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Cabot Corporation- Fuel Cell Decision

Describe what kind of a company Cabot is, what are their businesses and strengths, and why they
invested in fuel cells?

Cabot Corporation, founded in 1882, was a specialty chemicals and high-performance materials
manufacturer, based out of Massachusetts. Most of the businesses leveraged expertise in making
manufacturing powders, most of it from Carbon black through gas fired technology. The company
operates in four main business units:

1. Core
2. Performance
3. New Business
4. Specialty Fluids

The core segment consisted of rubber-grade carbon black that goes into manufacturing of tires and
industrial products. Overall, carbon black business accounts for ~60% of overall revenues of the
company.

The companys performance segment consists of two product segments: specialty-grade carbon black
and thermoplastic concentrates, and fumed silica and fumed alumina and their dispersions. Specialty
grade of carbon black provided properties such as color, conductivity, protection from UV light and
enhanced mechanical properties. They were used in inks, coatings, pipes, copier and printer tones and
electronics. Fumed silica found its application in adhesives, coatings and silicones.

In the New Business segment, the company manufactured Inkjet colorants, micro powders and elastomer
composites. While in the Specialty Fluid segment, it manufactured cesium formate, a chemical that is
used as a drilling mud for high pressure and high-temperature oil & gas construction.

In addition to these organic businesses, the company also ventured into fuel cell specialty material
business by getting the spray pyrolysis technology through acquisition of Superior Micro Powders (SMP).
Through this cutting-edge powder processing technology that has higher scalability and uniformity in
powder protection the company wanted to expand its material business and also wanted to manufacture
high-performance catalysts for fuel cell.

The reasons for investing in fuel cells

Before acquiring SMP, the company was looking for new growth opportunities by expanding into new
technologies and products. Around that time, fuel cell technology attracted a lot of attention as a potential
alternative to fossil fuel. The fuel cell provided significant value proposition over battery technology in
increasing power requirement for latest generation electronic devices. In addition to that, the fuel cell
technology also received the desired regulatory push and funding support for development and
commercialization. That has led to large companies such as General Motors making R&D investments
into fuel cell.
In addition, companys existing powder processing technology and acquisition of spray pyrolysis
technology made it technological a natural progression to enter into manufacturing specialized catalysts
for fuel cells. Subsequently, down the line the company also invested into manufacturing of membrane
electrode assembly (MEA) primarily because of the following:
1. Absence of any supply chain partner into manufacturing of MEA
2. The challenges that Cabots fuel cells customers faced in producing fuel cell would be best
addressed if Cabot were to manufactures MEA. The value proposition and benefits of Cabots fuel
cell catalysts would be realized depending on the quality of MEA.
As a result, consumer adoption of Cabots fuel cell products required that Cabot also enter into MEA
production.

The core competence of the company was in powder processing and manufacturing of sophisticated
materials. Its strength in MEA component emerged from its electro catalyst powder, in which the company
enjoyed unique IP position. In addition to that, Cabot has developed strong brand as a sophisticated
material production among the customers, including the fuel cell manufacturer. Cabots entry into MEA
production gave it more control into value chain of fuel cell production, although it required company to
dedicate higher R&D expenditure into nascent technology, resulting in higher risk.
What role should Cabot play in the fuel cell value chain?
Cabots core competence results from its unique IP in the manufacturing of high-end material and access
to spray pyrolysis, but the way customers use its product- fuel cell catalysts is through the MEA
component. The overall adoption of Cabots materials was only contingent to the efficiency of its fuel cell
catalysts, but also the quality of MEA components.
In my opinion, Cabot should strengthen its presence in the electrocatalyst material business but look to
maintain its presence in the MEA component as well in the long-term. The company would derive the
following benefits from increasing investment in the MEA business:

1. The material/ catalysts are contingent on how MEA component is produced and its sales.
Hence, having strong presence in MEA component business will allow Cabot to protect its
material business. Its very similar to First Solar diversifying into solar panel installations from
solar panel manufacturing, which allowed it to diversify its revenue base. Majority of its existing
competitors are in MEA business as well. Entry of these competitors into fuel cell and
controlling the MEA component business will be detrimental for Cabot in the long-term.
2. Fuel cell technology is still at a very nascent stage and witnessing constant research &
development. The customers are betting on multiple technologies and pushing for higher
performance, as in this case resulting in reduced number of membrane electrode assemblies.
While spray pyrolysis technology is latest cutting-edge technology, new process technology and
material may emerge that may disrupt Cabots existing catalyst business. Hence, being
invested in MEA component business and controlling that would not only significantly mitigate
the risk but also diversity its revenue base.

However, these benefits are offset by reducing R&D investment in the electrocatalyst business due to
capital constraints. Given that both businesses need capital for R&D and the company needs to look into
long-term sustainability, hence they should prioritize the electrocatalyst material business over MEA
business in the long-term till they ensure easy access to MEA market.
Case discussion
Stakeholders in the case study
Paolina Atanassoya PL & Chief Technologist
Greg Romney Director, Energy & Materials
Fred von Gottbery- President New Products
Eddie Kutsovsky- CTO

Business overview- 3-4 billion in revenues

Core Performance New Business Speciality


Carbon Black (rubber Specialty grade Carbon Inkjet colorants Cesium formate (leased)
grade) Black Micro powders (high margin product as
-tires - Printer, catridges Elastomers used in gas and oil drill)
Thermoplastic
-60% of overall revs
concentrates
Fumed silica, fused
alumina- adhesives

Hiring: Material scientists

- Developing new products


- Process technology to manufacture the product in a large scale

Focus:
Product: Upstream, special materials, carbon based product
Technology: specialization in gas-fired technology
Customers: Diversified- Large B2B contracts. So since it is a relationship based business, there is
lot of work required.

Value chain in manufacturing of fuel cell


Specialized raw materials - MEA component --- End-product manufacturers (Automobiles/ electronic
devices)
Automobiles wanted to own the MEA component but electronic devices wanted the suppliers to have it.

What problem are they facing?


Poor revenue prospects in the auto industry
Cons es get into MEA
- Alternative technologies
- Changing specs
- Low capacity util
Compatibility with end product
Performance of product
Price compared to batteries

Pros & cons for MEA


- Not enough manufacturers available
- Technical differentiation by entering MEA
- Need to vertically integrate
- Existing business- not vertically integrated

What is the problem?

- Application not developing as fast as tech


- Shouldnt have entered fuel cell
- $2million/ year
- Anomaly in their business
- Trying to make hay when the sun is shinning

Decision making process


- Customer centric
- Democratic process of making decisions
Whats the counter to - If you are out of MEA, then they will lose Fuel Cell?

If you focus on powder itself, you make the powder more easily available. You can commoditize the MEA
component. Then you can capture larger share of value in the fuel cell value chain

R&D Portfolio Management

Most successful R&D portfolios:

- Achieve the right balance of projects


- Havee the right number of prohects for the reosurces abailable
-

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