Axion and Exide: I Love It When a Plan Comes Together 40 comments
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Yesterday Axion Power International (AXWP.OB) announced the signing of a memorandum of understanding with Exide Technologies (XIDE) following fourteen months of negotiation and technical investigation. This alliance could prove to be a sea-change event for the domestic battery industry. Copies of the press release and an archived version of the subsequent investor conference call are available on Axion's website.
As a former chairman of Axion's board of directors and a very substantial Axion stockholder, I've been waiting for an agreement like this for a very long time. I'm delighted to see confirmation from Exide that my faith in Axion's PbC technology, its management and its technical team were justified.
Over the last nine months I've written a series of articles on the energy storage sector in general and the battery industry in particular. My basic premise has been that none of the battery technologies we've relied on in the past are robust enough and cheap enough to satisfy the requirements of cleantech, the sixth industrial revolution. The result has been a race to fill the void as lead-acid battery manufacturers worked to improve performance and Li-ion battery developers worked to reduce costs. The prize to the winners will be major chunks of market share in an industry that expects explosive growth from $30 billion to over $100 billion per year in the next decade. In the words of Merrill Lynch analyst Steve Milunovich:
". . . cleantech markets dwarf IT to the tune of two orders of magnitude. Unlike tech names, cleantech companies often don’t need huge unit growth to succeed – modest improvements mean more. New IT vendors often face a hurdle of a 5-10x improvement over incumbent technology to succeed while in cleantech doing the same amount of work with reduced CO2 emissions might be enough.”
Axion has always been unusual because there was never a question about whether its PbC technology worked. Early technical studies conclusively showed that replacing the lead-based negative electrode in a conventional lead-acid battery with a carbon electrode like you find in most supercapacitors had a tremendous impact on both cycle life and power. Two years ago, when Axion received the prestigious 2006 Technology Innovation Award for North America in the field of lead acid batteries, Frost & Sullivan noted that Axion's PbC technology had:
". . . the potential to revitalize the lead-acid battery industry by breathing new life into an established technology that was not well-suited to the requirements of important new applications like hybrid electric vehicles and renewable power."
The real challenge has always been transitioning the science from a laboratory bench to a factory floor. The commercialization alliance with Exide is clear independent confirmation that Axion has succeeded where the vast majority of R&D companies fail.
Over the last couple of months the battery industry has been headline news as the Federal government adopted massive loan, grant and subsidy regimes for advanced battery technologies. While the mainstream press has focused most of its attention on the potential of plug-in vehicles, the enabling legislation also recognizes the crucial role that cost-effective energy storage will play in the development and implementation of the smart grid and the more widespread use of wind and solar power. The fundamental goals of all the recent legislation are to build a new domestic battery manufacturing infrastructure that will help liberate America from the economic tyranny of imported oil while enabling the more widespread use of alternative energy technologies and cutting carbon-dioxide emissions.
The biggest advantages Axion's PbC technology offers are low cost and rapid deployment. As of today, there are no large-scale Li-ion battery manufacturing facilities in the U.S. and while a number of companies have disclosed plans to build new factories if Federal subsidies are made available to them, there are significant unanswered questions about whether the battery technology solutions these companies are proposing are cheap enough, robust enough and safe enough to warrant a multi-billion dollar implementation effort. Even if the hoped-for subsidies materialize and the proposed factories are built, the process of building the factories, perfecting manufacturing techniques, establishing reliable supply chains for imported raw materials, introducing new products and training an entire country to use those products will be a major undertaking.
In comparison, there are dozens of companies that already operate lead-acid battery factories in the U.S. and Axion's PbC technology has now reached a point in the development process where it can be implemented in the existing factories starting immediately without substantial changes to existing equipment, components or manufacturing processes. So for the first time America has a real a choice between "sometime a few years from now" and today.
I love it when a plan comes together.
I cannot begin to predict the impact the new alliance will have on Axion or Exide. After giving pro-forma effect to the conversion of its outstanding preferred stock, Axion has 34.7 million shares outstanding and a market capitalization of roughly $31.2 million at Monday's closing price of $0.89. Exide, in comparison, has a market capitalization of roughly $364 million and annual sales of approximately $3.7 billion. The combination of Axion's technical expertise in lead-carbon chemistry with Exide's manufacturing, distribution and customer service prowess should be exciting. I certainly expect that the news will have a positive short-term impact on both companies and an even greater long-term impact as the pervasive scope of the alliance becomes clearer.
Disclosure: Author is a former director and executive officer of Axion Power International (AXWP.OB) and holds a large long position in its stock. He also holds a small long position in Exide Technologies (XIDE).
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This article has 40 comments:
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I followed this thread already for a long time. As a High-Tech-Li-Ion-fan it took me a couple of articles to become convinced of your argumentation.
It took me another couple of month in this crappy market to buy some Axion shares that I finally did 3 weeks ago :-) !
What I don´t like is that in most discussion the focus goes pretty fast to cars and batteries: This issue has still to be solved in the future.
The biggest argument that I see: Let´s pretend for example solar will become cost competitive in 2,3,4 years and it will reach grid parity for shure!
=> Doesn´t it then make sense to have a battery in your house as well!? Where weight doesn´t matter so much but reasonable cost and reliability do?!
Freya, that could work out well because Subaru understands light. For small and light I think Li-ion will end up winning the race. But I see real problems as the vehicle weight to passenger weight ratio starts climbing about 5.
User 395761, don't give up on Li-ion because it truly is a wonderful technology in appropriate uses and we need every tool in the box to solve our energy storage problems. Just recognize that there's a place for everything and there are no silver bullets. Over the next few months I plan to focus more on specific emerging applications and less on technology differences. It should be fun and informative.
For grid storage batteries have a high carbon footprint and if Beacon Power gets it's act together, (their flywheels seem to work well), the fact that they have virtually no carbon footprint, maintenance problems and apparent long life is going to work in their favor over battery systems.
Hey, who knows? A new tech could knocks us all out of the box tomorrow. There are a lot of smart electrical and chemical engineers around the world working on this stuff.
Meanwhile, have you heard any more about the 6 passenger air car that promises 800 mile range with 8 gallons of gasoline for under $20K? If true, that's a game changer.
it up to be a lucrative theme for big business (the utilities) and another way to extract resource from the many (the consumers)
for technologies that are obsolete and various unbelievable job assurance procedures like "revenue decoupling" for utilities that no longer can compete against entrepreneurship. This article (below) might be useful reflection on how once again the corporacy (utilties) wins with the current version of smart grid provisions written into the US stimulus package..
www.energypulse.net/ce...
www.mdi.lu/english/ind...
I would like to believe this is true, but I have my doubts. "If it seems to good to be true, it usually is". What I dont see is how these cars will pass US safety standards? I think they are cute and the company said they have commitments for 10,000+ vehicles in two months.
www.mdi.lu/gallerie/Ai...
On Apr 16 09:50 AM Dirk McCoy wrote:
> Meanwhile, have you heard any more about the 6 passenger air car
> that promises 800 mile range with 8 gallons of gasoline for under
> $20K? If true, that's a game changer.
Regards.
D. McHattie, I still own the others, but somebody pointed out last week that I shouldn't be disclosing positions in companies I don't discuss because of the risk that irrelevant articles show up as recent blogs.
William Taylor, supercapacitors are great for short duration power surges but offer no substantial energy density. I'd be reluctant to criticize Eestor, but it's pretty clear that they have a development stage technology rather than a market ready product. As far as carbon footprints go, Beacon's flywheels are no better or worse than batteries. My fondest hope is that some genius will come along with something new that makes everything we know about storage obsolete. Until that happens, we need every available tool.
Dirk, I've not heard anything more about the compressed air car, but think it can be a very cool answer to some of our vexing problems. So I'll keep my fingers crossed.
rayrevol23, I understand the concerns that a few utilities might try to hijack the smart grid, but there is a lot of sound thinking that a truly effective smart grid will be highly decentralized and distributed power generation and distribution is much harder to monopolize and control than central facilities. I'm also a firm believer that good things happen in America in spite of big business and government, not because of them. We're a terribly creative crowd and nothing is harder to contain and control than ingenuity.
zapman59, the first fully manufactured devices are starting to roll off the line this quarter. For the next year or so I would expect most of the production to go for large-scale demonstration projects in a wide variety of applications. But once things get to the point where the best target markets are identified, I would expect the core technology to roll out nationwide very rapidly because of Axion's platform technology business model.
I'm not entirely sure yet, but I think speculawyer and I are much closer to seeing eye to eye than we were a couple months ago. We have clearly different technology preferences, but also recognize that every tool in the box is essential to America's energy future and there will be plenty of business to go around.
Axion looks very promising and I own some shares; thanks for the idea. But you hurt your credibility when you refer to Frost & Sullivan as "prestigious". F&S is pay for play and a red flag imo. Consider Exhibit A:
www.frost.com/prod/ser...
Turns out that Europositron was a complete scam and there are others. F&S is a contrary indicator.
Still the "few hundreds and a couple dozens" they mention make me feel that product is not ready yet.... but is clear that Axion solves a credibility and access to market cost in the best way, pity i did not buy more shares......
Regards.
Maybe this will spark more interest in other advanced PbC battery companies as well.
"somebody pointed out last week that I shouldn't be disclosing positions in companies I don't discuss because of the risk that irrelevant articles show up as recent blogs"
I have to agree with that, as anyone who has clicked on the frequent meaningless articles at the Motley Fool knows. You think there is something relevent to a stock you follow, only to find out it's nothing more than an advertisement for the site.
Actually, the Motley Fool was a good site back when it was completely free, maybe 8 years ago.
Well done!
Bob Haeger, one of the Seeking Alpha rules I must follow is disclosure of any planned trading activity. So keep reading and you'll eventually get your answer.
Advill, I think the confusion arises from the fact that Axion's thinks in terms of hundreds or even thousands of devices for a single test. They also think of a grid buffering test as different from a peak shaving test or a wind integration test. Without much work, I could probably rattle off 20 or 30 distinct application tests that may take hundreds or perhaps thousands of devices per test. Mr. Granville was very cautious about putting out numbers because the electrode will be installed during the current quarter and any slippage in the schedule can have a big impact on production and sales volumes. I'm hoping the Q-2 results will have some pleasant surprises, but I would much rather have a happy surprise than a disappointment.
Mayascribe, I helped develop the plan but had nothing to do with implementation. All of that credit belongs to the management team.
Time for an apres (sp?) ski cocktail! Then go quietly outside, look at the snowcapped peaks, and drum your chest like a mating quail!
Again, congratulations!
Axion's technology is very interesting. I'm going to keep an eye on it.
Road Runner, be sure to do your homework, check out the links in my past articles and make sure you understand and agree with my reasoning. I have a lot of years with the people that give me a level of confidence you can't get to. So double checking my logic, Axion's SEC reports and all of the industry information is doubly important.
I have been trying to put some numbers together for Axion in the way of stock value. Like yourself I am an investor in Axion not a trader. But it is impossible to properly invest in a company without a sense of its value. So far my conclusion is this : Based on the numbers you gave me at $300 per unit Axion will break even or make a little when the battery factory runs at full capacity. They make a ton when they sell millions of battery inserts for other manufacturers. I'm assuming they will try and make the same unit profit per insert as a whole battery ( assume $50). This would mean NET PROFITS from 50-150 million for a $36 million dollar company. At a normal 10P/E this is a stock valued over $10 per share.
I understand that if this scenario is true it will take several years to come to fruition but am I on the right path to properly value this company?
If you go through Axion's 10-K, you'll find that there are 26.4 million common shares outstanding and a couple classes of preferred shares that are convertible into roughly 9 million additional common shares. Working from a figure of 35.3 million common share equivalents, Axion's market capitalization is closer to $70 million.
I think this number is pretty attractive compared to ALTI at $115 million, Valence at $282 million and HEV at $625 million. But then I have some pretty clear interests in that subject matter. Since I've always coached the company to talk about accomplishments instead of plans, I'll tell you what my price target is if and when Axion reaches it.
Thanks for your comments. I will delve deeper into comparisons with other battery companies but it would appear to me that by the end of the year we will have to start looking at the product acceptance into the market and begin to value the company as a manufaturing entity instead of a "new tech company". Always look forward to your next article.
Your bottoms up analysis is very interesting. It may be more useful to assign a percentage of market share to axion and take the number of units sold to your unit target price Though I think it's a guess at best.
On the bright side the near term should have plenty of catalysts given that the results of the tests will probably be reported a few at a time.
long axpw
At this point the market share will be impossible to even guess at since the "axion markets" are still yet undefined. Large storage, suv's, ect. I have a lot of work to do to come up with anything but a WAG. Fortunately John is very helpful informing me of a marketplace of which I'm fairly unfamiliar. Always willing to learn though. Especially when it involves my money.
I told you it was a guess John is very helpful. You could create a spreadsheet at 5% or 10% intervals, helping you make a conservative assumption.
The biggest reason I keep going back to peer group comparisons is that it's what I've typically seen investment bankers do when they get down to the eleventh-hour squeeze. Sure they all construct financial models to backstop their peer group analysis, but it usually boils down to a question of how the market values similarly situated companies.
If you go to my list of pure-play companies, there are a handful of companies that have lots of promise but not much performance to date including Altair, Axion, Beacon, Ener1, ZBB and perhaps Valence. If you throw out the highest and lowest valuations as aberrations, the range is from $60 million for Axion to $113 million for Altair and the average is about $88 million. If you include Valence in the peer group, the average spikes up to about $136 million.
Once you define a peer group it gets easier to make subjective comparisons about the relative strengths and weaknesses of the group members and their relative potential.
1. Infancy which typically has little or no revenue (e.g. Altair, Axion, Beacon, ZBB);
2. Adolescence when revenue growth and long-term revenue potential are the key drivers (e.g. Ener1 Maxwell and Valence); and
3. Adulthood when historical and expected near future profitability are the key drivers (e.g. ABAT, Exide, Enersys and Ultralife).
I think Axion is at or rapidly approaching a transition point between infancy and adolescence. The adolescent stage will typically last for three to five years (if not longer) and usually is the period in a corporate life-cycle where the gap between market value and book value is the greatest. As you get to the adult companies that are valued based on profitability, the valuations typically decline.
1. The full carbon electrode assemblies for PbC devices;
2. Technologies for incorporating carbon into traditional sponge lead pastes to give conventional lead-acid batteries longer life and more power (but not up to PbC specifications); and
3. More robust positive electrodes.
The plan is for Axion to be the sole source manufacturer of full carbon electrode assemblies for PbC devices (an "Intel Inside" approach) and then license its other technologies for use by its two principal partners Exide and East Penn.
Lead is fine, the 1999 (and 1997) EV1 which had PSB 1260 lead batteries (not the Delco failure-prone junk) had reliable range over 100 miles.
But Lithium is, so far, a scam; it's not real. The comparison should be between Lead and NiMH, if you are serioius about plug-in cars.
seekingalpha.com/artic...
A second Lifton article that gets into the reasons everybody is tending toward lithium is available here:
www.resourceinvestor.c...
Jack is a regular Seeking Alpha contributor and is particularly fond of the Instablog. You can access his articles and Instablog at:
seekingalpha.com/autho...
On the other News front, Fuji Heavy, Subaru's parent announced that it was going to sell its corporate customers and local Governments, a Lithium powered EV in July of this year, range around 50 miles, no other specs provided.