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Al Marshall
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Individual Investor in stocks as well as an investor and adviser to start-ups. Most of my background is in marketing and product management with some experience as a management consultant and US Navy intelligence officer. MBA and BA degrees from the University of Chicago.
  • What The PLUG Experience With BMW May Imply For AXPW's Timeline 11 comments
    Apr 16, 2014 5:28 PM | about stocks: AXPW

    Several months ago I conducted a review of Plug Power's 10K/10Q reports from 2010 to 2013 and its conference call transcripts from 2012 to 2013 looking for clues regarding how long Axion's relationship with BMW could take to bear fruit. The results do not seem to shed any great insight but may be of some small utility to hardcore Axionistas impatiently waiting for the Q1 2014 earnings report.

    BMW

    From the December 4, 2013 transcript: "At BMW, in 2009 started with 80 units in their facility. Today, as they use and expand their business, we have over 300 units operating in their facility in Spartanburg, SC, and during the coming year, it's projected to grow significantly." The earlier reference to BMW that I could find in the filings and transcripts was the 2011 10K released in March 2012. It shouldn't surprise Axionistas that the relationship remained confidential for several years.

    I was surprised that those 80 units, out of Plug's 2009 total of 257 GenDrive unit shipments may have made it Plug's largest customer that year (after a lease deal with Central Grocers).

    Plug Power has also reported that it shipped its first GenDrive unit in the 3rd quarter of 2007 (almost certainly to Walmart which signed an "Early Commercial Purchase Agreement" with Plug on October 15, 2007). That would seem to indicate that the first shipment to BMW, could not have been earlier than late 2007. Axion's relationship with BMW probably began around the same time or later, depending on the duration of the testing cycle that preceded the September 2010 announcement of the Joint Axion/BMW technical presentation at the European Lead Battery Conference.

    While it's hard to compare GenDrive to the PbC, there are three points related to BMW that I would like to highlight:

    1. GenDrive is used internally by BMW in its factories while the PbC will actually be deployed in the end product. Presumably the difference will extend the timeline for PbC.

    2. GenDrive was deployed in reasonable quantity with BMW in 2009, so it appears that this phase went on for four years before BMW (assuming PLUGs recent claims are true) elected to scale up the program. If the PbC analogy is fleet testing, that probably didn't begin until late 2012 at the earliest. It would seem that if BMW spent four years 'fleet testing' a forklift system then the estimates within the concentrator that the PbC fleet test would last six months would seem to represent a gross under-estimate. Even an abbreviated 2 year test wouldn't be completed until late 2014. Worst case, I think the manufacturing partnership discussion could have been a prelude to final fleet testing. To use a pharmaceutical example, the FDA won't approve a drug if the manufacturing process of the drug for the trial is different from the commercial manufacturing process. I know that's a high bar but we're talking here about a company that spent four years testing 80 forklift trucks which were expected to have a 3+ year service life. In summary, Plug Power's relationship with BMW would seem to show that the process takes a long time. My best guess is that if PbC batteries were manufactured by the partner in mid-2013 that a 2 year fleet test would bring us to mid-2015 to demonstrate clear superiority over existing solutions.

    3. I think the PbC addresses an important concern of BMW (its poor stop-start functionality) while GenDrive's impact on BMW, while highly measurable, is very limited. This expected greater sense of urgency could shorten the PbC timeline although we certainly shouldn't expect BMW to cut any corners.

    4. PbC is a core technology while GenDrive is an application technology built around a 3rd party hydrogen power pack (Ballard Power)

    I believe there are a few interesting data points but don't want to overstate their value or the value of comparing these two companies. I will say that Axion longs might take heart from seeing just how slow-moving BMW can be and also that BMW didn't invest in PLUG even though PLUG clearly needed the help and, it would seem, BMW did believe in the product.

    Disclosure: I am long AXPW.

    Additional disclosure: I am a long-time follow of AXPW.

    Stocks: AXPW
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Comments (11)
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  • Mayascribe
    , contributor
    Comments (9582) | Send Message
     
    Great stuff, Al!

     

    For me, Axion is similar to a late Phase II biotech. And maybe, just maybe the DOE announcement, may "act" like BARDA, and maybe, just maybe, Axion can land a few subsidized grid POs to ramp out the next cap raise.

     

    But I'm not counting on it. But I am counting on NSC finally rolling out the 999 late June to great pomp and fanfare.

     

    16 Apr, 06:44 PM Reply Like
  • User 393748
    , contributor
    Comments (216) | Send Message
     
    apmarshall62-->> Thanks for this much appreciated info. The lengthy time frames would seem to indicate that BMW is doing their testing in a thorough manner, as well. If they are being as thorough as these time frames would indicate, then a stamp of approval from BMW would mean that one has a product that has passed some very tough analysis and testing regimes.
    16 Apr, 07:26 PM Reply Like
  • SMaturin
    , contributor
    Comments (2100) | Send Message
     
    Semi-non-random thought:

     

    If the forklifts were designed for a 3+ year life and have been tested for four+ years, does that mean part of the test is to test until failure, to learn more about failure modes of the technology?

     

    If the PbC has the longevity we think it does, that means we may be waiting quite a bit longer for BMW to publicly declare it acceptable!
    16 Apr, 07:41 PM Reply Like
  • AlbertinBermuda
    , contributor
    Comments (693) | Send Message
     
    SM

     

    I liked your comment but hate the thought that BMW might have years of testing to failure ahead for us Axionistas.

     

    On the other hand, BMW is a German engineering company and if its anything like the German engineers that I have met over the last 40 years they will test, document and push the PbC way beyond their requirements just out of professional interest.
    17 Apr, 02:36 PM Reply Like
  • Stefan Moroney
    , contributor
    Comments (2481) | Send Message
     
    AP - Thanks for directing me to your insta. Interesting comparisons.

     

    Because the lead times are so much longer, it is disappointing that TG cannot figure out a creative way to impart NDA neutral development in various initiatives, i.e. - Do we know for sure that Axion is fleet testing right now? I don't think so, as I recall, last we heard is that a top 5 Asian was considering it. Then crickets ...
    16 Apr, 09:16 PM Reply Like
  • Al Marshall
    , contributor
    Comments (495) | Send Message
     
    Author’s reply » Mayascribe/SMaturin: Yes, it did seem like BMW was testing past the point of expected failure and it would seem that perversely that longer than expected service life may have led to a delay in further deployment. It seems that sometimes happens in drug trails as well where you have to wait for a certain number of patient "events" to happen and a good performance ends up extending the trial.

     

    Stefan: Yes, you are right that we don't know what is going on with the fleet testing. To some extent, I think TG should be willing to disclose some information and then apologize rather than ask for permission in advance. That was an old Navy saying "better to apologize than ask for permission" if you want to get something done.

     

    JP is dead set against that, but how many tens of millions of shares would a few leaks save you and if it cost you some business how much of that would be gone forever? Again, it's a case of balancing. Anyone have any doubt about what Elon Musk would do?

     

    User393. No doubt a BMW endorsement would open many doors. Still, the Plug analogy implies it could be years away.

     

    I do agree with Maya that the new $4b program for grid storage could be a great break for Axion. However, my cynical side makes me think that it could just be a more creative way for government to funnel money to Lithium-ion, it's chosen solution, after the manufacturers' loan program route was discredited. If the latter is true then it could mean big trouble for Axion if developers must use lithium ion technology to be eligible for the program. Gosh, I sure hope that's not the case!
    16 Apr, 09:45 PM Reply Like
  • bazooooka
    , contributor
    Comments (2322) | Send Message
     
    Great write-up but I'm not so sure that BMW speed in deployment in forklift choices will apply to how quickly they move in auto design because the latter is subject to market competitive forces. The first is an internal matter while the second one is their reputation and livelihood and they can't let the market run from them if they have a better mousetrap window. Agreed; it sure does seem like 4 years is a long time to proceed with second round of forklift orders. Hard to tell if this bodes positive or not. I guess it helps those who question if BMW is even still in the PbC game.
    17 Apr, 04:26 AM Reply Like
  • kevin lemm
    , contributor
    Comments (87) | Send Message
     
    apmarshall,
    Your third item regarding BMW’s current troubles with their start/stop function and BMW not wanting to cut corners has always been confusing to me. After successful testing of the PbC battery, it appears BMW knowingly cut corners on its current S/S version and elected to go with an inferior battery system. Why would BMW risk its’ reputation with an inferior system and have to revert to putting in a user accessible start/stop over-ride switch. Were they required to present an improved MPG line up and that was the best they could do at this time? Could they instead present a limited version of a workable system and only sell/build a volume with PbC batteries that Axion can supply? I know the automotive supply chain is a complicated system, but it seems every manufacturer is using a battery system with a S/S option that is destined to disappoint its owners, and their reputation doesn’t seem to be a concern. Considering the awful press regarding recalls, the GM ignition switch, combined with their seemingly cavalier attitude toward the problem is a good example, I would think making fewer models with a start/stop system that actually works would be better than mass producing an inferior start/stop option.
    17 Apr, 09:47 AM Reply Like
  • Al Marshall
    , contributor
    Comments (495) | Send Message
     
    Author’s reply » Kevin: My understanding of this issue is based on what has been posted in the concentrator over the years.

     

    First, BMW is extremely focused on cost and AGM is much less expensive than PbC. Also, considering the former is proven and the latter is not, that makes it harder to overcome the cost issue. Note GM's ignition switch issue was reportedly based on a sub $1 difference in cost, so we can only imagine the reaction a $200+ cost difference vs. AGM would cause.

     

    Second, the protocols for measuring fuel economy both in Europe and the U.S. only measure new car performance and thus don't penalize AGM for its failings. Furthermore, the protocol reportedly doesn't include as many and as long of duration stops as is seen in typical driving, so start/stop doesn't help the "official" numbers as much as it should.

     

    Finally, S/S doesn't impact the basic operation of the car and they somehow came to the conclusion that the cost/benefit equation worked out in their favor. Also, considering that pretty much all the automakers have made the same choice would seem to indicate that it was a clear-cut choice.

     

    Axionistas in general believe that eventually all these factors will change in our favor but it likely won't be until the 2015-2020 period.

     

    Addressing your idea of using only a limited number of PbC batteries more directly, I just don't think automakers operate that way. Also, they aren't in a hurry to use the PbC because it is patented and there aren't multiple suppliers and therefore they don't want to put themselves in a position of dependency on a monopoly supplier. I also believe that if they deploy the battery then they are validating it in the eyes of regulators who will be more likely to exert pressure to use it. As of right now, they can say the PbC is unproven and therefore the regulators would put any pressure on the automakers to use it. Sort of a chicken and egg situation.

     

    iindelco in particular has argued that automotive is important for the validation not the profits. I have a little more optimistic view because I think of automotive as Axion's reward for success not the cause of it. In other words, I think exactly zero of Axion's first $100m in revenue will come from automotive but once it is proven then the automakers will start to adopt it and possibly in a big way. In yet other words, I think automotive may turn a ten-bagger into something bigger but it isn't going to get the stock to $1.
    17 Apr, 12:31 PM Reply Like
  • kevin lemm
    , contributor
    Comments (87) | Send Message
     
    Al thanks for the reply, and you are right of course, but at some point I would have to think some automotive entity will consider their reputation in the cost/benefit calculation. Judging by the comments from disgruntled BMW owners that I see when doing an internet search regarding S/S, the cost/benefit calculation should have included the value their reputation. It seems BMWs' deviation from build it right or don’t build it at all is causing a deterioration to the reputation of a company that sells itself as “the ultimate driving machine”.
    18 Apr, 08:13 AM Reply Like
  • Al Marshall
    , contributor
    Comments (495) | Send Message
     
    Author’s reply » Kevin, let's hope so. I do think that in time it will happen. Maybe an upstart like Kia/Hyundai might have the incentive to be a first mover on this technology (maybe they could get a period of meaningful exclusivity out of Axion) but I'm sure they are very concerned about costs given the ongoing decline in the Japanese Yen is likely to make Toyota and Honda even tougher competition for the foreseeable future.
    18 Apr, 09:38 AM Reply Like
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