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The battery 10 kWh: A financial analysis of mini manufacturing plant

Conference Paper · November 2013

DOI: 10.1109/rICT-ICeVT.2013.6741512

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Wahyudi Sutopo Nur Atikah

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 The Battery 10 kWh: A Financial Analysis of
Mini Manufacturing Plant
W. Sutopo1,a, N. Atikah1,a, A. Purwanto2,a, M. Nizam3,a
1
RG of Logistic and Business Systems, Dept. of Industrial Engineering, Sebelas Maret University, Surakarta, Indonesia
2
Dept. of Chemical Engineering, Sebelas Maret University, Surakarta, Indonesia
3
Dept. of Mechanical Engineering, Faculty of Engineering, Sebelas Maret University, Surakarta, Indonesia
a
Research & Dev. for Indonesia Electric Vehicle Consortium Team, Sebelas Maret University, Surakarta, Indonesia
(wahyudisutopo@gmail.com; nur.atikah34@gmail.com; aguspur@uns.ac.id; nizamkh@gmail.com)
 

Abstract - Battery of 10 kWh is a result of a mini manufacturing
plant project of Research & Development (R&D) for Indonesia
Electric Vehicle (MOLINA) Consortium Team, Sebelas Maret
University (UNS) will be installed in the SmarT Electric Vehicle
(EV). In an attempt to analyze the feasibility of this investment
and in order to attract investors to expand this project, MOLINA
UNS conducted a feasibility analysis from a financial point of
view. The analysis includes a comprehensive quantitative financial
analysis of the project profitability with NPV, IRR, ROE, ROA
and an assessment of how those key factors may affect the
profitability of the project with a value of WACC. This study also
offers sensitivity analysis and SWOT analysis to recommends
regarding this project, given the results of financial analysis and
consideration of other key factors.
Keywords - electric vehicle, feasibility study, financial analysis,
mini manufacturing plant of battery, WACC
I. INTRODUCTION
Since 2010, The Government of Republic of
Indonesia is aggressively pursuing research and
development of national electric vehicle called
“Mobil Listrik Nasional (MOLINA)” (Indonesia
Electric Vehicle), that developed by 5 university
including ITB, ITS, UI, UGM, and UNS. The
purpose of this government project is to make
electric vehicle (EV) with high quality and ready
for mass production [1]. At this phase, research and
development (R&D) of MOLINA consortium team
UNS are developing the mini manufacturing plant
of 10 kWh Li-ion batteries based on LiFePO4
cathode material. Lithium-ion (Li-ion) is one of the
types of rechargeable batteries. This type of battery
is widely used in consumer electronics as in [2], [3].
Next, it is being adapted for industrial applications
to be used in the automotive industry as a source of
power for hybrid electric vehicles [2]. The battery
became popular due to its characteristics of
portable, rechargeable, light weight, eco-friendly,
slow loss of charge when not in use, has great
power over, and others [2], [3]. Moreover, Li-ion
battery has no memory effect, which means that the
charging process only adds energy storage. In the
previous types of battery (NiMH), the charging
process is actually doing two stages, discharge
completely, emptying all the contents of the battery
first, and then re-charging. This means the Li-ion
battery charging process takes less time than
previous types of battery [3].
In Indonesia, there is only one national battery
plant ready to produce batteries for EV needs,
which is PT. Nipress Tbk. The plant has a
production capacity of 6 units of batteries per-day
[4]. By the government's plans to begin for
producing EVs, the demand of batteries supply will
be growing up. Seeing the possibility of increased
demand for electric car battery and there is only one
producer with limited production capacity, the
opportunity to enter the market of EV battery
manufacturing is wide open. It means that the
prospects of EV battery manufacturing business
will be very profitable in the future.
In an attempt to analyze the feasibility of battery
mini manufacturing plant and in order to attract
investors to expand this project in the future, it is
important to conducta feasibility analysis from a
financial point of view. The paper also offers
weighted average cost of capital (WACC) to be one
of the factors considered in the recommendation. It
refers to the Reference [5] that WACC should
determine investment decisions, because WACC is
a method that can valuate the net cash flows of
projects. In addition, WACC useful to understand
the company’s scale, which can be used to evaluate
a company’s value [6]. The analysis also includes
sensitivity analysis and SWOT analysis.
 activities. There are three basic financial statements
that generated by the feasibility study as in [9],
namely balance sheet, income statement, and
statement of cash flows. With the proportion of debt
and equity is 90% equity from “Lembaga
Pengelolaan Dana Pendidikan (LPDP)” and 10%
liabilties from loans, financial statements for 5
periods (year) obtained as shown in Table I, II and
III with all of the cost are measured in Million of
Indonesia Domestic Rupiah (IDR).

TABLE I
THE FINANCIAL STATEMENTS - BALANCE SHEETS

Balance Sheet (in IDR 1 Million)

Year 0 1 2 3 4 5
Current assets 125 445 682 833 1.027 1.136
Noncurrent assets 2,500 2,500 2,500 2,500 2,500 2,500
Total assets 2,625 2,945 3,182 3,333 3,527 3,636
Fig. 1 Research approaches Liabilities (total) 300 214 114 0 0 0
Current liabilities 0 99 114 0 0 0

  Noncurrent liabilities 300 114 0 0 0 0
Equity (total) 2,325 2,731 3,067 3,333 3,527 3,636
Equity (total) 2,700 2,700 2,700 2,700 2,700 2,700
II. METHODOLOGY Retained earning (375) 31 367 633 827 936
Liabilities & equity 2,625 2,945 3,182 3,333 3,527 3,636
This research was conducted with approaches as
TABLE II
shown by Fig. 1. Early stage of this research is THE FINANCIAL STATEMENTS – INCOME STATEMENTS
started from collecting data i.e. the investment
Income Statements (in IDR 1 Million)
requirements and bill of material statement (BOM). Year 0 1 2 3 4 5
Based on investment requirements and BOM, it is Net sales 0 4,500 4,500 4,500 4,500 4,500
important to calculate the cost of good sold (COGS) Cost of good sold 0 3,500 3,605 3,713 3,825 3,939
Gross profit 0 1.000 895 787 675 561
and determine the proportion of debt and equity to Operating expenses 375 375 383 390 398 406
formulate the financial statements. After financial Selling 0 150 153 156 159 162
General & Adm. 0 225 230 234 239 244
statement created, the profitability index is Others income (expenses) 375 (45) (32) (17) 0 0
calculating with net present value (NPV), internal Income before tax (375) 580 480 380 278 155
Tax expenses (fixed rate 25%) 0 174 144 114 83 46
rate of return (IRR), return on equity (ROE) and Income for the year (375) 406 336 266 194 108
also return on assets (ROA). The next stage is
TABLE III
calculating rate of WACC by financial statement, THE FINANCIAL STATEMENTS – STATEMENTS OF CASH FLOWS
the proportion of debt and equity and other factor as
The Statement of Cash Flows Income Statements (in IDR 1 Million)
input. The analysis and recommendation also
Year 0 1 2 3 4 5
consider sensitivity analysis and SWOT analysis.
Operating activities 0 451 368 283 194 108
Receipt 0 4,500 4,500 4,500 4,500 4,500
Paid 0 (3,875) (3,988) (4,103) (4,222) (4,345)
III. RESULT AND DISCUSSION Others 0 (174) (144) (114) (83) (46)
Investing activities (2,875) 0 0 0 0 0
A. Financial Statement
Add, (2,500) 0 0 0 0 0
The financial report is a summary of accounting Others (375) 0 0 0 0 0
activities, which is composed of accounting Financing activities 3,000 (131) (131) (131) 0 0
Proceed 300 0 0 0 0 0
principles, and describes the company's business Payment Loans 2700 (131)(131) (131) (131) (131)
position as in Ref. [7], [8]. The first step to analysis Cash beginning of
0 125 445 682 833 1,027
the year
feasibility of mini manufacturing plant, R&D of
MOLINA consortium team UNS creates the Cash flows at the
125 445 682 833 1,027 1,136
end of the year
financial statements based on R & D on battery

Fig. 2 Equity Cash Flows for 5 years period
Table I, II and III is begin by obtained the cost
of good sold (COGS) and sales projections as in
[9]. Other input variables used are 45 units product
per year, the sales price is IDR 100 million
/10KwH, 25% percent tax [10], percents of bank
loans by 15% and 3% inflation of COGS as
assumptions. As a result of the investment of IDR 3
billion, over the 5-year equity cash flow (ECF)
reflected in Fig. 2, with the ECF is a various cash
flow stream, which is includes debt payments
(principal and interest) to debt holders [11].
B. Profitability Index Measures
Return on Equity (ROE) and Return on Assets
(ROA) are commonly used profitability ratio
measure and average of ROE and ROA can be
defined as (1) and (2) below as in Ref. [12]- [14].
(1)
NSi : Net sales of manufacturing product (IDR)
TEqi : Total equity of mini manufacturing plant (IDR)
i : Time Period of financial
N : Total Period of financial
(2)
NSi : Net sales of manufacturing product (IDR)
Tassi : Total equity of mini manufacturing plant (IDR)
i : Time Period of financial
N : Total Period of financial
ROE is a fundamental indication of a company’s
ability to increase its earnings per share and thus the
quality of its stock, because it reveals how well a
company is using equity to generate net income
[12], [14]. Whereas, ROA same as the rate of ROI,
is a ratio used to measure overall effectiveness in
generating profits through the available assets, or
power to generate income from cost of capital.
Based on Table I using the eq. (1) and (2), the
average value obtained for ROE and ROA is 1.4
and 0.08 respectively.
In order to increase shareholder’s wealth as in
Ref. [12], the company’s equity needs to provide a
return higher than the opportunity cost of capital
that could be earned elsewhereinn the capital
market for an investment of comparable risk. In
other words, the project will improve shareholder’s
wealth as long as the NPV of its cash flow is
positive (as long as the IRR is greater than the
opportunity cost of capital). Eq.(3) and (4) is to
calculate the value of NPV and IRR as in Ref.
[15],[16].
(3)
Cn : Cash inflows (IDR)
Co : Cash outflow (IDR)
r : Interest Rate (%)
n : Time Period of financial
N : Total Period of financial
(4)
Cn : Cash inflows (IDR)
Co : Cash outflow (IDR)
r : Internal Rate of Return (%)
n : Time Period of financial
N : Total Period of financial
Since the financial statements in Table I, II and
III accurate (45 batteries of 10 kWh sold over 5
years annually at IDR 100 million per battery), this
project would deliver an IRR at 10.22% and
positive NPV at 1.3 at 15% of interest rate.
C. The WACC Calculation
The WACC is the required rate of return on any
investment proposals that carry the same level of
risk as the firm’s existing assets [17]. In additional,
Ref. [18] stated that WACC could be treated as the
return ratio of assets, and the stock cost determined
by the volume of cost of capital. The following
formulas defined as eq. (5), (6), and (7) as in Ref.
[18]-[20] is required to calculate WACC. The cost
of equity was calculated with the capital asset
pricing model (CAPM) which describes the
company’s own equity equal to country risk free
rate plus a risk premium that investors expect for
bearing the systematic risks in the market.
  The Analyzing these key assumptions in consideration
parameters listed in the Table IV are required to of external real world forces shows us that there are
calculate the value of WACC. a few scenarios of special significance to potential
TABLE IV
outcomes.
PARAMETERS OF WACC CALCULATION TABLE V
Parameters Value Source SENSITIVITY ANALYSIS: SCENARIO & RESULT
MRP 8% [21]
Rf 10% [22] Scenario Result
2% [23] Sales Sales
t 25% [10] Debt IRR WACC NPV ROE ROA
(Units) Margin
i 15% Assumption
D 10% Assumption 45 30% 10% 10.22% 10.19% 1.30 1.40 0.08
E 90% Assumption 45 30% 30% 9% 10.26% 1.21 1.51 0.13
Cd 11,25% Calculation
Ce 10,16% Calculation 45 30% 0% 39% 10.16% 2.59 1.11 0.12
WACC 10,19% Calculation 45 40% 10% 57% 10.19% 3.79 0.97 0.18
45 25% 10% 10% 10.19% 1.30 1.40 0.08
54 30% 10% 39% 10.19% 2.62 1.34 0.14
(5)
36 30% 10% 18% 10.19% 1.59 1.05 0.10
(6) E. SWOT Analysis
) (7) The SWOT matrix of the battery 10 kWh of the
WACC : Weighted average cost of capital (%) mini manufacturing plant is below:
Cd : Cost of debt (%) • Strengths : R&D consortium team of UNS
Ce : Cost of equity (%)
D : The total of debt (%)
always doing development and making
E : The total of equity (%) improvements in the batteries that will be applied to
i : Interest rate (before tax) (%) the SmarT electric vehicle, so R&D capabilities
t : Corporate tax rate (%) innovations will be key to success with this project.
: Systematic risk (%) In addition, the LiFePO4 battery product also has
MRP : Market risk premium advantages than the other products, because
: Risk free rate (%)
production is using nanotechnology approach that
will produce lithium-ion batteries with higher
Ref. [5] postulated that IRR should at least be density [9]. A R&D MOLINAUNS also has
equal to WACC. As the result this
  project
  would
  partnership deals with the private sector, such
deliver
 the
 value
 of
 WACC
 at
 
 10,19%
 lower
 than
  efforts have helped several important lithium-ion
IRR.
 At
 10,22%.
 
  battery technologies.
D. Sensitivity Analysis
• Weaknesses: SmarT EV now has not become a
The sensitivity analysis is needed in order to famous brand in the vehicle national market, and
assess the potential impact of change scenario on now the raw material of lithium battery was having
the factors that influence the project revenue (sales scarce [3].
volume, price, proportion of debt). To examine the
potential downside/upside ranges of variations in • Opportunities : The market is relatively new,
these assumptions, we can use the extreme hi-/lo- so there is still room for new entrants [24].
values to get a sense of the modeling sensitivity to • Threats: Asia has several vertically integrated
fluctuations in different assumptions. First, it companies with 20 years of experience in making
generates based on the revenue assumptions of sales lithium-ion batteries [25]. This depth of experience
price and sales volume. poses a danger that the technological edge currently
Given the exposition of extreme hi-/lo-values held by MOLINA UNS. Through experience,
scenarios above, we can see that the model is Others Asian companies have improved
sensitive to fluctuations in the assumptions used. manufacturing processes. It will be vital when our
team only focuses on R&D related to
manufacturing processes in order to decrease
production costs.
IV. CONCLUSION
This paper has been developed a feasibility study
of mini manufacturing plant for battery 10 kWh in
accordance with the financial analysis and SWOT
analysis. The result shows that the mini
manufacturing plant is feasible from the value of
NPV. The rate of IRR and WACC shows the mini
manufacturing plant project required additional
loans with lower than IRR.
The cost of equity of the mini manufacturing
plant should be studied to improve the accuracy of
WACC calculation. In addition the further research,
the feasibility study could consider the cost of
preferred stock to calculate the WACC and the
other methods like financial value added (FVA) and
economic value added (EVA).
ACKNOWLEDGMENT
This work is supported by program of Electric
Vehicle Development, FY 2013 under The Ministry
of Education and Culture (DIPA No.
023.04.2.189882/2013, Dec 05, 2012).
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