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

    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.

    Tags: AXPW
    Apr 16 5:28 PM | Link | 11 Comments
  • Axion Power International PbC Cost Estimating Spreadsheet

    In an effort to provide Axion Power International (AXPW.ob) investors some diversion from the tedium of waiting for financing news, I've built a spreadsheet with my attempt at an algorithm for estimating the cost of PbC batteries. I won't be able to do that with precision, but hopefully it'll be a useful tool that you can edit to arrive at your own estimates. Generally speaking, I think these numbers are conservative. I fully expect that the real total cost number for a 30HT-sized PbC is less than my $269 estimate.

    John Petersen is kindly hosting the spreadsheet, which you can download at:

    https://dl.dropboxusercontent.com/u/26257506/4.30.13%20PbC%20Cost%20Estimate.xlsx

    The spreadsheet has a lot of explanatory info in it, including John's comments in yellow and references to discussions in past Axion concentrators.

    The spreadsheet begins with my estimate of the economics of an AGM battery. I started with my assumptions for the selling price, gross margin, and weight/cost of lead to solve for all other costs referred to as "non-lead costs".

    In addition to providing a basis for comparison, I carry the non-lead cost down into the PbC section to provide a baseline PbC cost.

    I add to that baseline the cost of the lead in the PbC. Note, I'm assuming the lead content of a PbC is 70% of that of an AGM not our "traditional" 60% number. John Petersen recommended this change. Additionally, drawing from numbers mentioned in various concentrators, I put together fixed cost allocations for the carbon sheeting and electrode lines using a five year assumption and an annual production volume of 50,000 units.

    The 50k unit volume is much less than our current estimate (90k) of Axion's PbC production capacity. I did this to be conservative because the smaller the production volume number, the higher the per-unit cost allocation and of course the higher the total cost and, presumably, sale price numbers must be. As you can see, this analysis represents an exercise in forward pricing and this number is the key lever for that analysis.

    In addition to the fixed cost allocation for the two lines, I also came up with operating cost assumptions of $150k and $600k for the Carbon Sheeting and Electrode lines respectively. The former is for a single shift while the latter assumes two shifts. I also made the latter much larger because in addition to being more expensive, it also seems to be much more complicated. Still, I acknowledge that there is a lot of WAG there.

    Side note: If you don't want to use forward pricing then use 2,000 units as the production volume assumption and cut the electrode operating cost number to reflect a single shift.

    At the bottom of the spreadsheet I arrive at a total PbC cost and provide a place for the user to enter a price point. The spreadsheet then calculates the gross margin as well as the gross profit assuming 50k units and the current state $8m annual burn rate.

    A $360 price point gets you to the 25% margin that we think is the norm for AGM in the industry today. Axion would still be losing money ($3.4m net loss) if it sold 50k units at that price.

    Eventually, if not sooner, Axion may have higher margins due to its unique and patented technology. For example, if Axion continues at the Norfolk Southern price of $463 then it would have a 42% margin and $1.7m net income on 50,000 units.

    Disclosure: I am long OTCQB:AXPW.

    Additional disclosure: I have a long position in Axion stock but consider it an extremely risky investment not suitable for most people.

    Tags: AXPW
    May 01 10:53 AM | Link | 20 Comments
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