Last Friday, The Wall Street Journal reported that former Intel (NASDAQ:INTC) CEO Andrew Grove was pushing the company toward a new venture; becoming a manufacturer of advanced batteries for plug in electric vehicles [EVs]. This week I came across a more detailed article in The McKinsey Quarterly that was co-authored by Mr. Grove and Robert Burgelman and based on a project Mr. Grove undertook with the help of several graduate students from the Stanford School of Business. The McKinsey article added significant color to a number of issues I’ve been talking about for months. It also strengthened my belief that it’s time for America to fire the first shot in the EV revolution.
After discussing the well-known policy issues that favor the use of electricity as a replacement for gasoline, Messrs. Grove and Burgelman argued that encouraging companies to manufacture new EVs would be far less efficient in the short term than an aggressive pilot program to convert 1 million gas guzzling pickups, SUVs and vans to EVs over the next three years.
While Messrs. Grove and Burgelman estimated the cost of such a pilot project at around $10 billion because it would involve battery costs of roughly $10,000 per vehicle, they argued that much of the cost could and should be covered by tax incentives to the owners of the retrofitted vehicles.
The McKinsey article did not discuss the amount of attention that Mr. Grove’s students devoted to an evaluation of the various battery chemistry alternatives that could play an important role in such an EV conversion initiative, but I think there’s a pretty fair chance that the students focused on Li-ion technology without seriously considering the alternatives because of Li-ion’s centerfold hype and star status as the presumptive winner in the quest for a new EV beauty queen.
After briefly discussing some of the engineering and organizational issues that a national gas-guzzler conversion initiative would entail, Messrs. Grove and Burgelman identified four critical issues:
- The conversion initiative should focus on providing single charge ranges of roughly 40 miles, which is the distance that most Americans drive on a daily basis.
- Making Li-ion batteries for 1 million gas-guzzler retrofits would require massive capital expenditures to build new plants and double global Li-ion manufacturing capacity because the bulk of existing capacity is already devoted to laptop computers and portable electronics.
- The new manufacturing capacity should be concentrated in the U.S. instead of overseas to avoid a situation where we are merely trading an imported oil dependency for an imported battery dependency.
- There should be a concerted national drive to improve battery performance through additional R&D that would bring Moore’s Law performance advances to the energy storage sector instead of the 6% annual improvements the industry has traditionally achieved.
The similarities between the Grove and Burgelman proposal and a detailed plan documented by Edward R. Buiel, Ph.D., Vice President and Chief Technical Officer of Axion Power International, Inc. (NASDAQ:AXPW), in testimony before the U.S. Senate Committee on Energy and Natural Resources in July of this year are striking. In fact the only major difference between the two is the choice of the entry-level battery chemistry. Dr. Buiel believes that advanced lead acid batteries are a slightly less-ambitious but far more cost effective first step for two reasons:
- Advanced lead-acid batteries are far less expensive than comparable Li-ion batteries and using lead-acid as the entry-level battery chemistry would reduce the pilot project costs without reducing the benefits to the owners of retrofitted vehicles and the nation.
- America’s lead-acid battery manufacturing infrastructure is already well established and expansion of that capacity would be far easier, faster and cheaper than building new plants based on imported manufacturing technology that currently has a purchasing cycle lead time of 12 to 18 month.
I’ve consistently advocated the wisdom of starting work immediately using the tools that are presently available. I continue to believe that advanced lead acid batteries are the logical first step in a journey of a thousand miles. I don’t believe advanced lead-acid is a holy-grail technology for the next 50 years, but it is technology that can be implemented immediately at a reasonable cost.
Several fine public companies including Exide (XIDE), Enersys (NYSE:ENS), C&D Technologies (CHP) and Johnson Controls (NYSE:JCI), along with a host of privately owned lead-acid battery manufacturers like GS Batteries, Crown Batteries, Trojan Battery and East Penn Manufacturing have the domestic manufacturing capacity to begin working on the problem today. Additionally, new advances like Firefly’s composite foam electrode and Axion’s PbC hybrid battery/supercapacitor promise life-cycle and power improvements that will give emerging battery technologies like Li-ion enough time to mature naturally, become cost effective and develop a domestic manufacturing base.
A pilot program to convert 1 million gas guzzling pickups, SUVs and vans to electricity would only require a modest revision of the existing tax credit regime to include retrofit conversions of existing gas-guzzlers. The short-term benefits in terms of increased domestic employment; sustained industrial development; and the psychological impact of taking a critical first step on the road to energy independence would be tremendous. A loud and clear first shot in the electric vehicle revolution would also serve as a shining example to the rest of the world that in America we get up in the morning, we go to work and we solve our problems.
Disclosure: Author holds a large long position in Axion Power International, recently bought small long positions in Exide (XIDE) and Enersys (ENS) and may make additional storage sector investments in the future.