Battery stocks are publicly traded companies whose business involves the manufacture of batteries, battery components, or battery management systems used to store electricity through electrochemical means.

This list was last updated on 3/21/2022.

If you know of any battery stock that is not listed here and should be, please let us know by leaving a comment. Also for stocks in the list that you think should be removed.

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by Debra Fiakas CFA

While the rest of the battery industry is trying to perfect new technologies, Axion Power International (AXPW:  OTC/QB) has been working on a fix for conventional lead acid batteries.   Low cost made the lead acid batteries popular even from the early days when a French scientist first introduced the configuration in the mid 1800s.  Lead-acid technologies represent about half of batteries made today. 

Unfortunately, lead-acid batteries have low energy-to-weight and volume.  Storage times are limited.  They also have corrosion problems.  The active materials in lead-acid batteries change physical form during charge and discharge.  This results in growth and distortion of the electrodes, as well as the shedding of electrode into the electrolyte.  Consequently, lead-acid batteries require significant maintenance and have a relatively short useful life.

Axion has by-passed some of these problems by replacing the negative electrode in the conventional lead-acid battery with a supercapacitor made of activated carbon.  Unlike the conventional battery, this carbon negative electrode undergoes not chemical reaction.  The result is a reduction in corrosion on the positive electrode and longer battery life.

The company has had some success in the market with its battery solution that is branded the SuperCube, but the company has yet to achieve profitability.  Sales in the most recently reported twelve months were $10.2 million.  This compares to $9.7 million in the year 2012 and represents 4.1% year-over-year growth.  However, the net loss was $8.8 million and Axion used $6.8 million in cash to support operations.  That is a concern since the company only had $1.1 million in cash on its balance sheet at the end of September 2013.

The company has other financial resources.  Axion completed a financing earlier this year, raising $10 million through a convertible note issue.  The offering was sold privately and provided for periodic withdrawals from a control account.  At the end of September 2013, approximately $5.4 million remained in the control account.

The company appointed a new chief financial officer in October.  Most likely his is focused on how to make the company limited cash resources last as long as possible.   One big plus for the company is a new order for its SuperCube battery valued at $320,000.  The SuperCube battery will be installed next to a solar panel system for storage and frequency regulation.  The company gets a down payment with the solar project order, which should help supplement Axion’s own working capital.  A few more orders like that and Axion’s financial picture should improve substantially.

Axion is priced below a dollar and for some may represent to much risk.  The terms of that convertible note also provided for a variable conversion rate.  Such terms typically invite a bit of manipulation to push the stock price lower so as to lock in more favorable conversion rates.  It will take some time for the company to work through this convertible note issue.  Expect continued share price repression for some time to come.     
 
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

The post Axion Power: Improving on the Conventional appeared first on Alternative Energy Stocks.

Tom Konrad CFA

Will Chinese hybrid bus subsidies be renewed?  The answer will be crucial for Maxwell Technologies (NASD:MXWL) in the coming months.

I, and most analysts following ultra-capacitor manufacturer Maxwell Technologies, (NASD:MXWL) were considerably surprised at the strength of its third quarter earnings.  China had failed to renew subsidies for hybrid buses in the third quarter, and Chinese hybrid bus manufacturers have long been a significant part of Maxwell’s business.

Hybrid bus sales, even without subsidy, ended up better than I expected, accounting for 30% of Maxwell’s ultra-capacitor sales in the quarter.  Also helping results were strong ultra-capacitor sales to the wind industry (25%) and a large contribution from their distribution channel (22%.)

Going forward, sales from the distribution channel will be falling, as this is previously deferred revenue from Maxwell’s recent earnings restatement.  $3.9 million of deferred revenue remains in this channel, most of which is likely to be recognized in the fourth quarter, but significantly down from this quarter, when it amounted to $11.3 million.

China Hybrid Bus Subsidies

The big question mark for the fourth quarter is when and if Chinese hybrid bus subsidies are renewed.

This renewal has been expected for some time, but the Chinese government clearly marches to its own tune.  China did release its “New Energy Vehicle” subsidies in September, but these did not include subsidies for hybrid buses.  According to a 2009 World Bank report on electric vehicles [.pdf], New Energy Vehicles were previously defined as “vehicles that are partially or fully powered by electricity.”  But the new program includes only fully electric vehicles (EV), plug-in hybrid electric vehicles (PHEV), and Fuel Cell vehicles (FCV).

My estimates of Maxwell’s revenues and earnings per share with and without renewal of Chinese hybrid bus subsidies.

Maxwell’s bus manufacturing customers expect that hybrid subsidies will be released separately.  The catch is, these subsidies have been expected for months, and the delay is leading many investors to question if they will be released at all.  As you can see in my projections above, the impact of subsidy renewal on Maxwell earnings and revenues is likely to be significant.  If the subsidies are not renewed soon, Maxwell’s management is predicting that total revenues could fall 30% ($16 million) in the fourth quarter, although approximately $7-8 million of that decline is likely to come from falling ultra-capacitor sales through the distribution channel.

While I don’t have any special insight into the Chinese government’s plans, the impetus for the new energy vehicle and hybrid subsidies is two-fold.  The goal is partly to combat China’s horrible urban pollution problem, and partly to foster Chinese leadership in what they consider an strategic industry.  When it comes to assessing the likelihood of renewal for the hybrid subsidy, cleaning up air pollution is likely to be helped more by hybrid subsidies than the existing PHEV subsidies alone.  On the other hand, when it comes to nurturing new industries, the current subsidies for PHEVs, EVs, and FCVs are likely to be more effective than a renewed subsidy for hybrids.

Hybrid subsidies are more effective at reducing pollution because hybrid vehicles are typically much more cost effective.  While each PHEV could reduce local pollution  twice as much as a hybrid would, some of that pollution reduction would simply be moved from the city where the bus is operating to the coal plant which generates its power.  Further, the incremental cost of a hybrid is a fraction of the incremental cost of a PHEV, so many hybrids could replace conventional buses for the same cost as a few PHEVs.

On the other hand, hybrid technology is fairly mature, and a foreign company (Maxwell) is the leading supplier of the crucial untra-capacitors for hybrid buses.  In contrast, PHEV buses will use a large number of batteries, and China has many leading battery manufacturers, meaning that China is more likely to favor subsidies (such as those for PHEVs) which help the battery industry than the ultra-capacitor industry.  Further, PHEV and EV technology is still developing, so China is likely to have an easier time becoming a leader.

With these countervailing forces, I find it impossible to predict when or if China’s hybrid subsidies will be renewed.  Given this uncertainty, I have closed out my short position in the stock.

Analyst Reaction

Several of Maxwell’s analysts are much more confident than I am that subsidies will be renewed.  Since the earnings announcement, Ardour Capital and UBS have both upgraded the stock from “Hold” to “Accumulate.”  I can’t imagine they would have made these upgrades if they did not expect hybrid subsidies to be announced soon.

It also may be that, if the analysts are more familiar with ultra-capacitor technology than hybrid vehicle and PHEV technology, they could expect that Chinese PHEV buses could go a long way to replacing lost revenue from Chinese hybrid buses.

Maxwel Technologies’ Product Portfolio

The Difference Between Hybrids and PHEVs

In the quarterly conference call, Maxwell’s COO and interim CEO, John Warwick painted the PHEV bus opportunity with an optimistic brush.   To create the first generation of PHEV bus, Maxwell’s customers are “basically taking the diesel hybrid using ultra-capacitors and adding a battery power to it for propulsion for the first 30 plus kilometers.”  Hence, each first generation PHEV bus will use the same number of ultra-capacitors as a hybrid bus.

He did not discuss what the second generation might look like, most likely because they are likely to require fewer ultra-ca
pacitors.  The reason hybrid buses use ultra-capacitors rather than batteries is because batteries have low power, but high energy capacity: While batteries can hold a lot of charge, they are not very good at delivering and accepting a large amount of charge in a short period.   The large mass of a bus means that much of the energy recovered while braking would be wasted if it had to be absorbed by a reasonably sized battery pack for a hybrid.

In contrast, ultra-capacitors have high power but low energy capacity.  They absorb and discharge electricity quickly, but can store very little of it.  This makes ultra-capacitors suitable for a hybrid bus, but not for a PHEV bus.  A PHEV needs to store a significant portion of its fuel as electricity so requires a large battery pack.

Although batteries have low power capacity on a unit basis, the large bank of batteries required by a hybrid bus will still be able to deliver and absorb a significant amount of power in a short time.  This means, as manufacturers seek to cut the cost without sacrificing the performance of future PHEV buses, it will be relatively easy to significantly reduce the number of ultra-capacitors per bus.  Depending on the type of batteries used, it’s quite possible that a PHEV bus will require no ultra-capacitors at all.  American start-up ePower has developed a hybrid drive-train suitable for class 8 diesel trucks using only lead-carbon batteries from Axion Power (OTC:AXPW.)  BAE Systems (LSE:BA) sells a hybrid bus drivetrain using only lithium-ion batteries.  Allison Transmissions (NYSE:ALSN) has been selling hybrid bus drivetrains since 2003 using nickel-metal hydride batteries.  If ePower, BAE, and Allison do not need ultra-capacitors to make a bus-sized hybrid work, surely Chinese companies can do the same with a PHEV bus.

One other reason PHEV buses are unlikely to replace hybrid buses for Maxwell is simply the size of the market.  Given the higher cost of PHEV buses arising from the large battery pack, fewer PHEVs are likely to be sold, even under the new subsidy regime.

Conclusion

If Chinese hybrid bus subsidies are renewed in the near future, I expect Maxwell’s stock to rise rapidly because of its much improved near term prospects.  While I’m far from certain that this will happen soon, if ever, I feel the chance is significant.  Therefore, I decided to close my short position in the stock.

Going forward, the very real possibility of no hybrid subsidy renewal makes me unwilling to recommend the stock, either. If I were to have any position, it would be to bet on a big move in one direction or the other with long calls or puts.

This article was first published on the author’s Forbes.com blog, Green Stocks on October 31st.

DISCLOSURE: No Position.
DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The post Maxwell Technologies in the Balance appeared first on Alternative Energy Stocks.

Tom Konrad, CFA

A light at the end of the PIPE? Photo by Tom Check

In my last article, Axion Power’s Potential For Explosive Growth, I outlined a number of near-term business opportunities for Axion Power International, (OTC:AXPW) any one of which could catapult the company into profitability in 2014, and more than one of which could produce significant revenue growth this year.  While I’m quite bullish about Axion’s prospects, I concluded with a skeptical comment about Axion’s stock:

 [I]f I owned the stock today, I would be a seller at the current price of $0.17.

Down the PIPE 

How can I be so bullish about the company’s business but still want to sell the stock?  It’s all because of the recent private investment in public equity (PIPE) convertible note financing.  This is an unconventional convertible financing, because the conversion price of the notes falls with the market price.  Convertible financing of this type is variously known as “ratchet,” “toxic”, or “death spiral” because as the stock price falls, the convertible notes convert into more shares.  Because the convertible note holders end up owning more shares, existing shares represent a smaller percentage ownership of the company, and are worth less.  This sets up a vicous cycle, which frequently ends with the original shareholders owning only a small slice of the company.

There is also an element of the self-fulfilling prophecy: Because existing shareholders expect to be diluted, they sell the stock, which depresses the share price and leads to further dilution of those shareholders who held on.  It’s a sort of prisoner’s dilemma: if all shareholders would just hold on, or even buy into price declines, they can prevent the financing from creating a self-fulfilling death spiral.

Could Be Worse

That said, this is far from the worst such convertible financing I have seen.  For one thing, the conversion option is held by Axion: they can choose to pay in cash or shares.  For another, the note is payable in nine equal installments over nine months .   The conversion price is 85% of the lower of the price on the previous trading day, or the average price over the 20 trading days (approximately one month) for which the price was lowest  out of the last 40 trading days (two months) before each payment.  Many toxic convertibles are payable all at once .  This makes it very easy for the holders of the convertible to sell a large amount of stock during the period the conversion price is being set, artificially reducing the conversion price and awarding themselves more shares at conversion.

There was also a $1 million subordinated convertible note sold to company insiders.  Unlike the $9 million of convertible notes described above, this entire note (principal and interest) is payable at the end of the term, in cash or shares, at the company’s option.  Both sets of investors also received approximately 50% coverage of the notes with warrants that can be exercised after six months and before five years at $0.302.  If there is a future financing at better terms over that period, the exercise price on the warrants is reset to the price of the future financing.

The Next Round

According to Axion’s CEO, Thomas Granville, Axion has enough cash that it won’t need to return to the markets for additional financing until 2014.  If things go well (I recently argued that they could,) Axion may not need to return to the markets for additional financing any time soon.

On the other hand, if new business is slow to materialize, the prospects for an additional round of financing could put more pressure on the stock.

Incentives

The first convertible payment was made on July 3rd, at a conversion price of approximately $0.136 (by my estimate.)  That means the investors were paid with approximately 7.1 million shares of stock.  The second payment will be on August 3rd, and, given the 40 day look-back, we know that the conversion price will be at most  $0.131, with a minimum of 7.4 million shares issued.

AXPW trades an average of less than 10 million shares a month, so the market is simply not liquid enough to absorb all of this stock if they choose to sell.  That means that the investors have enough shares to force down the price of Axion’s stock quickly.  Since they can force down the price of Axion stock, it’s helpful to ask: Do they want to?

The reason to reduce the stock price is so that they will get more shares in future payments.  On the other hand, if the stock price remains low at the end of the nine months, most of the new stock issued will go to the company insiders who bought the $1 million subordinated notes.  A low share price at the end of the nine months would also likely mean a low share price in early 2014, when Axion will most likely need to raise additional funds.  If the share price is low then, Axion will likely be forced into another, even less favorable deal, and they will find themselves diluted just like Axion’s long term shareholders are now.

Finally, if the convertible note holders force the stock price “too low,” Axion might choose to pay them in cash rather than shares, betting that it will be able to raise cash from other sources on more favorable terms.  Management might also be forced to pay in cash because Axion is only authorized to issue 200 million shares without a shareholder vote.  114 million shares were outstanding in the first quarter, and an additional 5 million are reserved for options.  This leaves at most 81 million shares for payments to the note holders.

The 81 million authorized shares may not prove to be a hard limit.  If Axion were to run up against this share issuance limit, the company has the option to make the remaining payments in cash, or ask shareholders to approve the issuance of additional stock.  If cash were unavailable, as is likely, and shareholders were to fail to approve the issuance of additional stock, Axion would be forced to default on the notes.  Any default would likely lead to bankruptcy or a negotiated settlement with the note-holders.  Either would probably be worse for shareholders than the expected dilution from additional share  issuance.

Axion shareholders  should not be comforted by a seemingly parallel situation at  ZBB Energy Corporation (NYSE:ZBB).  While ZBB cancelled plans to hold a shareholder meeting needed to sell shares to Aspire Capital Fund because of lack of share
holder support, failure to obtain shareholder approval does not lead to default under ZBB’s agreement with Aspire.  It is the threat of default which would most likely lead shareholders to agree to additional share issuance, if necessary.

In the chart above, I’ve run three possible scenarios of what might happen to Axion’s stock price over the next 8 months, and the resulting likely dilution of existing shareholders.

In my first scenario, the share price stays roughly where it has been for the last month (purple lines.)  In this case, the convertible note holders will end up owning approximately  79 million shares, or  41% of the company for their $10 million investment, or about  13 cents a share.  I don’t think this scenario is at all likely, but I included it as a baseline.

In my second scenario, which I consider most likely. the note holders will attempt to drive the share price down in the short term, when there are a lot of convertible payments ahead of them, but ease up in the later months to avoid destroying the value of a company they will own a substantial portion of.  In the scenario I modeled, they succeed in driving the price down below  6 cents in the September-October time frame, after which it begins to recover.  This would result in the issuance of  131 million new shares, more than are currently authorized.  However, as discussed above, it seems likely that shareholders would approve additional share issuance if the only alternative is bankruptcy.  This scenario would result in the note holders  being issued nearly  54% of the company for their $10 million investment, or about 7.6  cents a share.

In my third and final scenario (green lines,) a positive business development triggers a quick share price recovery in the near future.  Fears of dilution wane, creating a virtuous cycle, and the share price quickly rises above  $0.31, at which price note holders can choose to take payment in shares priced at $0.264 at their option, not the company’s.  This scenario results in the issuance of approximately 58 million shares (34% of the company) at  17 cents a share.

Strategy

I think the most likely result is some combination of scenarios 2 and 3.  The note holders will succeed in driving down Axion’s share price in the short term, but this process may be interrupted by positive news resulting from one of the business opportunities I outlined in the last article.

Hence, I think a small investors’ best approach is to sell or stay out of the stock now, and buy back in at the first sign of significant positive news.  If there is not any significant news in the next few months, I expect the stock will be considerably lower in the September-November time frame, at which point I will consider buying the stock.

Since the liquidity of the stock is limited, larger shareholders will have to sit tight.  There is also a concern that if all small shareholders rush for the exit at the same time.  John Petersen, a large shareholder and frequent Axion commentator, put it this way:

[A]ny significant incremental selling can only serve to drive the price down in the short term and exacerbate the problematic aspects of the financing. … [I]t’s like yelling fire in a crowded theatre.   Sometimes the only thing long investors can do is suffer through what may prove to be a difficult period.

For myself, I’m fortunate not to own the stock, which I sold last year (at a loss) when it became clear to me that Axion would be in no position to negotiate favorable terms on this financing.

I realize that this article could be construed as yelling “Fire” in a crowded theater, but I feel my first priority with my writing should be to give you, my readers, my honest opinion.  You’ll have to decide for yourselves if you want to find out if the light at the end of the PIPE is an all-electric NS 999 switcher locomotive, or get out now before being sucked down a death spiral.

Disclosure: No position in any of the securities mentioned.

This article was first published on the author’s Forbes.com blog, Green Stocks on July 25th.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The post Axion Power: Is There Light At The End Of The PIPE? appeared first on Alternative Energy Stocks.

Tom Konrad, CFA

Axion Power International, Inc. (OTC:AXPW) has been developing its patented PbC lead-carbon battery technology, and in 2013 those efforts seem on the verge of paying off.   Unfortunately, Axion’s financing situation makes me unwilling to recommend its stock as an investment in the near term, but I do consider it one to watch.  This article will take a look at Axion’s technology and near term potential markets.  A follow-up article (published here) will discuss the company’s financing situation, and the things which will need to change before I consider the stock an attractive investment.

The Technology

Axion’s PbC batteries are conventional Lead-Acid (PbA) batteries with the lead sponge negative electrodes replaced by a sandwich of a copper current collector protected by corrosion barriers which are in turn surrounded by carbon electrodes.  Not only does this reduce the lead used in the batteries, but, compared to PbA batteries, results in a much more durable battery capable of a much faster recharge rate.

While they cannot compete with Lithium-Ion batteries on energy density, PbC batteries require less complicated battery management, have better low temperature performance, are more cost effective to recycle, and have a much better safety record.  They deliver all these advantages at significantly lower cost.

ePower

According to Jay Bowman, the Chief Technology Officer at Axion customer ePower Engine Systems, it was as if Axion’s batteries had been specifically designed for ePower’s application.  ePower has developed a series hybrid drive system similar to that used in railway locomotives intended for retrofit into heavy-duty class 8 trucks.  Retrofit is a practical application for heavy-duty trucks because a heavy-duty truck’s engine is rebuilt several times during the life of the chassis.  Hence, ePower has the opportunity to achieve  significant penetration into the heavy-duty truck fleet without having to manufacture complete trucks.   The cost effectiveness of ePower’s hybrid retrofit is also enhanced because  much of its cost is offset against the cost of conventional engine replacement.

After two years of testing various types of batteries (both PbA and Lithium-Ion,) Bowman concluded that only Axion’s PbC batteries had the durability and recharging capacity required for a series hybrid drive in heavy duty diesel trucks.

Earlier this month, ePower ordered $234,000 worth of PbC batteries for retrofit into ten trucks.  It will be placing these truck with different trucking fleets to allow the operators to gain experience with the system and allay any concerns about durability.  Multiple operators have informed Bowman that, if the trucks perform as he expects, they will quickly begin placing orders in quantity.  The economics and fuel savings of ePower’s system are so significant that fleet operators will be compelled to use the system to compete, assuming durability concerns can be adequately addressed.

Norfolk Southern

The second generation NS 999 electric switcher locomotive uses Axion Batteries. Photo by Missy Schmidt.

Norfolk Southern Corporation (NYSE:NSC) released its 2013 corporate sustainability report on July 16th.   The report devoted most of a page (30 of 130) to the NS 999 all-electric switching locomotive, which uses Axion PbC batteries.  The NS 999 was the first of four “Alternative Power” projects mentioned, and was given considerably more space than the other three.  In contrast, Norfolk Southern’s 2012 report only mentioned the NS 999 prototype once, in its environmental timeline, where the prototype was mistakenly said to have been unveiled in 2010, rather than 2009.  The timeline was corrected in the 2013 sustainability report.

NSC’s second generation NS 999 is equipped with Axion PbC batteries, which the sustainability report describes as “more technologically advanced” than the lead-acid batteries the previous NS 999 had used, and with which NSC had  encountered “technical challenges” during trial field operations.

Axion completed delivery of the 1,080 batteries for the second generation NS 999 in January, generating $475,000 in revenue in the fourth quarter of 2012.

It seems reasonable to believe that the greatly increased prominence of the NS 999 in Norfolk Southern’s sustainability report reflects increased confidence on the part of NSC’s management that its previous “technical difficulties” may have been overcome.

Stationary Power

While Norfolk Southern and especially ePower could potentially produce orders which lead to explosive sales growth in coming years, Axion’s initiatives in stationary markets are most likely to lead to significant revenue and cash flow this year.

Axion’s PowerCube is an array of PbC batteries with associated control electronics mounted in a standard cargo container.  These can be quickly deployed to remote locations, and are being marketed to commercial, military, and utility operations especially on offshore islands.  Axion has responded to a large number of RFPs in these markets which could lead to orders and this year.  Since payment is typically up-front, any such orders would greatly help Axion’s financing situation.

Offshore islands and other remote locations, and military operations have very expensive electricity, since the marginal source of power is almost uniformly diesel generators.  That increases the value of grid stability and power-shifting services from stationary storage.  The fact that these applications are stationary makes PbC’s disadvantage compared to Lithium-Ion (higher weight and volume) much less significant.  Axion has preferred vendor status for a number of offshore island projects, and expects commercial sales to commence this year or in early 2014.

The scale of grid tied applications is also an advantage for PbC, since price becomes more significant at scale, and PbC batteries work well in long strings (high voltage installations.)  Operation in long strings is much more problematic with Lithium-ion (and other battery chemistries) because variability between batteries requires either complex battery management or significantly reduced performance and leads to early battery failures.  This sort of variability is why we are told to keep sets of rechargeable batteries together, and not mix batteries of different types, ages, or even manufacturers [PDF].

Stop-Start

I, and most of my readers, were introduced to Axion Power by Joh
n Petersen, Esq., an attorney and former board chair and general counsel for Axion.    From 2007 to 2012, John wrote prolifically about energy storage and the electrification of transportation for Seeking Alpha and my own website, AltEnergyStocks.com.  While he did write about the NS 999, ePower’s hybrid truck application, a more typical example of his articles was spent critiquing the economics of plug-in vehicles (with special attention to Tesla Motors (NASD:TSLA),) and talking up the economics of PbC batteries for Stop-Start hybrid vehicles.  Given all this background, I will not go into detail on the economics of Stop-Start technology, but simply refer you to Petersen’s article archive on Seeking Alpha.

In terms of Axion’s progress on stop-start, I spoke with Axion’s CEO Thomas Granville on Thursday.  BMW has completed third party testing on its prototypes, but does not want to adopt the technology if Axion is its sole supplier.  With an introduction from BMW, Axion is working with at least one major battery manufacturer to allow it to be a second manufacturer for BMW.

Like BMW, many potential customers will be unwilling to design PbC batteries into their own products until they can be certain there will be a supplier even if Axion Power, a microcap company with financing difficulties, goes bankrupt.   If Axion successfully negotiates a deal with a major battery manufacturer, it will open a lot of doors, and not just to inclusion in BMW’s Stop-Start vehicles.

Conclusion

I’m extremely optimistic about Axion Power’s business prospects over the next twelve months.  I anticipate a breakthrough in at least one of the four business areas I outlined.   Unfortunately, Axion was forced to raise money to fund its continuing operations in a $10 million offering of non-conventional convertible notes.  The conversion price of these notes is tied to Axion’s market price is based on the recent market price, and so a falling share price for the stock leads to greater dilution of shareholders and further stock price declines.

Even with Axion’s bright business prospects, the continuing issuance of new shares to repay these notes, and Axion’s likely need to raise additional capital next year make careful timing of any stock purchases essential.  I discuss my ideas on the most advantageous timing in a follow-up article.  But, if I owned the stock today, I would be a seller at the current price of $0.17.

Disclosure: no position in any of the stocks mentioned.

This article was first published on the author’s Forbes.com blog, Green Stocks on July 23rd

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The post Axion Power’s Potential For Explosive Growth appeared first on Alternative Energy Stocks.

John Petersen

Last week I spent a couple days with ePower Engine Systems working my way through a variety of business and technical due diligence issues. As always happens with new clients, it was a full immersion course in how ePower’s technology works, what the documented performance of the current tractor is, and how that performance is expected to change as ePower:

• transitions from a four cylinder engine designed for stationary use to an EPA compliant six cylinder engine designed for the trucking industry;
• automates a new charge control system that will opportunistically charge the batteries in a more fuel efficient manner;
• evaluates the potential economic and performance advantages of using a rare earth permanent magnet generator instead of a conventional AC generator; and
• evaluates the potential economic and performance advantages of using a rare earth permanent magnet drive motor instead of a conventional AC induction motor.

ePower’s original development work was done using a 197 hp John Deere diesel engine and a Marathon generator with a rated capacity of 115 kW that can be over-rated to 128 kW for brief intervals. In all but the most extreme conditions, the ePower tractor is designed to minimize generator over-rating by using an array of 56 PbC batteries from Axion Power International (AXPW.OB) for acceleration and hill climbing boost.

Since the current John Deere engine was designed for stationary use with a generator, it is not EPA compliant and its horsepower rating does not account for parasitic engine loads like power steering, air conditioning, airbrake compressor and other accessory and hotel loads. As a result, the maximum sustained generator output of the current tractor is about 93 kW.

ePower recently bought an EPA compliant 240 hp on-road Cummins diesel engine that was salvaged from a wrecked truck. Unlike the John Deere engine, the Cummins engine is rated on net useful horsepower at the flywheel after parasitic loads. It’s 32 pounds lighter than the John Deere engine and has an advertised fuel consumption of 6.8 gallons per hour at 1,800 RPM. With the Cummins engine, ePower believes they’ll be able to run their existing generator at full capacity without difficulty.

Over the last several months ePower has been conducting fuel economy testing of their current tractor in the Cincinnati region. The topography is best characterized as gently rolling hills with grades of 1% to 3% and typical altitude changes of up to 300 feet. The fuel economy tests were conducted according to SAE J1321 protocols using multiple trips over several 40 to 46.5 mile routes with city, suburban and highway profiles. Data was recorded at average speeds of 55 and 59 mph and any results that deviated from the average by more than 5% were excluded.

The blue bars in following graph show the documented fuel economy of the ePower tractor with a variety of loads ranging from empty to fully loaded. The red blocks at the end of the current fuel economy bars represent ePower’s estimates of the incremental fuel savings that should be realizable with (1) the six cylinder Cummins engine upgrade, (2) automation of the charge control circuitry, and (3) integration of a rare earth permanent magnet generator.

For purposes of comparison, the graph also includes a single line for the national industry average across all weight classes and the goals of the DOE’s Supertruck program.

Since ePower’s ongoing work is by nature a research and development project, there can be no assurances that the planned tractor upgrades can be completed over the next several months or that the third generation tractor will meet current performance expectations.

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long position in its common stock. Author has recently accepted an engagement to serve as legal counsel for ePower Engine Systems in connection with certain business planning and corporate finance activities.

The post What I Learned During Last Week’s Visit With ePower appeared first on Alternative Energy Stocks.

John Petersen

In late October I gave a keynote presentation at Batteries 2012, one of the largest lithium-ion battery conferences in the world. During the conference, I was buttonholed for a couple hours by the chairman’s global strategy team for one of the top three lithium-ion battery manufacturers in the world. They started by explaining that their Global 100 company is abandoning the plug-in vehicle market to focus on sensible applications where it can earn a reasonable margin. Then they started drilling down with a series of detailed and probing questions about whether any of the principal lead-acid battery markets might be an attractive opportunity for a company with their size, scale and stature.

While it may strike some of my readers as heresy, I told them that the lead-acid battery sector’s biggest vulnerability was in the rapidly evolving micro-hybrid market where industry leaders Johnson Controls (JCI) and Exide Technologies (XIDE) were focusing on the battery products they wanted to sell instead of the battery solutions their customers needed. After all, if legacy industry leaders won’t respond to changing customer needs, then it’s high time for new leaders that will respond.

The micro-hybrid revolution

Micro-hybrids are the most sensible automotive fuel efficiency technology imaginable. The primary goal of all micro-hybrids is simple: turn the engine off when it’s not powering the wheels. Last February, in a report titled “Every Last Drop: Micro‐ And Mild Hybrids Drive a Huge Market for Fuel‐Efficient Vehicles,” Lux Research segregated micro-hybrids into three broad classes:

• Light Micro-Hybrids, which reduce fuel consumption by about 5%, are typically compact and sub-compact cars that offer limited stop-start functionality and don’t have regenerative braking.
• Medium Micro-Hybrids, which reduce fuel consumption by about 10%, are sub-compact through full-size cars that offer greater stop-start functionality and may offer limited regenerative braking.
• Heavy Micro-Hybrids, which reduce fuel consumption by up to 15%, are usually mid- and full-size cars that offer the highest level of stop-start functionality, take full advantage of regenerative braking and offer a variety of advanced fuel economy innovations like high speed coasting.

While micro-hybrids are a new idea to most Americans, over half of new cars sold in Europe already use the technology and the U.S. is certain to follow suit over the next few years as automakers scramble to meet these short-term corporate average fuel economy standards.

This graph from Lux shows how the global micro-hybrid market is expected to evolve over the next five years and grow from about five million units in 2011 to almost forty million units a year by 2017.

On a regional basis, Lux forecasts that:

• The European micro-hybrid market will grow from over 4 million units in 2011 to 12.6 million units by 2017.
• The North American micro-hybrid market will grow from a standstill in 2011 to over 8 million units by 2017.
• The Japanese micro-hybrid market will grow from about 400,000 units in 2011 to over 6 million units by 2017.
• The Chinese micro-hybrid market will grow from under 300,000 units in 2011 to 8.9 million units by 2017.

It will be the fastest technology revolution in automotive history. The reason for the speedy ramp is simple. Micro-hybrid technology won’t be a consumer option. Instead it will be standard fuel economy equipment.

The mechanical changes required to implement micro-hybrid technology are simple and cheap. One big challenge is that a micro-hybrid turns its engine off at every stop and turns it back on when the driver takes his foot off the brake. A second and even bigger challenge is that automakers want micro-hybrid systems to be transparent to their customers. The accessories have to keep working when the engine is off and they can’t stutter or fade when the engine restarts. It’s an immense challenge for the conventional lead-acid batteries we’ve all come to know and hate.

This graph from BMW shows the typical load on a micro-hybrid battery during an engine off event and the subsequent charge recovery cycle.

The block on the left (in red) represents the engine off period. The accessories draw 575 watts of power for a minute (34,500 watt-seconds) and the starter draws an additional 3,600 watts for one second. The car doesn’t start re-charging the battery (in green) until it’s done accelerating. Once the battery has recovered, the car draws 80 watts of power for another minute (4,800 watt seconds) before the next engine off event. In total, the duty cycle requires the battery to deliver and recover 42,300 watt seconds of power per cycle. With an average of one engine off event per mile, a micro-hybrid will demand 654,000 watt-seconds from its battery during a 16 mile commute where a conventional car would only need 6,000 watt-seconds.

The bottom line is that micro-hybrids require their batteries to do 100 times the work and if the batteries can’t stand the strain, the mechanical systems can’t deliver the fuel savings. Micro-hybrid systems that fail quickly because of feeble batteries are nothing more than green-wash. The automakers understand that problem and over the medium- to long-term they can’t settle for less. There’s always a bit of regulatory rubber when new technologies are being introduced and refined, but once a new technology becomes widespread the regulators get far more demanding.

Legacy manufacturers’ initial response

Last week I wrote an exclusive article for Seeking Alpha that explained the differences between the two principal classes of lead acid batteries. It described flooded lead acid batteries as “Lead-acid 1.0” and AGM batteries as “Lead-acid 2.0.” It further explained that the various types of enhanced flooded batteries are the equivalent of
Lead-acid 1.x while various types of enhanced AGM batteries are the equivalent of Lead-acid 2.x. Since the analogy resonated deeply with many readers who were previously confused about the issue, I’ve decided to continue using that classification system.

This graph from a presentation at the recent European Lead Battery Conference shows what happens to the dynamic charge acceptance of three different types of AGM batteries over one year of simulated service using the BMW micro-hybrid duty cycle. The basic AGM battery, Lead-acid 2.0, is the blue line on the bottom. An enhanced AGM battery with graphite paste additives, Lead-acid 2.x, is the red line in the middle. A second type of enhanced AGM battery with expanded graphite and activated carbon paste additives, Lead-acid 2.x.y, is the green line.

A brand new AGM battery that can accept a 50 amp charging current will take 72 seconds to recover the energy consumed during an engine off cycle. A one-year-old AGM battery that can only accept a 10 amp charging current will take 430 seconds to recover that energy. A micro-hybrid that can turn the engine off once a minute will always save more fuel than a micro-hybrid that can only turn the engine off once every seven minutes.

This graph is the main reason I told the lithium-ion battery manufacturer that the lead-acid battery industry was vulnerable in the micro-hybrid market. Instead of recognizing and accepting the reality that Lead-acid 1.x and 2.x will never be suitable for micro-hybrids, the industry leaders were stubbornly promoting improved versions of legacy products that can’t provide the performance the automakers must have. Since my meeting in October the dynamic has gotten significantly better and if it continues, my concerns over vulnerability will rapidly pass.

Legacy manufacturers’ evolving responses

The last two months have been a fascinating time as the two biggest legacy manufacturers started to back away from their earlier insistence that Lead-acid 1.x and 2.x would be ideal solutions for micro-hybrids.

The first legacy manufacturer to soften it’s position was Exide Technologies, which announced a strategic alliance with Maxwell Technologies (MXWL) in mid-November. The two companies plan to jointly develop and market integrated battery-ultracapacitor solutions for a wide array of transportation and industrial applications. While the details remain sketchy, it appears that the Maxwell-Exide alliance will offer a micro-hybrid solution that’s similar to a system launched by Maxwell and Continental AG in the fall of 2010. That system pairs an AGM battery from Continental with a 2,400 Farad ultracapacitor module from Maxwell. The combination is reportedly very good at avoiding voltage sags and accessory fade when the engine restarts, but it can’t address the biggest energy drain in a micro-hybrid; the 60-seconds of accessory use during an engine off interval. Since the Maxwell-Continental system only addresses the engine restart loads, the problems with rapidly declining dynamic charge acceptance in the AGM battery remain and so do the performance deterioration issues.

The second legacy manufacturer to significantly change its position was Johnson Controls which surprised many during last week’s “Strategic Review and 2013 Outlook Analyst Presentation.” In that presentation the president of JCI’s Power Solutions unit came right out and said that Lead-acid 1.x and 2.x were not adequate solutions for heavy micro-hybrids. He then went on to explain that JCI was planning to launch an integrated lead-acid and lithium-ion battery solution that would use a 12-volt lead-acid battery for the engine start load and a 42-volt lithium-ion battery for the accessory loads. Curiously, JCI continues to claim that Lead-acid 1.x and 2.x will be ideal solutions for light and medium micro-hybrids even though those vehicles just have a milder case of the battery problems that plague heavy micro-hybrids. I expect that position to evolve into something more reasonable over the next couple years.

The emergence of Lead-acid 3.0

Over the last decade immense progress has been made in the development of an entirely new class of lead-acid battery that integrates components from conventional lead-acid batteries and supercapacitors into an entirely new class of device. These asymmetric lead-carbon capacitors, Lead-acid 3.0, use normal pasted lead-grids for their positive electrodes and sophisticated carbon electrode assemblies for their negative electrodes. One of these devices, the PbC battery from Axion Power International (AXPW.OB) has proven to be a very promising solution for the power demands of micro-hybrids. This graph from Axion’s recent presentation at the European Lead Battery Conference shows why.

While a top-quality AGM battery starts out with the ability to accept a 50 amp charging current but rapidly fades over the first year of service, the PbC is able to accept a 100 amp charging current for almost five years without degradation and its charge acceptance doesn’t fall into the 50 amp range for almost nine years. The PbC recently completed a three-year performance-testing regime at BMW, which has reportedly sent its results to a third-party for an independent peer review. The next logical step in the process will be fleet testing prior to a production decision. When BMW conducted fleet testing of AGM batteries for micro-hybrids in 2007, the work took six months. While testing of the PbC may take more time, it shouldn’t take much longer because there’s very little an OEM can learn in a car that it hasn’t already learned in the laboratory.

Three years ago the PbC was a promising dark horse contender in the battle for position in the micro-hybrid battery space, but it hadn’t proven its mettle in performance and validation testing by automakers. Today the principal validation and testing work has been completed and while there’s a chance that fleet testing will reveal issues that weren’t discovered in the testing laboratories, that possibility is remote. My inner optimist wants to believe fleet testing can be completed in time for a 2014 model year design win next September. My inner pragmatist thinks a design win for the 2015 model year is more likely.

The next likely steps

The recent actions of Exide and JCI evidence a dawning realization that the micro-hybrid revolution will require more robust and more costly energy storage systems than automakers are used to buying. In JCI’s strategic review Mr. Molinaroli spent a good deal of time discussing the economic constraints on battery manufacturers. He said that while consumers were willing to accept a three-year payback on fuel economy systems, they weren’t willing to pay more. That suggests that automakers will strive to reach the following price targets for the battery systems in the three classes of micro-hybrids assuming fuel savings of 5%, 10% and 15%, and gasoline prices of $3.50 and $4.00 a gallon.

These are challenging price points, particularly when you get into systems that integrate two different types of energy storage devices and have to design sophisticated control electronics to accommodate the differences.

In all probability, Lead-acid 1.x and 2.x will be the only viable solutions for light-micro hybrids because the price targets are so low. The most likely solution will be dual battery system that uses a flooded battery for the engine start loads and an AGM battery for the accessory loads. The probability that a single battery system will survive over the long term is remote.

The medium micro-hybrid space presents a significant challenge for both the automakers and the battery industry. The dual battery systems that are likely to dominate the light micro-hybrid space won’t be adequate for the heavier demands of medium micro-hybrids. In particular, the rapidly declining charge acceptance of Lead-acid 1.x and 2.x will preclude extensive use of regenerative braking which depends on the battery’s ability to rapidly accept a regenerative charge during a short braking interval. While the capabilities of integrated battery-ultracapacitor systems are better than dual battery systems alone, the medium micro-hybrid niche is a natural target for the PbC once it finishes the performance and validation testing process.

The heavy micro-hybrid space is shaping up as a battleground between the dual chemistry systems proposed by JCI and Axion’s PbC. Lithium-ion batteries have the high charge acceptance needed for large accessory loads and they can handle aggressive regenerative braking loads but they’re expensive and very complex, particularly when you get into higher voltage batteries that require extensive changes to existing automotive control and accessory systems. In the heavy micro-hybrid market, I believe the PbC will enjoy a significant cost advantage.

Who benefits and when?

I love talking about the intricacies of battery technologies but understand full well that the primary question in the minds of investors is “who benefits and when?” The short sweet answer is every company in the sector.

Automakers are building micro-hybrids today and they want to build more aggressive micro-hybrids next year and the year after that. The only battery manufacturers who have the near-term ability to satisfy the automakers needs for better energy storage systems are the legacy leaders JCI and Exide. Both of these companies can expect significant increases in their per vehicle revenues and margins over the next few years. The rapid revenue and margin gains already baked into the business cake but they’re not yet reflected in the stock prices. No matter how the micro-hybrid battery market develops, these legacy leaders will remain leaders for years to come.

Another near-term beneficiary is Maxwell which should see its ultracapacitor sales ramp rapidly as automakers strive to minimize voltage sags and accessory fade during engine restart cycles. The integrated AGM battery and ultracapacitor combination is not an ideal long-term solution to the dynamic charge acceptance problems that plague Lead-acid 1.x and 2.x, but it is a very good solution for automakers that want their micro-hybrid systems to remain transparent to drivers.

In the medium- to long-term, I believe Axion’s PbC presents the greatest upside potential and the greatest risk. OEM testing has proven that the PbC offers extraordinary performance in the micro-hybrid duty cycle. While the test results have been great, the critical steps of fleet testing and contract negotiation haven’t started yet, so the PbC is still a year or two away from a formal design win. First generation PbC batteries are relatively expensive, but the materials used in a PbC battery are no  more costly than the materials used in a conventional AGM battery. As Axion increases production from start-up volumes to credible commercial quantities, its opportunities for economies of scale and experience curve effects are tremendous. Over the longer term Axion wants to become a component supplier to the legacy leaders, rather than a competitor. While it will have to overcome a good deal of “not invented here” thinking, if the automakers demand the PbC’s performance, their battery suppliers will have no choice.

While pharmaceutical and biotech investors understand that stock values change rapidly when R&D stage companies advance from Phase II clinical testing to Phase III efficacy trials, unique new battery technologies are rare enough that the market hasn’t quite come to grips with the striking differences between where the PbC technology was in 2009 and where it is today. The last three years have been a veritable PR drought because there isn’t much to talk about while OEM testing is being conducted. That dynamic will change significantly over the next year as first tier OEMs and battery users in automotive, railroad, heavy trucking and stationary applications launch a series of large scale demonstration projects as a prelude to rapid commercialization.

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long position in its common stock.

The post How The Micro-hybrid Revolution Will Radically Change The Battery Market appeared first on Alternative Energy Stocks.

John Petersen

Over the last couple weeks there’s been a lot of message board chatter about ePower Engine Systems, a transportation technology company that has selected the PbC® battery from Axion Power International (AXPW) for its series hybrid electric drivetrain for over-the-road freight haulers who drive heavy Class 8 tractors. Since I introduced ePower to Axion and have tracked their progress for a couple years, I called ePower’s CEO Andy Claypole to ask his permission to share what I’ve learned about ePower’s hybrid electric drivetrain.

After a series of phone calls and e-mails, Andy graciously sent me a technical presentation on ePower’s series hybrid drive and gave me permission to share the presentation with readers and discuss ePower and its technology in greater detail. Click here to download a copy of ePower’s presentation.

ePower Engine Systems LLC is a closely-held advanced transportation technology developer that’s using inexpensive off-the-shelf components to bring series electric drive, the mainstay of the nation’s rail transportation system, to highway transportation. Their goal is to narrow the fuel efficiency gap between 480 ton miles per gallon for railroads and 110 ton miles per gallon for heavy trucks.

In a truck with series electric drive, there is no mechanical connection between the engine and the wheels. Instead, the engine powers a generator and electricity from the generator powers an electric drive motor. This configuration maximizes fuel efficiency by running the engine at its optimal RPM and eliminates the need for complex heavy truck transmissions while delivering the instantaneous peak torque of an electric motor.

In furtherance of their goal to maximize fuel efficiency, ePower takes series electric drive a step further by sizing the generator for steady vehicle state operations at highway speed and using an array of 52 PbC batteries to provide additional power for acceleration and hill climbing, and increased energy savings from regenerative braking. The ePower drivetrain is a true series hybrid electric drive and a first for the trucking industry. The design is suboptimal for mountainous routes with substantial elevation changes, but it’s extremely efficient in flatter terrain.

While a typical Class 8 tractor operating in the US with an 80,000 pound gross vehicle weight achieves fuel economy in the 5.2 mpg range, the same truck with an ePower system will deliver fuel economy of 10 to 14 mpg, values that crush the DOE’s 2018 SuperTruck target of 6.8 mpg for conventional heavy trucks. It works out to an annual fuel savings of roughly 11,500 gallons per vehicle.

During the startup phase, ePower has focused on the retrofit market because around 37% of the 2.7 million trucks in the US-fleet are more than five but less than twelve years old. These trucks have outlived their original drivetrain warranties and are often less efficient than newer trucks, but they have substantial remaining useful life in their chassis, bodies and other components.

The cost of converting a tractor with a conventional diesel drivetrain to a series hybrid electric drivetrain is approximately $70,000 (batteries included) and ePower believes its retrofits will pay for themselves through fuel savings alone in 18 to 24 months.

Currently, ePower is doing all required retrofit work in its own facility. Once its system is fully developed and proven, ePower intends to provide the necessary conversion components in kit form for sale to certified installers including fleet operators and other service entities. It also hopes to license its technologies and systems upstream into the OEM market.

ePower’s original design used absorbed glass mat, or AGM, batteries to provide acceleration and hill climbing boost. Unfortunately, the AGM batteries were poorly suited to long-string use and ePower was not satisfied with the frequency of battery failures. The AGM batteries also tended to degrade rapidly, which impaired acceleration and hill climbing boost while diminishing the efficiency of regenerative braking systems. ePower believes the long-string behavior and high dynamic charge acceptance of Axion’s PbC battery will overcome both of these challenges.

The PbC batteries were delivered to ePower in mid-November and installed in swappable battery boxes that will give ePower the ability to switch back and forth between the old AGM batteries and the new PbC batteries in a couple of hours. During the first week in December, ePower plans to conduct a series of benchmarking tests to compare the on-road performance of the two battery systems in the same vehicle. It will then devote the rest of December to a road show for potential customers. In early January, the first PbC powered truck will be delivered to ePower’s customer and a second AGM powered truck will be brought back into the shop for a PbC upgrade.

I believe the ePower system is intriguing for several reasons. Firstly, it’s a frontal assault on fuel costs, the biggest expense burden in the trucking industry. Secondly, ePower’s initial marketing efforts are directed at medium to large fleet operators who are more inclined to assume the risk of testing an idea in real world conditions instead of devoting years to laboratory work. Thirdly, the ePower system is an extremely efficient use of batteries. Finally, it doesn’t take much market penetration in a million-unit fleet to represent a substantial revenue base for ePower and Axion.

If results from ePower’s prototype demonstrations are favorable, there is a significant likelihood that several large freight operators will purchase multiple retrofits for similar testing programs to determine where series hybrid electric drivetrain would fit into their operations. ePower’s series hybrid electric drive system is not a silver bullet solution for all truckers and all routes, but the economics can be very compelling for firms with established routes and schedules where a series hybrid electric drivetrain can do the required work at a lower cost.

Disclosure: Author is a former director of Axion Power International (AXPW) and holds a substantial long position in its common stock.

The post ePower’s Series Hybrid Electric Drive – Unmatched Fuel Economy for Heavy Trucks appeared first on Alternative Energy Stocks.

John Petersen

Last week Debra Fiakas of Crystal Equity Research published an article titled “No Battery Producer Left Behind” that was based on old information about the relationship between Exide Technologies (XIDE) and Axion Power International (AXPW) and reached several erroneous conclusions. Since I’m a former Axion director, the stock is my biggest holding and I follow the company like a hawk, Tom Konrad asked me to clarify the record and present a high level overview of Axion’s business history, stock market dynamics and technical accomplishments over the last four years.

Since Tom’s request is a tall order, the article will run longer than usual, but it will tie together several themes I’ve discussed in the past.

Axion’s price chart since September 2009 has been a vision from investor hell. However, I believe the market performance is 180 degrees out of synch with technical and business realities. I’ve been an Axion stockholder for nine years and my average cost per share is in the $1.25 range, but I’ve never felt better about my risk-reward profile than I do today.

Business History

Axion was organized in September 2003 for the purpose of conducting basic research and development on a new lead-carbon battery technology. Axion’s PbC® battery is a third generation lead-acid battery that eliminates the primary cause of lead-acid battery failure, the rapid accumulation of lead sulfate crystals on the negative electrodes. It does this by replacing the lead-based negative electrodes with carbon electrode assemblies. The PbC battery is basically a hybrid device that’s half lead-acid battery and half supercapacitor. It has a number of unique performance characteristics, including:

• Lower energy density (±25% to 40%) because carbon stores fewer ions than lead;
• Five to ten times the cycle life because carbon electrodes eliminate sulfation;
• Ten to twenty times the charge acceptance because carbon electrodes act like supercapacitors; and
• Self-equalization in long battery strings that reduces the need for complex battery management systems.

Unlike most R&D companies, Axion went public at a very early stage because there were several groups that claimed partial interests in the technology and the only way to consolidate ownership was in a publicly held entity. Like most R&D projects, expectations were high at the outset but faded over time as the challenges of developing a completely new battery technology and proving its value to cautious and skeptical users became clear. The process took far longer than we thought it would, but the market potential turned out to be far greater we originally anticipated.

From 2003 through the spring of 2009, Axion’s R&D efforts focused on optimizing the performance of its materials and components, designing an electrode assembly that could be used as a plug-and-play replacement for the conventional lead based electrodes used in battery plants around the world, developing automated manufacturing methods for the electrode assemblies and characterizing the performance of manufactured pre-commercial prototypes.

The first clear sign of R&D success arrived in April 2009 when Axion entered into a multi-year global supply relationship with Exide. The second and more convincing sign of R&D success arrived in August 2009 when the Department of Energy awarded a $34.3 million ARRA battery manufacturing grant to “Exide Technologies with Axion Power International” for the purpose of producing “advanced lead-acid batteries, using lead-carbon electrodes for micro and mild hybrid applications.”

The market reacted well to both events and in August 2009, Axion’s stock price peaked at $2.75 per share while its market capitalization peaked at $97 million. It’s been a long downhill slide ever since.

Axion’s relationship with Exide was always complicated because of size disparities. As an R&D company Axion ran a tight ship and in April 2009 it had $8.4 million in assets, $6.1 million in equity and  $1.8 million in annual revenue. Exide, in comparison, had $1.9 billion in assets, $326 million in equity and $3.3 billion in annual revenue. The ARRA grant made a complicated relationship more difficult because Exide didn’t want to share the grant proceeds without extracting a pound of flesh and Axion believed its technology was the fundamental justification for the DOE’s decision. By the summer of 2010 it was clear that Axion and Exide had different visions and would be following different paths. Current relations between the two companies are competitively cooperative, but far from close.

Stock Market Dynamics

While Axion’s technical prospects were bright in the fall of 2009, its financial condition was grim. In its Form 10-Q for the period ended September 30, 2009, Axion reported $283,000 in working capital and $3.6 million in adjusted net assets. With the equity markets still reeling from the impact of the 2008 crash, there was substantial doubt about Axion’s ability to survive another quarter. Those uncertainties persisted until late December when Axion announced a $26.1 million private placement of common stock that saved it from imminent collapse and gave it a sound financial footing for the first time in its corporate history. Axion’s 10-day moving average price was $1.65 before the offering and the deal was priced at $0.57, a painful 65% discount. The deal terms were hard, but they weren’t unfair for a private placement transaction of that magnitude.

I was thrilled when the 2009 private placement came together because 70% of the stock was bought by four big investors who each acquired blocks that were roughly equal to Axion’s total reported trading volume for 2009. When one big investor takes 70% of a deal, you need to worry about the stock flowing back into the market. When four big investors split 70% of a deal and they each buy blocks that represent a full year’s trading volume, it’s generally safe to assume that they’re swinging for the fences and the shares won’t flow back into the market for years. Unfortunately, things didn’t quite work out according to plan.

The market reacted reasonably to the 2009 private placement and during the month immediately following the offering, the price drifted down into the $1.15 range. Based on my prior experience with substantial private placements by public companies, it looked like the market was reacting normally and the retail price for liquid thousand-share blocks would stabilize at roughly twice the placement price for illiquid million-share blocks.

Axion’s market dynamic started to get ugly in late-April and early-May when liquidation trustees for two legacy stockholders that held a combined total of 3.5 million shares started to aggressively compete for buyers by dropping the offering price in a market that traded about 45,000 shares a day. By mid-July, the stock price had fallen by 50% while the average daily volume doubled. That price decline spooked other stockholders and increased the selling pressure, which drove the stock price to new lows. The extraordinary selling pressure continued in 2011 and 2012 as one large stockholder after another began to liquidate their positions for reasons ranging from secondary repercussions of the 2008 crash, to fund management changes and even an accidental death. As a result, the annual trading volume progression over the last four years was:

Axion may have been a very illiquid stock that traded by appointment in 2009, but it has developed a solid liquidity base over the last three years. More importantly, information from SEC reports filed by certain large holders combined with daily short sales data published by FINRA has left me highly confident that substantially all of the Axion shares that were previously held by large stockholders who wanted to sell have been absorbed by retail investors who did their homework, climbed their personal walls of worry and accumulated shares despite Axion’s dismal market performance. While market activity over the last three years has been dominated by a few large holders that were willing to sell at any price, I believe the future market will be dominated by a large number of retail investors who were greedy when others were fearful and bought Axion’s stock based on the fundamental economic potential of the PbC technology.

Technical Accomplishments

Axion’s basic research and development work on the PbC technology was substantially complete by the end of 2009. It had advanced the PbC technology from a glorified science fair project to a manufactured pre-commercial prototype that was suitable for delivery to potential customers who wanted to conduct their own testing and determine whether the PbC battery suited their needs. Axion used a portion of the proceeds from the 2009 offering to build a fully automated second generation production line for its carbon electrode assemblies and upgrade its principal manufacturing facility, but most of the proceeds were used to support customer testing activities and pay for a variety of demonstration projects in the new evolving markets summarized below.

Automotive Idle Elimination Systems In response to new emissions control and fuel economy regulations, the auto industry is in the midst of a fuel economy renaissance. The world’s automakers are all implementing proven fuel economy technologies at a torrid pace on a fleet-wide basis. One of the most cost-effective fuel economy systems available to automakers is also one of the most sensible – turn the engine off while a car is stopped in traffic and restart it automatically when the driver takes his foot off the brake. Depending on the manufacturer, these stop-start or micro-hybrid systems improve fuel economy by 5% to 15% for a few hundred dollars in incremental cost.

The biggest challenge of idle elimination is that powering accessories during engine off periods and restarting the engine when the light changes puts tremendous strain on the battery and today’s best starter batteries simply aren’t up to the task. The batteries begin to degrade as soon as they’re placed in service and within a few months a car that turned the engine off at every light when it was new can only turn the engine off once or twice during a commute. Idle elimination systems that don’t function properly because of weak batteries can’t save fuel.

In the summer of 2009 Axion began quietly working with BMW, which wanted to test the PbC battery for possible use in its mainline vehicles with the EfficientDynamics fuel economy package. The first 15 months of testing were conducted in deep secrecy. Axion’s stockholders didn’t learn about the existence of the BMW relationship until September 2010 when Axion and BMW jointly presented the preliminary results of their testing at the European Lead Battery Conference in Istanbul.

The following graph is an updated and annotated version of the graphs Axion and BMW used in 2010 to show the superiority of the PbC battery in a stop-start duty cycle. They grey lines relate to the left-hand axis and show changes in the dynamic charge acceptance of the batteries as they age. The black lines relate to the right hand axis and show the amount of time the batteries needed to recover from one engine off event in preparation for the next engine off opportunity. As you look at the graphs, it’s important to remember that:

• The “Charge Time” scale for the AGM graph is 10x the scale for the PbC, and
• The “Equivalent Drive Time” scale for the AGM is stated in months while the PbC scale is stated in years.

BMW completed its laboratory and vehicle testing of the PbC this summer and was pleased enough with the results that it hired an independent testing organization to confirm them. If the confirmation testing is successful, Axion believes the next logical step will be fleet testing to demonstrate the PbC’s performance in a variety of climate and traffic conditions. Based on the stellar results BMW obtained during its three-year testing and validation program, several other automakers have skipped the preliminaries and gone directly to advanced testing of the PbC for their idle elimination systems.

While US automakers are just beginning to implement idle elimination systems, industry consensus holds that the technology will be used in 34 million vehicles a year by 2015 and substantially all internal combustion engines by 2020.

Battery-Powered Locomotives Freight and passenger railroads in the US use roughly 3.7 billion gallons of diesel fuel per year, which gives them a huge incentive to reduce their operating costs by using fuel more efficiently. Moreover, like other transportation sectors, the railroads are subject to increasingly stringent emissions regulations, particularly for rail yards in urban areas. In 2007 Norfolk Southern (NSC) launched an ambitious program to develop a battery-powered locomotive that could be used as a switcher in urban rail yards, or combined with conventional locomotives to create a hybrid train that would use battery power to augment the conventional locomotives during acceleration and hill climbing and recover a portion of the energy that’s currently wasted in braking and downhill grades. Since NS used 476.6 million gallons of diesel fuel in 2011, it believes the potential economic and environmental benefits of battery-powered locomotives are extremely attractive.

In September 2009, NS introduced its first battery-powered switching locomotive, the NS 999. While the early demonstrations showed that the NS 999 could do the required work, the AGM batteries they selected for the locomotive were not able to withstand the tremendous regenerative braking loads of a switching locomotive. When the original batteries quickly failed, NS began its search for a better energy storage alternative. After discretely testing hydrogen fuel cells and nickel metal hydride, lithium iron phosphate, sodium beta and a variety of lead-acid batteries, NS decided that Axion’s PbC battery was best suited to its particular needs. Axion announced the initiation of a development relationship with NS in June 2010.

Over a period of two years, NS conducted a grueling sequence of performance tests using its in-house development staff, Penn State University and Axion to obtain double redundant results. In addition to showing that the PbC could handle the regenerative braking loads from a battery-powered locomotive, the testing program also explained why the first generation prototype failed.

Whenever conventional batteries are connected in series, the resulting battery string is only as strong as its weakest link and as the string ages the differences between batteries get harder to control. Unlike all othe
r batteries, strings of PbC batteries tend to self-equalize over time because of their unique charging behavior. The following graph highlights the differences between the long-string performance of conventional AGM batteries and Axion’s PbC batteries.

In April of this year, NS ordered $475,000 of PbC batteries for their planned rebuild of the NS 999. Their goal is to have the locomotive working this winter. Upon completion of the NS 999 rebuild, NS plans to build a larger six-axle locomotive for testing in long haul hybrid train applications. If the two planned prototypes perform as expected, the next logical step will be statistically valid fleet testing throughout the NS system. Norfolk Southern’s locomotive fleet includes 240 switching and auxiliary units and 3,900 multipurpose units. Collectively, the nation’s Class I railroads operate a total of 23,500 locomotives.

Stationary Storage Products In November 2011 Axion commissioned its PowerCube stationary energy storage system. While stockholders knew that the product was being developed, they didn’t know that Axion, in cooperation with Viridity Energy, had taken all necessary actions to qualify the PowerCube as a behind the meter frequency regulation resource in the PJM Interconnection, the regional transmission organization for Pennsylvania and twelve other States. In September 2012, Axion unveiled a small version of the PowerCube for residential and small commercial customers.

Over the last couple years grid-based energy storage has become a hot topic and most battery manufacturers are launching products for utilities, renewable power producers and commercial and residential power users. It’s an intensely competitive market where the principal differentiators are likely to be reliability, total cost of ownership and customer service. Axion’s stationary storage systems perform well and respond in milliseconds, but they don’t necessarily perform better than products from Axion’s competitors. The self-equalizing behavior of PbC batteries in long string applications should be as attractive in stationary systems as it is in rail applications.

As near as I can tell the key features that will differentiate Axion’s products are low maintenance and user-centric design. Axion developed the PowerCube in cooperation with Viridity with the primary goal of maximizing the economic benefit to commercial users who want to reduce their power costs while avoiding costly interruptions. Similarly, Axion developed its residential PowerHUB in cooperation with Rosewater Energy with the primary goal of optimizing performance and minimizing maintenance for small-commercial and high-end residential customers who need reliable, stable and clean power for their sophisticated security, entertainment, climate control and other electronic systems.

Trucking Industry Products In October of this year, Axion made a presentation at the SAE’s Commercial Vehicle Congress in Chicago that outlined its plans to introduce specialty products for the trucking industry. The first planned product will be battery systems for the auxiliary power units that are quickly becoming industry standards as most states adopt laws and regulations to restrict idling while trucks are parked for driver rest periods. To date, industry experience has shown that AGM batteries fail quickly in APUs and a better solution is needed. Axion’s SAE presentation used this graph to highlight the performance differences between AGM batteries and PbC batteries over a six-month period in a simulated APU duty cycle.

The primary target-market for APU battery systems is the 650,000 heavy-duty trucks that haul the nation’s freight. In 2006, the average long-haul truck idled for 6 hours per day and total national fuel consumption in idling trucks was estimated at 665 million gallons, or a little over 1,000 gallons per truck. Fuel costs alone make four-battery APUs a compelling economic proposition.

In its SAE presentation Axion said that it planned to begin field testing of PbC-based APU systems by 2013, which suggests that a formal announcement of the testing program and its development partner will be made in the next few weeks. Since the SAE presentation used Freightliner’s ParkSmart System as an example of the target market, I think there’s a pretty good chance that Freightliner will be the development partner.

A second trucking initiative Axion briefly discussed in their last conference call was the shipment of 52 PbC batteries for a prototype Class 8 tractor that combines a small diesel engine with a series hybrid drive to deliver fuel economy in the 12 to 14 mpg range, as opposed to the 5 to 6 mpg performance that’s currently prevalent in the industry. Preliminary test data from this project is expected this year.

Risks and Uncertainties

Production Capacity Axion’s electrode fabrication line was designed to produce enough electrodes for about 150 batteries per shift. While Axion has not disclosed its cost of building and installing the production line, news stories and financial statement disclosures lead me to believe an estimated cost of $3 million per line is reasonable. By the time you account for efficiency differences in a multi-shift operation, I’d estimate the maximum capacity of the single electrode fabrication line at 350 batteries per day, which is adequate to support testing and evaluation activities, but inadequate for commercial sales. When demand for PbC batteries increases, Axion will need up to $50 million in additional capital to expand its electrode fabrication capacity from 350 to 3,500 PbC batteries per day.

Production Costs Axion’s electrode fabrication capacity is very limited, which means that it has no significant negotiating power with suppliers and the fixed costs of its electrode fabrication facility are spread over a small number of units. In combination, these factors make current versions of the PbC objectively expensive. I’ve done some back of the napkin calculations on the bill of materials for a PbC battery and compared those numbers with the bill of materials for an AGM battery. The bottom line is basically a wash when you substitute ounces of expensive carbon for pounds of cheaper lead. Once demand for PbC batteries ramps, Axion should enjoy a stronger bargaining position with suppliers and derive substantial savings from the more efficient utilization of its physical plant. Additionally, the current electrode fabrication line is a second-generation version. As Axion works its way down the normal learning curve for manufacturing enterprises, additional cost savings are almost certain to arise. While management has scrupulously avoided making promises about future cost reductions, the opportunities for real and substantial economies of scale cannot be overlooked.

Anticipated Financing At September 30th, Axion had $4.2 million in cash, $6.8 million in working capital and $13.3 million in stockholders equity. It will require additional operating capital by the end of Q1-2013. Axion’s Form 10-Q disclosed that management is currently seeking additional capital from sources that are in alignment with its business objectives and long term strategy. During the recent conference call, the CEO explained that the next financing transaction would probably be a 2013 event and disclosed that the investors who provided $8.6 million of additional capital in February of this year are willing to participate in another round if an appropriate strategic partner is not identified. Since the terms of a future offering will not be negotiated until immediately prior to closing, they’re a significant uncertainty.

Investment Conclusions

In a no
rmal case I would have expected Axion’s stock price to stabilize in the $1.15 range after the 2009 offering. I would also have expected the price to slowly appreciate from that base level in response to the following significant technical accomplishments:

• The June 2010 announcement of a relationship with Norfolk Southern;
• The September 2010 announcement of a relationship with BMW;
• The November 2011 commissioning of the PowerCube as the first behind the meter frequency regulation resource in the PJM Interconnect;
• The decision to use the PbC in Norfolk Southern’s battery powered locomotive prototypes;
• The successful completion of BMW’s testing activities; and
• The September 2012 launch of the residential PowerHUB;

While each of these events would have been big news in a typical micro-cap company, they didn’t register on Axion’s price chart because of the extremely unusual market dynamics that prevailed when the announcements were made. While Axion’s stock has been “broken” for the last three years, I believe the market dynamic that caused the problem has been resolved and the only thing that’s holding the stock at present levels is fear that higher prices will only give rise to another round of heavy selling. After three years of unrelenting selling pressure despite an increasing body of proof that the PbC is an extraordinary new battery technology, I understand the fear. I also know that Axion has arrived at a key transition point and is poised to shed the R&D company market dynamic that prevailed for the last nine years as the PbC earns a place in several billion-dollar niche markets where competitive battery technologies simply can’t do the work.

Most R&D companies that enter the valley of death never emerge. For the fortunate few that do, the hard times last longer than anyone expected. The one trait all entrepreneurs share is unbridled optimism. The three traits all survivors share are determination, focus and fiscal restraint.

After nine years of hard work, adversity and limited financial resources, I believe Axion has finally arrived at the “Innovation Trigger” for the next stage in its development.

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long position in its common stock.

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by Debra Fiakas CFA

In late 2009, nine companies in the battery sector were recipients of American Reconstruction and Recovery Act (ARRA) funds awarded by the Department of Energy to jump start manufacturing capacity.  By the end of December 2011, six of them had made enough progress to begin production.  Three were lagging behind, including Exide Technologies (XIDE:  Nasdaq) and its partner Axion Power International (AXPW:  OTC/BB).  

Exide’s Sundancer Electric Car, October 1973. Exide and Axion are not looking so quick today.  Photo by Frank Lodge, EPA. Public Domain

Conventional battery producer and recycler, Exide was awarded $34.3 million by the DOE to advance the production of advanced lead-acid batteries at Exide’s facilities in Bristol, Tennessee and Columbus, Georgia.  The batteries would use lead-carbon electrodes for micro-hybrid applications such as so-called Start-Stop batteries.  By the end of 2011, when the General Accounting Administration last checked in on all the projects funded by Recovery Act funds, Exide had been able to install and commission all the equipment intended for the facility in Columbus.  This is where Exide was to produce its Absorbed Glass Mat (AGM) flat plate batteries.  Exide’s Columbus facility had been a lead recycling plant that was taken out of service in 1999.  It is now part of a larger operation including lead-acid battery manufacturing lines.  The Company has confirmed completion of the new AGM production capacity at Columbus and started shipping out its AGM flat plate batteries in the March 2012 quarter.

When the GAO completed their report, the Bristol facility equipment had been installed and commissioned for production of Exide’s lead-acid batteries, but the company was still validating equipment to be used in production of its Absorbed Glass Mat (AGM) ‘spiral wound’ batteries.  We note Exide is transferring its standard flooded battery production lines to facilities it operates in Salina, Kansas and Manchester, Iowa.  Management refers to these moves as the ‘closure’ of the Bristol facility, but as recently as the Exide’s second fiscal quarter conference call in early November 2012, indicated they are on schedule with installation of a ‘spiral wound’ battery production line at Bristol.  Earlier in 2012, management had expressed confidence in that ‘spiral wound’ AGM batteries will be produced at Bristol yet in 2012 and they have not backed away from that timeline.

Exide is closing certain facilities for the sake of reducing costs.  The company has been historically profitable, although it did report a net loss of $106.5 million on $693.4 million in sales in the June 2012 quarter, after establishing a valuation allowance for future tax allowances of $87.6 million.  Exide has produced positive operating cash flow in each of the last five fiscal years at a rate averaging 3.4% of total sales.  

It is Exide’s partner Axion Power that has real cash flow issues.  The lead-carbon electrodes Exide is using in it AGM batteries is ostensibly based on technology from Axion Power.  The two formed a partnership of sorts in 2009.  Axion has developed advanced ‘five-layer’ electrodes made from micro-porous activated carbon.  Use of Axion’s electrode assembly makes it possible to recharge batteries at a faster rate, a capability particularly for the transportation and industrial batteries Exide produces.

Axion raised $9.5 million through an offering of common stock in February 2012, bringing to $60 million the total amount of equity capital Axion has raised since inception.  At the end June 2012, Axion had $6.3 million in cash on its balance sheet.  I estimate Axion is burning as much as $2.0 million per quarter.  If I am right, Axion will be out of money by the end of the first quarter 2013.  That is, of course, if its fortunes do not improve.

In early August 2012, Axion announced a new distribution agreement with Rosewater Energy, which is targeting the residential energy market.  Axion will provide Rosewater with a battery storage and management system complete with electronics.  Axion has received interest from several corners, including Norfolk Southern for an all-electric, battery powered locomotive.  However, the initial order from Norfolk was $475,000 and there is no visibility on future orders from Norfolk or any other rail operator.  The company has also received a consistent flow of orders to its flooded lead-acid batteries over the past year and recently indicated it expects to continue receiving orders at least through the first quarter 2013.

The DOE appears to have made its grants with the idea of leaving no battery producer behind.  However, investors have to wonder about the ability of Axion to keep up when its order flow is sporadic and one of its most important partners is playing it safe in tough demand conditions.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. 

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