,000 units. According to The Nikkei business daily, Hitachi will invest approximately ¥30 billion ($311 million) to raise production capacity.

Hitachi has declined to comment on the report. Hitachi’s lithium-ion battery systems will be installed annually in more than 100,000 hybrid-electric vehicles (HEV), which are scheduled for launch in the North American market in 2010.

The company was also recently awarded an order from U.S.-based Eaton Corporation (ETN: 42.99 -2.29 -5.06%) to supply motors, inverters, lithium-ion batteries and other components for Eaton’s hybrid power systems to be delivered through 2011. Plans call for commercial vehicles using Eaton’s hybrid system to be rolled out in markets in North America, Europe and Asia.
Hitachi plans to form a cross-business unit for lithium-ion industrial and automotive batteries and an R&D unit for next-generation batteries. In 2009, Hitachi converted Hitachi Koki, a manufacturer and seller of power tools into a consolidated subsidiary to foster increased research and development into lithium-ion battery-operated products.

Additionally, to develop and manufacture rechargeable lithium-ion batteries for hybrid electric vehicles and other applications, Hitachi merged Hitachi Unisia Automotive, Ltd. with TOKICO LTD., thereby forming Hitachi Vehicle Energy, Ltd. Through these structural reforms, we expect Hitachi to emerge as a leading supplier in the global automotive market.

Hitachi will be able to create more energy by producing lithium-ion batteries and help hybrid cars give greater mileage, but the company may face some technological barriers. Furthermore, globalization of some of its markets, commoditization of products and stagnation of industries may pose difficulty for the company to grow shareholder value.

Hitachi posted large revenue declines across all its segments in fiscal 2008, particularly in automotive-related products, due to a fall in demand. With a large amount of debt and low amount of cash on its balance sheet, Hitachi’s performance has been deteriorating over the past few years. We therefore maintain our Hold rating on Hitachi shares.