Why Baby Steps for Fuel Efficiency Mean Major Revenue Gains for Lead-Acid Battery Manufacturers

|
 |  Includes: AXPW, BMWYY, CHP, CTTAY, F, HYMLF, JCI, MXWL, MZDAF, NSANY, NSC, PEUGY, VLKAY, XIDEQ
by: John Petersen

By John Petersen

If EV evangelists have everything their way and lithium-ion battery developers can achieve their lofty cost and performance goals, your long-term future may include a car with a plug. While we wait for that glorious day to arrive your short-term future will almost certainly include a car with stop-start engine technology.

The issue is simple – sitting at a stop light with the engine running wastes fuel and fouls the air. Depending on traffic, weather and driving habits, the waste can range from 5% to 15%. On a personal level the waste may seem modest, but on a national scale the numbers are mind-boggling.

The solution is simple – use cheap and effective automatic stop-start technology to turn the engine off every time a car rolls to a stop and automatically re-start the engine when the driver takes his foot off the brake.

If all cars in the US used stop-start systems, the nation would save 10 billion gallons of gasoline a year while reducing CO2 emissions by 100 million tons. I think saving the equivalent of 50 BP-class oil spills per year is a worthwhile goal. The EPA and the NHTSA seem to agree because they've recently adopted regulations that are expected to drive stop-start technology into at least 40% of the new car fleet over the next five years.

Ford Motor Company (NYSE:F) has already announced plans to ramp stop-start engine production to 1.5 million units a year by 2013. Other automakers aggressively pursuing stop-start technology include PSA Peugeot-Citroen (OTCPK:PEUGY), BMW (BAMXY.PK), Hyundai (OTC:HYMLF), Mazda (OTCPK:MZDAF), Nissan (OTCPK:NSANY), and Volkswagen (OTCPK:VLKAY). Market penetration estimates range from 10 to 20 million cars per year by 2015, and those estimates will be woefully inadequate if Chinese proposals to require stop-start systems on all internal combustion engines by 2012 are implemented.

The key takeaway for investors is that stop-start technology is not a somewhere over the rainbow solution. The technology is real, it's proven and it's being implemented today in auto factories worldwide.

Reduced to basics stop-start systems are simple. The automaker replaces its normal starter and alternator with a belt driven integrated starter generator and then adds the necessary control electronics. After several years of experience with over a million stop-start vehicles in Europe the biggest issues are battery problems.

Stop-start systems are hard on starter batteries because instead of starting a car once for a normal commute, a car equipped with stop-start can restart the engine 10 or even 20 times. Heavy accessory loads that must be maintained while the engine is off increase the complexity. In stop-and-go urban driving, where two-, three- or even four-light backups at busy intersections are not uncommon, the battery strain is enormous and performance deteriorates rapidly.

Initially, the automakers' response to battery issues was to upgrade from commodity starter batteries to higher quality valve regulated lead-acid (VRLA) batteries. Since their stop-start systems still fell short of optimal performance, a more recent trend has been to use two high-quality VRLA batteries instead of one.

I frequently write about a new generation of lead-acid batteries that use carbon additives or components to increase cycle-life and power while reducing the time required to bring the battery back to a full charge. Last week I found an obscure presentation that Axion Power International (NASDAQ:AXPW) used at last September's Asian Battery Conference in Macau. This presentation is the first document I've found that shows how several different types of lead-acid and lead-carbon batteries perform under simulated stop-start driving conditions.

The testing protocol began with a one-minute discharge at 50 Amps to simulate engine-off accessory loads that was followed by a brief 200 Amp starter load. It then measured the maximum current the battery would accept and the amount of time required to return the battery to a full state of charge.

The first graph shows the performance of a high-quality VRLA battery. The 4,000-cycle test period is roughly equivalent to six months of urban driving at 30 stop-start cycles per day. The downward curving blue line shows the maximum charge current the battery would accept as the number of cycles increased. The upward curving black line shows the amount of time required to restore the battery to its initial state of charge.

8.26.10 VRLA.pngClick to enlarge

(Click to enlarge)

The second graph shows the performance of a high-quality VRLA battery with high surface area carbon added to the electrode pastes. While charge rates and recharge times improve, the performance degradation is still pronounced over the testing period.

8.26.10 VRLA+HSAC.pngClick to enlarge

(Click to enlarge)

The third graph shows the performance of a high-quality VRLA battery with conductive carbon added to the electrode pastes. While charge rates and recharge times show additional incremental improvement over high surface area carbon, the performance degradation is still pronounced.

8.26.10 VRLA+CC.pngClick to enlarge

(Click to enlarge)

The final graph shows the performance of Axion's PbC battery, a battery/supercapacitor hybrid that replaces the lead-based negative electrodes with carbon electrode assemblies. Further comment seems superfluous.

8.26.10 PbC.pngClick to enlarge

(Click to enlarge)

Several publicly held energy storage companies are actively developing solutions for the stop-start market. Johnson Controls (NYSE:JCI) has sold the lion's share of stop-start batteries to date and seems content to stick with traditional VRLA chemistry while focusing its research and development efforts on lithium-ion batteries.

Exide Technologies (XIDE) and C&D Technologies (CHP) are both actively developing VRLA batteries with carbon additives. Exide is focusing on lead-carbon batteries for stop-start applications and C&D is focusing on lead-carbon batteries for stationary applications.

After seven years of research and development, Axion Power International is just now making the transition to commercial production. Its multi-patented carbon electrode assemblies have been designed to work as plug-and-play replacements for the simple lead electrodes used in battery plants worldwide and its goal is to become a leading manufacturer of high-value electrode assemblies that will be sold to other battery companies that want to offer a better product to existing customers. Axion's manufacturing partners include Exide Technologies and privately held East Penn Manufacturing. It has also entered into a development relationship with Norfolk Southern Railroad (NYSE:NSC) and quietly conducted product testing for a bevy of first tier automotive OEMs over the last 15 months.

The last serious contender in the stop-start game is Maxwell Technologies (NASDAQ:MXWL), which has partnered with Continental AG (OTCPK:CTTAY) to develop a stop-start system that uses conventional VRLA batteries in tandem with Maxwell's BoostCap supercapacitors to satisfy the requirements of stop-start applications.

Given the amount of press and PR hype that have surrounded automakers plans to make tens of thousands of plug-in vehicles over the next few years, most investors are surprised that they haven't heard more about plans to make tens of millions of stop-start equipped vehicles. The only explanation I can offer is that plug-in vehicles have a great deal of long-term PR value while stop-start systems involve bread and butter production decisions that will materially impact the bottom line over the next few years.

If dual-battery stop-start systems become the norm, the short-term revenue gains for a handful of lead-acid battery and supercapacitor manufacturers could easily amount to a couple billion dollars per year. Since high quality VRLA batteries and carbon-enhanced products will typically command a higher margin than commodity lead-acid starter batteries, the bottom line impact should be impressive. For now, most of the likely beneficiaries of stop-start technology implementation trade at bargain basement valuation multiples. As the automakers begin announcing design wins for their upcoming stop-start product lines, that dynamic will change rapidly.

Unlike the lithium-ion advocates, I don't believe in the absurd idea of "One Technology To Rule Them All." Given the size of the market and the variety of potential solutions the only thing that matters in my book is being in the game. Since September is traditionally the month when first tier automakers introduce their new product lines for the coming model year, I think things are about to get interesting.

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