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Axion Power Concentrator 119: June 23, 2012: Notes And More From The June 21, 2012 Shareholders Conference

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


Why I focus on Peer Group Comparisons

Instablog by John Petersen


Axion Power: "About To Take Flight"

by Mayascribe

A veritable cold front blew in for this year's Shareholders' Conference. Last year it was searing, at 102 degrees; this year we topped out at only 94 degrees. The humidity was drenching, the beautiful New Castle Country Club pool looking inviting, even at 10 AM.

Attendance was up significantly this year versus last year. Though the numbers are still small, and subtracting that there seemed to be half again more Axion Power employees present this year than last, it also seemed that there was a solid 50% increase from shareholders and perspective investors present.

The business part of the meeting went smoothly. All motions were approved and seconded. Director, Mr. Glenn Patterson, was given a very nice crystal plaque for his "all-in" help over the years in bringing forth Axion Power to where we stand today.

With the business out of the way, CEO, Thomas Granville, stepped up to the podium smiled, and said, "This is when the fun begins!" Tom did not this trip recount the early stories of how Axion Power came into being, but he did talk about the roster of contributors, from the board of directors, to leading officers, to developmental executives and shop foremans, of which I feel we are so lucky to have.

I always enjoy listening to Thomas Granville tell a story, and my favorite this year was about the hiring of Vani Dantam. At first, Thomas wasn't sure that Vani Dantam, the new Director of Marketing, would become part of the Axion team. But Vani sought out Axion (if I am correct), because of the unique properties the PbC holds.

It rapidly became apparent to Thomas that Vani had amassed over his working years and amazing depth of knowledge of the automotive industry, and also held an equally amazing array of key contacts throughout the industry.

Seemed for a time, that Vani's pay grade was above what Axion Power could afford. But, a deal was made, Vani rented a place in New Castle, enrolled his kids into local schools, and now is a New Castle home owner in permanent residence.

I think he was smiling more than anybody present, of Axion leadership, or the shareholders.

As most of you know, Vani Dantam used to work with the now defunct Ener1. My absolute favorite story he told, was that his wife, "Made him park his Ener1 Lithium battery test car down the street from his home," reminding me of last year, when Thomas introduced the quite humorous new term, "Car-B-Que."

Followers of this blog, must realize that that was a very prescient, and full of imagery new "Urban Dictionary-type term," as we all have read and seen pictures of numerous lithium cars spontaneously blowing up, the GM hardened laboratory having an eight inch thick steel door bent up, and some lab windows getting blown out; people unfortunately injured.

Vani is indeed a very knowledgeable man, and I found him sincere and accomplished in answering all but Rastro's question (a shareholder from Pittsburgh) who asked about what scientific problems existed with the PbC. After a long, pregnant pause, Vani couldn't think of one! Except for trying to get industries to realize that the PbC has capabilities that rival, or in some cases, are better than lithium ion batteries.

The PbC is cheaper to make, safer to make, easier use, and much safer to use. The PbC does not require TWO reinforced steel "casings." The PbC does not require as much ancillary costs, such as wiring, a clean room for making lithium ion batteries, and a much more complicated Battery Management System, and coolant barriers. The PbC is safer to transport. The PbC works better in extreme temperatures, and this is perhaps my biggest takeaway from this shareholders meeting:

The PbC accepts a charge two to four times as fast as does a lithium battery. How huge is this fact when it comes to using the 12 Volt PbC (or the 16 volt big brother 30HT) in stop/start vehicles, for over-the-road and yard switching locomotives, and especially for grid applications.

It wasn't until this meeting, my third time to visit New Castle, that I feel I have a much better understanding of the PbC. For lay people, or non-battery geeks like me, I will attempt to explain the PbC, and its make up.

Each PbC is really a string of two volt batteries inside a single casing. For the 12 volt PbC, there are six two volt batteries. For the 16 volt 30HT, there are eight individual two volt batteries in a casing that stands about 30% taller than the 12 volt PbC.

So in affect, each battery, the PbC, or the 30HT, is actually a string of two volt batteries within a single casing.

I will herefoward refrain from using terms such as "cathodes" or "anodes" when referring the two "poles" that emerge from any battery casing. It will now be the negative pole and the positive pole, because inside the PbC or 30HT are many electrodes and carbon activated sheets (which I formally thought was the cathode).

Many months ago, I was embarrassed, could not even post a comment about where the activated carbon sheeting was made. Been there twice before, and I had not seen it. How could this be? I felt I was letting all of you down, and quite frankly felt all the good and innocent qualities "ignorance" implied by my utter lack of where-about knowledge. I finally had it confirmed that I will never see them made. And very few ever will. My best guess is that the carbon sheeting is made in some "Bat Cave" below the Clover Lane way to be sure! Hugely likely that only a very few Axion employees ever get to see or work on the activated carbon sheeting process being manufactured.

The 10 AM morning meeting went fast. The Q&A spilled beyond the allotted 1PM time. I believe about half of all questions asked, were asked by "Axionistas." All were very informed questions. Later in the day, at the cocktail party, Thomas spoke to myself and others that he really enjoyed answering, taking on hard questions, as it helps in the future with explaining the capabilities and the future potential for the PbC.

Which circles back to Vani Dantam. The hardest thing for him and all of the Axion leadership to accomplish, is to take head on all the lithium hype, all the government subsidies, all the media coverage, the backing by uninformed, or improperly informed Washington DC politicos. The "appearance" that shifting away from lithium back to "lead acid" seems to have taken on a patina of going in reverse technological innovation. This is an ongoing very hard message to turn on its head: That lead acid is NOT a bad thing simply because lead is used. Lead acid batteries are the most recycled product of ANY product used in the United States. Over 99% of all lead acid batteries are recycled, and there is money in the reclaiming of the lead to be recycled into new batteries. Lithium ion batteries are virtually non-recyclable; people, companies get paid to recycle lead acid batteries, but they have to have to pay to dispose of, or recycle lithium.

How our leaders actually want to obtain lithium, to become depended upon lithium sources outside the US, largely mined in unfriendly nations, is beyond this writer. The current policy in Bolivia, is to invite all the foreign investment they can obtain, to build lithium mines. But there is no guarantee that any plant built will not someday be nationalized. There are other countries in the world with lithium potential. But any new lithium mine of "worthy" size, will cost several hundred million dollars to create.

Then, of course, there is lithium and "battery grade" lithium, much, much more expensive and rare. I encourage the more informed to comment about lithium potential resources availability around the world.

The curious question for our US leadership, both corporate and public, is: Why are we hyping, subsidizing and developing multiple industries to use lithium when it comes from foreign and potentially unfriendly nations. Haven't we been sending trillions upon trillions of US dollars to the Middle East, to countries that don't like us, and now we're are on the threshold of doing it again?


Preposterous to me, especially when lead is cheaper, available, and mined in friendlier parts of the world, as well as being mined right here in the US.

Perhaps, Axion's greatest challenge going forward is going after and challenging the lithium supporters. It seems the automakers are focusing more on weight and subsidies, than dynamic charge acceptance, driver (and homeowner's) safety, and most importantly, reliability and cost.

SIDEBAR NOTE: I encourage all of us to come up with a boilerplate letter that we can all send to our senators and congressmen/women.

The following are bulleted points (some of my opinion):

Rosewater And The Residential Cube -- Rosewater CEO, Joe Picarelli, learned the night before the Shareholder's Conference that he was to give a mini-lecture introducing this new product. He did excellent job despite the short notice. The press report covers most of what I have to say. I will add though, that this market is a pretty significant development. It's really all about the uber wealthy, with their $100,000 home entertainment, lighting, and security systems.

Many companies that do this have visited New Castle, some staying for two days on their own dime. Companies, or dealerships, also brought their installers, who basically couldn't wait until this product becomes available.

This new cube can be stored virtually anywhere, in a basement, a garage, attic, or outside, in any climate. It locks down a perfectly smooth 110/60 deliverance of power, which, if solar is added, can take a Malibu or Miami mansion completely off grid.

I want one of these!

There remains some questions about UL approval, and if this product can or can't be sold without approval. I gathered that UL approval will be gained by the end of this year.

Joe "Pic" invited me to the September Indianapolis show, the world's largest of its kind, and said he will provide me with a press pass, as this show is not open to the public.

The Grid -- In about two weeks we should hear of an update about FERC regulations regarding pricing policies. My feeling is that the PowerCube sales delays have largely been because of the lack of some kind of pricing guidelines or formulas for the time shifting energy storage capabilities that the PbC holds, as well as other battery manufacturers attempting to help smooth out grid fluctuations.

I do not believe this is an Axion Power exclusive problem, but rather, and industry-wide problem, which has no parameters, no past formulas to base future pricing decisions on, all because this is basically brand new evolving technology (more later).

Railroads-- For quite some time I have held concern for Axion shareholders' hopes that the PbC could be potentially used by all railroad outfits. I had often questioned to myself how viable the PbC would be in the Rocky or Sierra Nevada Mountain chains.

Vani Dantam did speak of Norfolk Southern and its Crescent Line, which basically weaves it's way all the way from New Jersey to New Orleans. Needing clarification of this, I approached esteemed Board of Director, Bob Avrill. My supposition proved correct. The PbC is NOT viable for any rail road company to use in high grade, steep mountains. Simply, and though no climb up is up all the way, nor decent straight down all the way, the PbC would be fully charged in say, the first 10% of a decent. The rest of the trip all the kenetic energy is lost. Nor, would the PbC contribute enough to make economic sense to help propel a long train hauling coal very far up a steep grade.

The PbC further makes no sense in flat states like Iowa.

However, in the "rolly poly" areas, like the Appalachians, the PbC should excel, and save any rail road significant fuel costs. Therefore, I believe that the numbers of potential over-the-road locomotives able to use the PbC with economic viability is greatly reduced.

However, yard switchers, from all rail road outfits, remains prime potential for adopting PbC technology; still a huge market.

According to Thomas Granville, all Axion testing is done, all Norfolk Southern testing is done. Only third party testing at Penn State is what is left. Shrugs followed.

It was mentioned that there will be about 80 new locomotives (or retrofitted?) coming onto the Crescent Line, but not all of them will be using the PbC. I remain unclear if this is because, say for every two diesels used, another one will be a PbC locomotive.

Lastly, far back into the early Axion Power Concentrators, it was suggested by me that racking issues could be a problem holding up things. My information from this meeting is that this was to some degree true.

Automotive -- My sense from New Castle is that the major OEMs are going very slowly with adopting the PbC. Perhaps the biggest problem is in the Catch 22 category. Axion does not have the capability to make millions of batteries. How does Axion gain a major order from a major automaker, if they can't make the batteries? We all know the answer is Axion reaching a partnership with a major battery maker, like Johnson Controls, Exide, Enersys, or East Penn.

This is a tricky area, because PbC technology is not limited to just the Automotive arena. No way can Axion afford to limit its future toward one sector, only to be contained in others. Thomas did mention licensing, or partnering up, but I don't expect this to happen soon with GM (the first time I have ever heard Thomas mention GM, btw) or BMW.

Rather, though, it appears there is STRONG interest from smaller automakers. It is my opinion that the smaller automakers will come out being the smarter automakers, if they do indeed choose the two battery approach using the PbC, and a small cranking battery.

All information we have found here in these forums, and Enders Dickenson's excellent Power Point Presentation at the morning meeting, show categorically that all AGM batteries will fail within about 8 months, some within two months, even if the vehicle is rarely used.

But there is a problem within the problem. Both the automakers and the EPA just don't get it. I expect that the EPA currently is only interested in fuels savings of just bought, drive-off-the-lot mileage and EPA emissions requirements. They are clueless when it comes to when the stop/start feature degrades to where the AGM battery renders stop/start useless.

Sure, the vehicle will still work. But the fuel savings proclaimed by the automakers, and approved by the EPA, essentially breakdown within months after the vehicle is driven off the dealership lot.

It could be several years before the EPA wakes up, and I foresee many, many dissatisfied stop/start vehicle buyers coming more into the media forefront within the next few years. I believe a class action lawsuit could be looming someday. I also believe that someday the EPA will be forced by its own requirements and regulations to enforce the automakers to create a better solution.

For me, and I fully recognize this could take years, but this potential scenario holds majestic, unbelievable promise for Axion Power and the shareholders.

For those of you that recall my family's involvement two generations back, in buying a few shares of a company called Universal Wire and Spring, which then became Hoover Ball and Bearing, and then Johnson Controls: Near the end of the cocktail party I related that story to Thomas Granville, about my grandfather and Abe Lincoln's grandson, both contributing architects to the Camelback Inn in Scottsdale, AZ, -- how one or the other of them recommended buying Universal Wire and Spring --that someday, Axion Power would surreptitiously team up with JCI.

Thomas bloomed a smile, and added he had once stayed at the Camelback Inn.

But...of course, he couldn't comment.

Class 8 Trucks -- Heck, I didn't even know what a Class 8 Truck was before this meeting. But it appears there is potential for the PbC to be used and could obtain as much as a 50% increase in fuel savings, plus have added auxiliary back up power for when these trucks are forced to turn off, rather than idling all night long at rest stops.

Seems like there is some potential here in using a smaller motor with as many as 24 30HTs.

Tim Enright is our resident expert on this subject, so I will step out of the way, and encourage all related Class 8 truck type questions to be posed to him.

Oil Rigs -- It appears the problems with oil rigs is that they just make so much darned money that they don't care about saving fuel. Further, I'm pretty sure the EPA doesn't do enough regulation of particulates spilling into the sky with offshore drilling.

Here is something new. Every once in a while a rogue wave hits an oil rig. These waves can contain the power to disrupt or uplift the cables holding the rig in place. The first thing the rig operators do is to get the drill is pulled up as quickly as possible.

But, if I am correct, firing up backup diesel generators takes far longer than a PowerCube, to begin pulling up the drill. This is a key safety issue both for companies and rig operators that has some teeth.

The PowerCube can respond in milliseconds.

It is expected by Rosewater that once the first PowerCube is sold to any rig operator, the PowerCube will become vogue, and more sales will rapidly pile on.

Mega C's 2,000,000 shares -- To date, not one share has been sold. It is not known if they will be kept, or sold later on. As unpopular as my scenario was received about these shares, I still hold onto the idea that they will never reach the market.

PbC and 400 Amps? Testing And battery Stress -- I was astounded to learn that the PbC can hit the 400 amp mark. But it really means little. No OEM could care about this fact, as they are only concerned with 100 amps. Norfolk may need 200 amps.

But I also have another takeaway, or question to ask our battery geeks. Wouldn't 400 amps with a lithium ion battery put the battery into thermal runway mode?

AONE was rightfully and respectfully hammered upon during this conference. Thomas joked that AONE was once upgraded because a large order was CANCELED, meaning AONE wouldn't lose as much money. The more topline revenue AONE generates, the more money they lose, and the sorrier their bottomline will look.

He added that he was in no way prepared to have a lawsuit because Axion shipped batteries before Axion was 100% completely sure they will work as advertised. Lessoned learned, at the expense of AONE.

It was also discussed that AGM batteries do not perform as well in both winter and summer months, something that will not occur with the PbC.

Another aspect I want to clarify is that I reported from the PowerCube unveiling that the PowerCube can respond in 250 milliseconds. The utility response time is 50 milliseconds.

I did ask Thomas about why there had not been an increase in PbC 100,000 light duty cycles since last year. His response was plain and evident; no OEM cares about any battery that can exceed 100,000 cycles. That's already 8 1/2 years of durable battery life.

The PowerCube -- What's great about having more boots on the ground this year was that it allowed for me to roll around away from groups. I had a wonderful, near private meeting with Enders Dickerson inside the PowerCube. The innards have slightly changed; it seemed there were more batteries than at the unveiling. But, only 100 kw was working. The full capacity of the PowerCube, a half megawatt, has never yet been used all at once. Further, I believe that the PowerCube is NOT running 24/7. It is not producing revenue (which I wouldn't expect this prototype to do yet anyway).

What was really cool was to hear it shifting back and forth every 30 seconds or so, to flawlessly take in power, than a half minute later deliver power back into the grid. So smooth.

Though my iPhone's screen is almost as big, watching the ups and downs in frequency fluctuations was exciting to see on the computer monitor. Perhaps the best feature the PbC holds over all other competitors is how fast the PbC can gain, accept or deliver a charge. In other words, the more, the faster the "needle" (say like taking your forefinger and quickly wiggling it up and down) the better the PbC outperforms all lithium, AGM and flooded lead acid batteries.

Solar and Wind -- There doesn't seem to be any more coming from Envision Solar. But what holds great promise is that there are VERY FEW solar or wind farms that use batteries to store energy. In states like Washington, wind farms have been told to shut down for a stretch of time; there was no room in the grid to accept more electricity.

It appears these are two other industries that have yet to understand or engage in the potential for storing generated electricity, to time shift it and then deliver the electricity later. I have no idea if FERC is involved with this.

Bottom line is that there is almost and endless potential for the PbC, as well as other battery makers, with storage generated from wind and solar farms...already in existence.

Capital Raise, Financing, and Forward Guidance -- It appears almost a lock that the next round of fund raising will occur during the coming fourth quarter. There was very little talked about this. I did, at the cocktail party, relate this column's concerns over how this would affect share pricing to Thomas, Charles Trego and Bob Avrill. Obviously, no one could comment. I did briefly ask Thomas about a "rights offering" or other cap raise ideas, but, as a lowly shareholder, I expected no answer, and quite appropriately, received none.

Earlier, Thomas, at the morning Q&A, assured that he was very confident revenues were ramping quickly. Every single leader of Axion, all sitting up in front, all nodded their heads in agreement.

This is extremely important: East Penn sales are ahead of schedule!

It appears that as fast as Axion can make flooded batteries, East Penn is buying them. Surely, we would all like to see PbC sales ramping, too, but what I covet is that this big brother, East Penn, is helping its little brother hire people, give them work and allow shop workers to be properly trained for when PbC and 30HT sales begin to ramp.

Sidebar Note -- Inventory: Remember that "small mountain" of empty battery casings I witnessed at the PowerCube unveiling? Well, there are still some battery casings stacked on skids. 62 skids in all, 13 holding 30HT casings. But nothing like how many there were back in November. It also seems that Axion is now having them made domestically, rather than importing them from China.

I could easily crunch out the exact numbers of both PbC and 30HT casings, but to me, it really doesn't matter, as another casing order could arrive next week, or next month, an obvious eventuality.

What was important, was to take a quick glance at the Clover Leaf facility and notice it held a different "hum or bustle" than in past times I visited. Seemed there were far more batteries being made, pushed around, of differing sizes.

Al Marshall reported a huge charging room, lots of shelves, which I did not see in past trips.

The Gen 2 Robotic Line -- Last year, we shareholders were allowed to gather closer to the Gen 2 line. This year we were cordoned off, maybe 25 feet away. Being that pictures were not allowed this year or last, I had to go on memory. Seems the Gen 2 line is running much more fluidly than last year. I noticed that there were more sensors, that the electrodes seemed to be passing smoothly from one station to the next, and the dwelling issues of the past, are now in the past. I did not time how long each dwelling time lasted, but it seemed to be between 12 and 15 seconds.

Four people were working the line on this day. In the future, it is expected that only two supervisors will be needed per line. I was assured that when Axion needs to expand and add more Gen 2 lines, that there is plenty of factory floor space to hold up to 11 robotic lines.

This is one crisp looking line of machines, the robots provided by Epson, and then modified at New Castle. I was glad to see no lab coats, no hair nets, and though this plant is spotless, there is no expensive clean room needed.

Axionistas in New Castle -- I want to thank all the Axionistas that made this year's pilgrimage to New Castle. It was simply fantastic to share a fine dinner at the Wooden Angle, to now match names, voices and faces with the Seeking Alpha cyber avatars. The questions all of us asked were far more valuable to myself, to this blog, and even to Thomas Granville, than last year's Shareholders' Conference.

It was great fun to watch from across the room us Axionistas fan out, meet and talk with Axion leadership, existing investors, lurkers, and other investing houses present. It was also great fun to know that we had a bunch of us with attentive ears, active questionings, and feet on the ground, learning all we could about Axion Power.

The mood this year was more upbeat than ever. I asked several shop workers how they like working for Axion Power. To a man, they all said they loved it.

In final, I want to validate that Thomas Granville reiterated his view that Axion Power will strive into profitability during 2013. I was the only one of everyone present, to ask any forward guidance question; intentionally loosely worded.

Later on, I tapped Thomas on the back near the end of the cocktail party, and told him that he has trained us well.

I hold zero doubts that Axion Power will achieve a significant YoY top line revenue growth, in the area of at least 300%.

In conclusion, I don't expect PbC sales to take off in the next month or two, but I do feel strongly that we are on the tarmac, and, as Thomas Granville began this years' 2012 Shareholders' Conference, that Axion is, "About to take flight."

Disclosure: I am long AXPW.