EPA and NHTSA Predictions for Start-Stop Systems Strengthen My Position

 |  Includes: AONEQ, AXPW, HEV, XIDEQ
by: John Petersen

On April 1st the National Highway Traffic Safety Administration [NHTSA] and the Environmental Protection Agency [EPA] announced a joint final rule establishing fuel economy standards for all light duty vehicles sold in the United States. In my last article, I focused on the overall fuel efficiency improvements the new CAFE regulations will require. After spending a couple days reading and digesting the Final Rule Release, which runs to 1,469 pages, I've concluded that my initial optimism over the future of start-stop technology was understated.

The Final Rule Release begins with several hundred pages of introductory materials that describe the key efficiency technologies automakers are expected to implement between now and September 2015. It describes start-stop as:

  • 12-volt micro-hybrid [MHEV] – also known as idle-stop or start-stop and commonly implemented as a 12-volt belt-driven integrated starter-generator, this is the most basic hybrid system that facilitates idle-stop capability. Along with other enablers, this system replaces a common alternator with a belt-driven enhanced power starter-alternator, and a revised accessory drive system.

After a lengthy discussion of how each of the principal efficiency technologies will contribute to the overall goal and explaining the freedom the individual automakers will have to pick and choose solutions, the Final Rule Release includes the following table, on page 484, that identifies the automakers and estimates the percentages of their 2016 model year fleets that will incorporate each technology.

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CAFE Technologies.pngClick to enlarge

In the supplemental tables to its "Annual Energy Outlook 2010," the Energy Information Administration forecast new light duty vehicle sales of 16.5 million units in 2016, which implies nationwide sales of 7 million vehicles with start-stop systems if the NHTSA and EPA estimate is accurate.

I've previously explained why start-stop technology is hard on starter batteries. It basically boils down to the fact that the battery will need to start the engine several times during a typical commute instead of starting it once. While the automakers can get better start-stop performance by using ultra-premium lead-acid batteries, even premium batteries have problems with a chemical process known as sulfation which is the primary reason lead-acid batteries fail.

I've also explained how a new generation of lead-carbon battery technologies including the Ultrabattery from Australia's Commonwealth Scientific and Industrial Research Organisation [CSIRO] and the PbC® battery from Axion Power International (AXPW.OB) are a game changer for energy storage because they reduce or eliminate sulfation while significantly increasing both acceptable charging rates and available power. The end result is a battery that's price competitive with premium lead-acid batteries and performance competitive with lithium-ion batteries, as shown in the following graph from Sandia National Laboratories.

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Sandia PSOC.pngClick to enlarge

For eighteen months I've been predicting with increasing confidence that the cleantech revolution would start with baby steps, rather than giant leaps, and that advanced lead-acid and lead-carbon batteries would play a crucial role in the widespread implementation of micro, mild and strong hybrid electric vehicle [HEV] technologies. My confidence ramped up a notch or two last August when President Obama announced $2 billion in ARRA battery manufacturing grants that included:

  • $34.3 million to Exide Technologies (XIDE) with Axion Power International for the "production of advanced lead-acid batteries, using lead-carbon electrodes for micro and mild hybrid applications;" and
  • $32.5 million to East Penn Manufacturing for the "production of the UltraBattery (lead-acid battery with a carbon supercapacitor combination) for micro and mild hybrid applications."

My confidence continued to rise as reports from the Energy Information Administration, Frost & Sullivan, Roland Berger Strategy Consultants and most recently Lux Research concluded that start-stop technology would become a standard option for new vehicles sold in both Europe and the U.S. over the next few years. Now that the NHTSA and EPA have weighed in with their estimate that 42% of the 2016 model year new car fleet will be equipped with start-stop, my confidence level couldn't be higher.

Since I started blogging I've argued that media and political hype about plug-in vehicles has created an odd dynamic where market expectations for the potential long-term beneficiaries of the cleantech revolution are highly inflated while market expectations for the likely near-term beneficiaries are unreasonably low. There is simply no other way to explain the fact that Exide trades at 17% of historical sales while A123 Systems (AONE) trades at 3x forecasted 2012 sales, or that Axion trades at less than 4x its tangible book value of $26 million while Ener1 (HEV) trades at closer to 10x its tangible book value of $57 million.

For the reasons I've discussed at length in a series of articles about the fundamentally flawed idea that we can use batteries to replace fuel tanks, I believe there are significant risks that the lithium centerfolds will fail to meet the market's high expectations and their stock prices will suffer. Conversely, I see a very high probability that Exide, Axion and others will outperform the market's modest expectations and their stock prices will respond accordingly.

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and has a substantial long position in its stock.