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EPower Progress Update

|Includes:Axion Power International, Inc. (AXPW)

I spent the last couple days in Florence meeting with potential supply-chain partners and tracking progress on our third generation series hybrid drivetrain for Class 8 trucks. While things are progressing more slowly than we hoped they would, we're still on track to have both prototypes on the road by January. Axion Power International (NASDAQ:AXPW) delivered battery boxes for both trucks this week, the paintwork on the day cab is progressing nicely and our last major hurdle is getting the Cummins six-cylinder engines running the way we want them to. To make that happen we need to find novel ways to make the engine's onboard computer, or ECM, think it's working in a conventional drivetrain instead of a series hybrid drivetrain.

We've bought two of the 6.7L Cummins engines from trucks that were wrecked after a few thousand miles. The first is a 2010 EPA compliant on road engine and the second is 2014 EPA compliant. Since the 2014 compliant engine presents the most complicated ECM issues, we've tackled it first. We have the engine and exhaust system sitting on the shop floor in a test rack while we work out the ECM issues. Once that work is done we'll install it in the sleeper cab tractor and go to work on the day cab.

This engine is unlike any diesel I've ever seen, or for that matter dreamed about. When we ran it for a few minutes inside the shop there was no black smoke and no exhaust smell beyond a faint whiff of amonia. When I asked Jay why we weren't choking from the exhaust fumes he told me that in the City of Los Angeles the exhaust from the 2014 compliant engine was cleaner than the air going through the intake manifold. It's an amazing piece of engineering and our biggest challenge is finding clean work-around solutions for the ECM that won't throw the engine out of EPA compliance.

The ECM apparently monitors 240 data channels including about 120 channels for the engine and another 120 channels for other truck components including the fuel system, throttle, clutch, transmission, differential, cruise control, speedometer, tachometer, particulate filter, warning lights, etc. It's an incredibly long list of ancillary components that must send the right signals to the ECM or the engine will default to idle mode until the problem is resolved.

Our challenge has been finding ways to get the right signals to the ECM without throwing the engine out of compliance. The engineering team from Cummins has been very helpful in terms of guiding our efforts, but nobody has ever tried to make an on-road diesel engine power a generator before. So we have to work our way through the sensor systems one circuit at a time and find ways to give the ECM the signals it needs. Each step along the way involves a phone call with a Cummins engineer, a decision respecting the right way to provide the necessary signal and sourcing the right components. The team generally spends more time waiting for UPS to deliver a component than it does installing the component and moving on to the next issue. It's an incredibly tedious process but we're almost done. We have a couple of Cummins engineers scheduled for next Tuesday and hope the ECM issues will be resolved before they leave.

Once the ECM is working properly for our configuration, Cummins will make another visit with their load-testing equipment to ensure that the engine and generator are putting out the power profile we want. When the load testing is completed it will only take a couple days to move the engine and exhaust system from the shop floor to the tractor. Once we've worked our way through the process with the 2014 compliant engine, the 2010 compliant engine should be much easier. My best guess is that we'll have the sleeper cab running in the first or second week of December and it will take another couple weeks to get the day cab running.

We're still trying to figure out how we want to handle the preliminary fuel economy testing. We have a very small staff and if the guys are out testing fuel economy on the sleeper cab they can't be turning wrenches on the day cab. So we'll have to make some hard choices. We're just dying to find out how the sleeper cab performs with the new engine. So the urge to push off work on the day cab while we test the sleeper is pretty strong. At the same time we have a contract hauler for FedEx who really wants to put the day cab to work hauling freight. We'll figure it all out, but the choices won't be easy.

I'm very pleased with the discipline I witnessed this week and the team's refusal to take short cuts that would be good enough for now, but not quite right.

Disclosure: I am long AXPW.

Stocks: AXPW