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What The PLUG Experience With BMW May Imply For AXPW's Timeline

|Includes:Axion Power International, Inc. (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