John Petersen
After seven years of cautious disclosures about the development status, performance and market potential of its serially patented PbC® battery technology, Axion Power International (AXPW.OB), in conjunction with BMW (BAMXY.PK), has finally released impressive performance test results that show why the PbC battery is a superior choice for automotive stop-start applications. Concurrently, Axion released a white paper that discusses stop-start battery requirements in detail and offers some hints about the PbC battery’s potential for use in other emerging energy storage markets.
The presentation and the white paper do not show small, incremental gains like you would normally expect from new developments in a 150-year old technology like lead-acid battery chemistry. Instead, they show that compared to a top quality AGM battery the PbC battery provides:
- 10 times the dynamic charge acceptance;
- 5 times the cycle life;
- Stable round trip energy efficiencies in the 85% range; and
- 30% less weight.
The details of the presentation and white paper are complex, but the results can be quickly summarized with two simple graphs. The graph on the left tracks the dynamic charge acceptance of an AGM battery over two years of simulated use in a vehicle equipped with a stop-start idle elimination system while the graph on the right tracks the dynamic charge acceptance of the PbC battery over four years of simulated use. Where the AGM battery graph shows that the charging rate plummets and the time needed to recharge the battery soars within months after the battery is placed in service, both values remain stable for the entire duration of the PbC battery test.
In a recent report on the battery market for micro-hybrid vehicle applications, Lux Research stated that most automakers believe flooded lead acid batteries are “inadequate” for stop-start applications. It also observed that AGM batteries are “barely suitable” for high performance stop-start systems. In light of early European experience with stop-start systems and the new test data from Axion and BMW, it looks like the PbC will be the best battery choice for automakers that want to optimize the performance of their stop-start systems and minimize exposure to battery-related warranty claims. After all, it’s senseless to upgrade mechanical systems in an effort to conserve fuel and slash CO2 emissions, and then handicap the new systems by using batteries that can’t handle the load.
For more information on the market forces that will drive rapid global implementation of stop-start idle elimination technologies, my blog archive at Seeking Alpha is a great resource. You may also want to visit EV Insights for the recorded version of a recent conversation I had with Jack Lifton and Gareth Hatch.
Axion began development work on the PbC battery in late 2003 and in early 2006 it bought the manufacturing equipment of an old-line battery producer in a foreclosure sale. While Axion paid $700,000, replacement cost estimates were an order of magnitude higher. For the last four years, Axion has primarily used the plant as a prototyping facility for PbC batteries. Nevertheless, its permitted capacity is 3,000 batteries per day and the installed equipment includes two flooded battery production lines and one AGM battery production line.
The principal research and development work on the PbC battery is finished, but the device is not yet available as a commercial product. Axion built a first generation fabrication line for the carbon electrode assemblies that are the heart of the PbC battery in 2008 and 2009. Based on lessons learned from the first generation line, Axion has upgraded or replaced several workstations on the first generation line and designed a second generation line that should be operational in the first quarter of 2011. With two electrode fabrication lines, Axion should be able to produce electrode assemblies for about 250 PbC batteries per shift, or 150,000 PbC batteries a year with a three shift operation. Its existing AGM battery line has enough idle capacity to fully absorb electrode production from the first two electrode fabrication lines.
Axion has no debt and enough cash to support its planned demonstration activities in automotive, stationary and rail transportation applications through 2011. It does not, however, have sufficient financing or production capacity to support a full-scale commercial rollout of the PbC battery. Such a rollout would require about $75 million in funding from grants, loans or stock sales to increase electrode fabrication capacity to a million units per year and cover associated working capital requirements.
The first use of future electrode capacity additions will be to bring Axion’s AGM line up to full capacity. Excess electrode production will be sold to Axion’s manufacturing partners Exide Technologies (XIDE) and East Penn Manufacturing, two of the largest battery companies in North America. Over the long term, Axion intends to focus on electrode manufacturing and sell its electrode assemblies to industry partners that own and operate existing AGM battery plants. The PbC electrode assemblies have been designed to work as plug-and-play replacement components in any AGM battery plant and Axion’s business model has been designed to leverage existing global manufacturing capacity while giving its partners an opportunity to sell a premium co-branded product to their existing customers.
From late 2003 through early 2007 I was a director of Axion and I’ve watched the PbC technology progress from the laboratory prototype stage to a pre-commercial product that has drawn a surprising amount of interest from automakers, railroads and developers of wind and solar power installations. While we originally expected to start at the bottom of the food chain and work our way up as the PbC technology matured, it’s hard to complain about too much attention from first tier energy storage users. At this point the remaining challenges relate primarily to industrial engineering refinements and completing the rigorous validation and performance testing that first tier users always require before they write a purchase order. In light of the BMW test results, I’m convinced the only open question is “When?”
Over the last year market forces that had nothing to do with Axion’s business fundamentals or the PbC battery’s performance have brutalized its stock price. The stock currently trades within spitting distance of the price paid by several highly regarded institutions last December. As an understanding of the new performance data begins to spread, I think the upside potential is significant. For more conservative investors, a solid alternative play on the PbC technology is the stock of Exide Technologies, an Axion partner that I think is fundamentally undervalued.
Disclosure: Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long position in its common stock.
The graphs aren’t really readable… can you provide them in higher resolution, perhaps one after the other?
Not withstanding the fact that the battery itself could still fail the evaluations, that $75M is (has been) the most bothersome piece of the investment puzzle. With all this talk of austerity, this coming year will be hard on companies that have depended on public grants for any part of their growth and/or development.
1) Is it possible, or likely, that these grants be withdrawn?
2) With banks seemingly unwilling to lend to small business, is it possible, or likely, that a development partner like Ford Credit extend a loan? Almost an in-kind trade (plus interest)?
3) If stock is issued to cover capital expansion, would it wind up being even more dilutive to the now feeble stock price?
It seems Axion has reached a “chicken or egg” state of existance. Can’t fill an OEM order with the facility that exists now and probably can’t secure a loan without a visible account recievable in the near future. With one more year of cash to burn, would it be reasonable to figure that by June of 2011 an investor might need to decide to buy or bail?
I know I worry about the small details too much.
Tom, I’d thought about making the graphs larger and decided against it because they’re not really “information rich.” My hope is that anybody who wants to study the graphs will download the presentation and white paper, which provide all the detail you could want.
DRich, at 150,000 batteries per year, Axion’s revenue would be $30 to $40 million, which might not ensure profitability but would get darned close. There are also any number of high-end vehicle models that could be served with capacity of 150,000 batteries a year.
The breakdown on my $75 million figure is $50 million in PP&E and $25 million in working capital. Assuming it would all have to be financed in the capital markets is a little harsh, but I prefer harsh assumptions.
Tom Granville has already said that he won’t build out electrode capacity without a solid order book. I can’t imagine Axion getting to a point where it has to fill orders for one or more automakers but is stuck with a stock price in the current range. It’s been easy for the market to ignore Axion during the silent running phase. Road testing with one or more automakers will be much harder to ignore, particularly if other demonstrations in railroads and stationary also get some traction.