I've been writing about micro-hybrid vehicles and stop-start idle elimination since May 2009. It's a cheap and simple fuel efficiency innovation that turns the engine off while a car is stopped at a light and automatically restarts the engine when you take your foot off the brake. It's not gee-whiz sexy, but it can boost fuel economy by 5% to 15% in city driving and dramatically improve urban air quality by reducing idling. What could be more sensible?
When I first wrote about stop-start in "Why Advanced Lead-acid Batteries Will Dominate the HEV Markets," the only market forecast I could find came from Frost & Sullivan, which predicted that global micro-hybrid sales would ramp from 800,000 units in 2008 to about 10 million units in 2015, a superb growth rate by almost anyone's standard.
By April 2010, expectations about the ramp rate for stop-start technology had increased significantly and the final rule release for new CAFE standards predicted that stop-start would be used in 42% of new US passenger cars by 2016. In its recent Power Solutions Analyst Day presentation, Johnson Controls (NYSE:JCI) summarized automakers current plans and forecast a global penetration rate of 25 million stop-start vehicles per year by 2016, over 2-1/2 times the rate forecast by Frost & Sullivan in 2009.
By 2020, JCI expects global stop-start vehicle sales on the order of 50 million vehicles per year.
Regardless of what you believe automakers and consumers should do when it comes to fuel efficiency, it's clear that the automakers are implementing stop-start at a fevered pace and the technology will become standard equipment over the next five years. In response to surging demand from automakers, JCI is ramping its manufacturing capacity for absorbed glass mat, or AGM batteries, from four million units this year to an estimated 18 million units by 2015. Other manufacturers like Exide Technologies (XIDE) are following suit and it won't be long before cars equipped with stop-start systems are saving more fuel per year than all HEVs, PHEVs and BEVs combined.
Baby steps and low hanging fruit are important!
Despite their fuel economy advantages, stop-start systems are very hard on the batteries that need to restart an engine ten or even twenty times in a typical commute and carry accessory loads during engine-off intervals. In the real world, stop-start systems work great when the batteries are new but quickly lose their functionality as the batteries age. The following graph from the Department of Energy's Idaho National Laboratory illustrates the problem with shocking clarity.
With brand new batteries the test vehicles had great fuel economy. As the batteries deteriorated over a few months of use, the bulk of the fuel economy benefits vanished. At last September's European Lead Battery Conference, BMW and Ford (NYSE:F) explained the problem in a joint presentation that focused on dynamic charge acceptance, the ability of a starter battery to recover the energy used during an engine-off cycle and get ready for the next engine-off cycle. The key take-away from the BMW-Ford presentation was that today's leading battery technologies, including flooded and AGM batteries, are not well-suited to the extreme power and charge acceptance demands of stop-start systems.
For stop-start to reach its full potential, the auto industry desperately needs a better energy storage solution.
Maxwell Technologies (NASDAQ:MXWL) and Continental AG developed the world’s first enhanced energy storage system for stop-start vehicles with diesel engines manufactured by Peugeot-Citroën. The system uses a supercapacitor module from Maxwell and an AGM battery from Continental to ensure that there will be enough power to restart the engine at the end of a stop-start cycle. While the Maxwell-Continental system is a significant advance over AGM batteries, it does not address the core issue identified by BMW and Ford, which is the ability of the battery to recover the energy used by a vehicle's accessories during an engine-off interval. It does a great job of carrying a 300 amp-second starter load, but does very little to help the battery recover from a 3,000 amp-second accessory load.
A123 Systems (AONE) developed a second enhanced energy storage system for stop-start based on its lithium iron phosphate technology. The one kilowatt-hour battery pack offers the cold cranking amps of a high quality lead-acid battery, the high charge acceptance of lithium-ion batteries and a weight reduction of about 20 pounds.
Axion Power International (NASDAQ:AXPW) is currently completing the development of a third enhanced energy storage system for stop-start vehicles based on its PbC technology, a lead-carbon hybrid that does not suffer from negative plate sulfation, the primary failure mechanism for both flooded and AGM batteries in stop-start applications. At last September's European Lead Battery Conference, BMW and Axion presented test data confirming that the PbC retained its dynamic charge acceptance through the equivalent of four years of use in stop-start simulation. In a recently published white paper, Axion released more detailed information on the performance of a dual-battery PbC system.
Currently, the market for stop-start energy storage systems is wide open and there is very little clarity about the types of systems automakers will ultimately choose for their vehicles. The following table summarizes the alternative approaches automakers are actively testing and evaluating, and provides a rough estimate of the cost of each energy storage alternative.
|Enhanced flooded batteries (single battery system)||JCI Exide||$75|
|Enhanced flooded batteries (dual battery system)||JCI Exide||$150|
|AGM batteries (single battery system)||JCI Exide||$150|
|Dual battery - flooded starter battery with AGM accessory battery||JCI Exide||$225|
|Dual device - supercapacitor starter with AGM accessory battery||Maxwell Continental||$250|
|Dual device - flooded starter battery with PbC accessory battery||Axion Power||$325|
|Lithium-ion battery||A123 Systems||$750|
The emergence of stop-start as standard equipment presents a tremendous opportunity and a tremendous challenge for energy storage developers and manufacturers. Automakers are accustomed to paying $75 for a starter battery and there is intense pushback against dual battery systems and AGM batteries that will double the cost. Despite the automakers' resistance to cost increases, many have accepted the reality that they'll have to upgrade to single battery AGM systems or even dual battery systems that use an AGM battery for accessories and a flooded battery for the starter. To date only one automaker has made the decision to upgrade to a dual device supercapacitor and AGM battery system, however A123 systems has said that an undisclosed automaker has signed a production contract for its lithium-ion starter battery. The Axion system is currently being tested by BMW and several other automakers, but has not yet captured a design win.
I see the market for stop-start batteries as a knockdown drag-out brawl for the next couple of years. Consumers will not be happy with stop-start systems that offer great performance for a month or two and then deteriorate. While the automakers will resist upgrading to premium energy storage systems, customer demands coupled with constantly increasing regulatory pressure to improve fuel economy will force them to implement more sophisticated and expensive systems from Maxwell, A123 and Axion.
In the third quarter Maxwell gained 13% while the broader markets lost 13%. At yesterday's close, Maxwell had a market capitalization of $495 million and was trading at 4.7x book value and 3.5x trailing twelve month sales. Those metrics strike me as expensive compared to A123 Systems, which has a market capitalization of $381 million and trades at a discount to book value and 3.6x sales. Since it's still in the last stages of product development, Axion carries a very modest market capitalization of $42 million, or about 1.5x book value (after adjusting for bargain asset purchases) and trades at 4x to 5x anticipated 2011 sales.
While established lead-acid battery manufacturers like JCI and Exide will be the first beneficiaries of the stop-start market as their revenue per vehicle doubles and their margins triple, the energy storage system that offers the best combination of price and performance will ultimately win the lion's share of the market. While it’s impossible to pick a winner at this point, second, third or even fourth place in a $7 to $10 billion dollar market niche with no solidly entrenched competitors could be a company maker for any of the emerging technology developers.
Disclosure: Author is a former director of Axion Power International (AXPW) and holds a substantial long position in its common stock.