Seeking Alpha
Long-term horizon, nano-cap, micro-cap, alternative energy
Profile| Send Message|
( followers)  

Since early 2008, Axion Power International (OTCQB:AXPW) has been quietly developing an experience base and building grass roots support for a gas-guzzler to dual-mode EV conversion initiative that has the short-term potential to transform up to 120 million gas-guzzling pickup trucks, sport utility vehicles and vans into gas sipping EV-50s. If recent articles from sources as diverse as The Daily Green, Edmunds Green Car Advisor and the Environmental Defense Fund are reliable indicators, the initiative is rapidly gaining ground.

The concept is simple – add electric power trains and battery packs to America's least fuel-efficient vehicles and give them 50 miles of plug-in EV range coupled with unlimited internal combustion range. The potential benefits to the economy are enormous because the U.S. could slash gasoline consumption by a billion gallons per year for every 1% of the gas-guzzler fleet that's converted to dual-mode. It's also a solution that could be immediately implemented using domestic products and create untold thousands of new cleantech jobs.

axion dual mode.jpg
The first public discussion of Axion's gas-guzzler conversion initiative was in Dr. Edward Buiel's testimony before the Senate Committee on Energy and Natural Resources last July. A few months later, Andrew Grove, the former chairman of Intel, published an article in McKinsey Quarterly titled "An Electric Plan for Energy Resilience" that approached the topic from a slightly different perspective. While Dr. Buiel's testimony focused on using lead-acid batteries and Mr. Grove's article focused on using Li-ion batteries, both men reached the same conclusion: that gas-guzzler to dual-mode EV conversions are the most cost effective baby-steps America can take in its drive for energy independence.

The following table summarizes the estimated cost to convert a Chevy S-10 pickup into a dual-mode EV-50 using off-the-shelf drive train kits and lead-acid and Li-ion batteries from domestic suppliers. For both system types, the table assumes a 10-year useful life and a 15 kWh battery pack for a 50-mile electric range. For the lead-acid system, the table assumes a battery life of 40 months, the equivalent of 800 charge-discharge cycles, and two battery replacements. For the Li-ion system, the table assumes battery replacements will not be needed. Since space and weight are not critical constraints in a pickup, SUV or van, I have not made any adjustments for the 300 to 400 pound weight advantage of a Li-ion system. I've also avoided maintenance estimates because they're beyond my capabilities.

Essential Conversion Components
Gas-guzzler to Dual-Mode EV 50
Lead-acid
System
Li-ion
System
15 kWh battery pack $3,000 $15,000
LAB replacement after 40 months $3,000
LAB replacement after 80 months $3,000
Off-the-shelf electric drive conversion kit 4,500 4,500
Miscellaneous conversion materials 900 900
Conversion labor 3,000 3,000
Total up-front cost before subsidies $11,400 $23,400
Total 10-year cost before subsidies $17,400 $23,400


The following table drills down another level and calculates how the capital costs would likely work in the case of a typical pickup, SUV or van owner. I've depreciated the electric drive system over a 10-year period and depreciated the batteries over their respective useful lives. I've then added an imputed interest factor of 6% per year on the total up-front cost before subsidies. Finally, I've factored in charging costs at an average price of $0.10 per kWh and calculated a fully loaded breakeven gas price before subsidies assuming a baseline fuel efficiency of 17.5 mpg for the unmodified vehicle.

Estimated Monthly
Cost of Ownership
Lead-acid
System
Li-ion
System
Depreciation of electric drive costs $70 $ 70
Depreciation of battery costs 75 125
Imputed interest on up-front cost (6% per annum) 57 117
Electricity for daily recharge (20 days @ 15 kWh @ $.10) 30 30
Total monthly cost $232 $342
Monthly gas savings (20 days @ 50 miles @ 17.5 mpg) 52.7 52.7
Fully loaded breakeven gas price $4.40 $6.50


It is very important to understand that I have not included any tax incentives or other subsidies in either of these cost tables because of the variety and complexity of existing and proposed Federal and State programs. If new subsidy regimes are implemented to encourage gas-guzzler to dual-mode conversions, the breakeven costs to users are likely to plummet.

While my fully loaded breakeven gas price numbers don't look all that good in comparison to current prices of $2.25 per gallon, I am convinced that current prices are not sustainable. The following graph from the Energy Information Administration tracks the spot price of West Texas Crude from January 1986 through April 2009.



What I find most intriguing is that the long-term trend was basically flat from ’86 until it reached an inflection point in the late '90s, at a time that roughly coincides with recovery from the ‘97 Asian financial crisis. Since then, oil prices have followed a consistent upward trend. I don’t want to join the peak oil debate, but I think the long-term price chart presents compelling evidence that the world passed a “peak cheap oil” inflection point about 10 years ago.

If my analysis is correct, oil prices will revert to their new trend line over the next 12 to 18 months and then resume their relentless upward march until the next inflection point is reached. By the time the global economy emerges from the current recession, I believe $80 to $100 oil is a virtual certainty, as are $3.50 to $4.00 gas prices.

Some of most common comments on my EV articles relate to vehicle range limitations. While most Americans drive less than 50 miles per day, the ability to get in the car and drive without constraint seems to be deeply ingrained in our collective psyche. Therefore, I believe most pickup, SUV and van owners will truly appreciate the flexibility of a dual-mode system that will let them switch back and forth between the internal combustion and electric drive systems depending on the needs of a particular trip.

I'm convinced that a rapid implementation of Axion's gas-guzzler to dual-mode EV conversion initiative could be just what the industry needs. While I believe most consumers will choose the least expensive solution, there will still be large numbers of users who are willing to pay a premium price for the perceived advantages of Li-ion. Since gas-guzzler to dual-mode EV conversions use off-the-shelf technology and nobody can claim a solid intellectual property advantage, every manufacturer would have a level playing field in a multi-billion dollar market where technologies would succeed or fail on their own merits. More importantly, small battery producers would not be forced into the unenviable position of a midget negotiating with a giant.

America's strength has always been the ingenuity and flexibility of its entrepreneurs. In a world where we need to get up in the morning, go to work and solve our problems to the best of our ability, I believe the Axion initiative is a tremendous first step that holds immense short-term promise for the energy storage sector, energy independence, jobs and the domestic economy.

Disclosure: Author is a former director and executive officer of Axion Power International (AXPW.OB) and holds a large long position in its stock. He also holds small long positions in Exide Technologies (XIDE) and Enersys (ENS).

Source: Axion Power: Time Is Right for Gas Guzzlers to Dual Mode EV Conversions