Total’s approach has important lessons for other oil super-majors, says Lux analyst
French oil company Total, with energy storage firms Saft and SunPower in its portfolio, is the first oil “super-major” entering new areas of business including solar plus storage and distributed generation, according to Lux Research.
Total controls 97.12 percent of battery maker Saft, according to the French stock market regulator AMF, as reported by Reuters. Total said on July 18 that it had acquired more than 90 percent of Saft’s share capital.
Saft’s supervisory board had voted in favour of a proposed takeover of 950 million euros ($1 billion) in May.
Saft’s batteries equip cars, photovoltaic devices and wind turbines, fitting in with Total’s aim to expand its renewable energy business.
The oil company also acquired a majority stake in U.S. solar power systems maker SunPower in 2011. ($1 = 0.9012 euros).
Amid falling profits and long-term questions, global oil super-majors need to follow in the footsteps of Total — which recently bought energy storage company Saft for $1 billion — and explore opportunities not only in battery but also solar and distributed generation, according to Cosmin Laslau, Lux research senior analyst and and lead author of the report titled, Superpower Darwinism: What Big Oil Can and Cannot Do About Total’s Billion-Dollar Battery Move.
“As Darwinism looms for the future of power, oil super-majors looking to evolve must choose among more expensive, broader battery players,” said Laslau.
“But they should still act, as waiting longer or doing nothing, would be an even worse outcome.”
Even though good battery companies have become harder and more expensive to buy since the acquisition of Saft, the oil super-majors – BP, Chevron, ConocoPhillips, Exxon Mobil, Royal Dutch Shell and Total – have cash piles ranging from $5 billion to $30 billion each, despite shrinking profits since 2012 and uncertainty about timing of the eventual recovery of oil prices.
Still, expanding into an area outside of the oil supermajors’ expertise is risky, batteries are a hard business to win even for industry veterans, says Laslau.
Action is key as transportation and the grid increasingly march toward more electrification.
“Worthwhile battery companies continue to gain value and build momentum with each passing day, as do other opportunities toward a distributed generation future,” he said in a press release.
“Indeed, the recent Tesla-SolarCity merger highlights the increasingly high-stakes race to integrate the future pieces of power, which are underpinned by distributed solar and advanced energy storage.”
Lux Research analysts evaluated potential acquisitions for oil super-majors in the light of Total’s acquisition of Saft.
Among their findings:
- Samsung SDI, Toshiba, NEC are potential targets. Top battery-makers such as Panasonic, Hitachi and China’s BYD might be out of reach for most oil supermajors, given that each is a larger conglomerate valued in excess of $20 billion. But Samsung SDI, Toshiba and NEC are affordable targets, and more focused businesses too. Still, each will cost way more than the $1 billion Total paid for Saft — a transaction that today looks like a positive bargain.
- Asia challenges loom for battery acquirers. Even though the battery business is a truly global one, most battery companies remain Asia-based, posing potential integration challenges for a major acquirer. Still, Korea’s LG Chem, for example, has a factory in the US, and NEC has a U.S. presence via its acquisition of A123 Systems’ energy storage division.
- It’s not just the battery anymore. Total’s moves are not about the battery but also about solar and distributed generation. It bought a controlling stake in SunPower in 2011, years before it bought battery-maker Saft. It also has made smaller plays in distributed generation through Stem, Sunverge, Powerhive and Off-Grid Electric. Total’s approach has important lessons for other oil supermajors, and suggests it is no longer enough to buy a battery company. To make the most of the emerging opportunities, solar or wind is also key, as is being active in connective software and hardware.