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Lead-Carbon Batteries: A Game Changer for Alternative Energy Storage – Part II

I woke up this morning with a dreadful case of writer’s block and feared that I might have to take a week or two off while awaiting the end of the current SEC reporting cycle. Mercifully, one of my readers sent an e-mail message that asked some pointed questions about lead-carbon battery technologies and the relative strengths and weaknesses of the principal lead-carbon battery developers. So instead of dashing off a quick reply, I thought it might be interesting to share both the message and a detailed response. Besides, it seems like a great way to kill two birds with one stone.

Mr. Petersen,

You've convinced me the storage future for key applications is lead-carbon (see for example AEP's project for distributed storage on it's network, a topology I expect will be common, perfect for Axion). I've greatly enjoyed your common sense, economics trumps whiz-bang technology, perspective. I've spent the last half of my career in IT and have seen it time after time. [Hyperlink added by Author]

Would you now please comment on whether Axion still has a competitive future given the Furakawa-East Penn license and production of the CSIRO lead-carbon battery. As best I can tell at a marketing or performance level the CSIRO battery is an Axion look alike. Also, looks like they will get first mover advantage, maybe for years since I can't see how Axion can move quickly or scale production, given it's limited resources. I'm concerned Axion's time may have passed. I’ve also seen lots of small companies with better mousetraps fail for lack of resources and marketing.

Also, are there patent conflicts between what Axion has and the CSIRO patents (spent the first half of my career as a lawyer)? What's current status of the Mega C litigation? Any chance some of Axion's former Canadian penny stock past can come back and bite it, or is Mega successor's upside limited to its 7m shares? What exactly do Axion's patents protect? If not from East Penn's perform/look alike product, are they worthless? My brief search only disclosed a TM registration.

The final issue of concern for me is that both companies are in Pennsylvania, which gives Rendel and other pols a problem in helping Axion with a request for Obama money. Prior to East Penn's news it looked to me Axion was pretty well wired with local politicians. Given all that, to me their future looks bleak. I'm guessing it's either Obama, massive dilution, or giving away it's future to a larger "partner".

In short can you stop replaying the technology story - I got it - and take the kind of informed business look at Axion's prospects you are in position to publish. It would be deeply appreciated. I am unable to perform any reasonable due diligence on my own with this small company. I appreciate your legal and former relationships with Axion make this an area where you need to be careful, but anything you could put in print to your fans would be most appreciated. I'd really like to bet on them - but I'm only so crazy.

Mr. Smith

Ultrabattery Status Australia’s Commonwealth Scientific and Industrial Research Organization (CSIRO) has developed a lead-carbon energy storage device that it refers to as the “Ultrabattery” and licensed the technology to Japan’s Furukawa Battery Co. (Frankfurt - FBB.F). Furukawa, in turn, has sublicensed the NAFTA rights to East Penn Manufacturing.

CSIRO and Furukawa road tested prototypes of the Ultrabattery in a modified Honda Insight HEV in late 2007. They subsequently sent Ultrabattery prototypes to Sandia National Laboratories for inclusion in a series of partial state of charge cycle-life performance tests that Sandia conducted in 2008. While the tests were hugely successful, Furukawa currently classifies the Ultrabattery as an R&D stage technology and the Green Car Congress reports that the product is not scheduled for commercial introduction until late 2010. Since the Ultrabattery is more complex than a normal lead-acid battery, it seems reasonable to assume that it will probably take another year or so to get an Ultrabattery production line up and running in the U.S., which implies a domestic release date of late 2011.

PbC Status When Axion Power International (AXPW.OB) began making and testing prototype PbC devices in late 2003, a top priority goal was to develop a lead-carbon battery technology that could be easily implemented in existing lead-acid battery plants with minimal changes to manufacturing equipment and processes. The New Castle asset purchase in early 2006 was a critical step in Axion’s development plan because it gave the research staff the power to change a design parameter in the laboratory and then immediately integrate that design change into a manufactured prototype using existing manufacturing facilities.

During its first two years in New Castle, Axion’s development effort focused on optimizing electrode performance using labor-intensive manual fabrication techniques. When it finally developed an electrode design that met the performance goals and worked well in the existing manufacturing plant, Axion began negotiating utility scale tests and manufacturing hundreds of pre-commercial PbC prototypes for use in those tests. Pictures of Axion’s Power Cube, which was built for a NYSERDA-funded utility substation upgrade deferral demonstration project, are available on Axion’s website.

Over the last year, Axion’s focus has shifted to developing automated fabrication methods for electrode assemblies. Custom equipment for the carbon sheeting and electrode fabrication processes has been on order since last year. When that equipment is installed, Axion expects to be able to fabricate electrode assemblies for about 1,000 PbC devices per day, or 250,000 units per year. Since I’m no longer privy to inside information, I don’t know what the current status of the equipment orders is, but I hope we’ll hear something in the next earnings call.

First Mover Advantage While I can’t assess the status of Furukawa’s ongoing development work, I have to give the first mover advantage to Axion. Its automated electrode fabrication equipment should be operational this year, which will give Axion a one to two year head start over the Ultrabattery. If the PbC devices are well received, the electrode line can be rapidly expanded to fully utilize Axion’s existing battery manufacturing capacity and permit the sale of electrode assemblies to other manufacturers. The current round of equipment orders is already financed. Additions will not be necessary unless the PbC devices are successful. If Axion is selling 250,000 PbC devices per year at a reasonable price and profit margin, expansion financing and dilution should not be significant problems.

Over the long-term, Axion plans to implement a platform technology business model like Intel’s where it will focus on making electrode assemblies for sale to battery manufacturers that want to offer PbC devices. The advantages of a successful platform technology business model are clear. Specialized facilities for the fabrication of electrode assemblies will be far cheaper to build than new battery manufacturing plants. It’s also easier to increase production if you can leverage a broad pre-existing base of manufacturing, marketing, distribution and customer support infrastructure.

Patent Status The Ultrabattery and Axion's PbC device are similar, but there are important technical differences. The Ultrabattery page on Furukawa’s website includes three schematic drawings; a conventional lead-acid battery is shown on the upper-left, an asymmetric capacitor like Axion’s PbC is shown on the upper-right and the Ultrabattery is centered beneath the two. I used the U.S. Patent Office’s online search utility and could not find a CSIRO patent for the Ultrabattery. I then did a broader Google search and found a recent entry on The Patent Search Blog that said a European patent application for the Ultrabattery was published in September 2008 (priority date March 20, 2007). So it appears that CSIRO does not have any issued patents for the Ultrabattery. In comparison, Axion owns six issued U.S. patents for the PbC device (Nos. 6,466,429, 6,628,504, 6,706,079, 7,006,346, 7,110,242 and 7,119,047) and has seven additional patent applications pending. While I am not a patent lawyer, Axion’s patent position seems to be the stronger of the two.

Prior Litigation To begin with, I want to be perfectly clear that Axion does not have a “Canadian penny stock past.” It has fought to the death with a group of Canadian stock promoters who tried to claim an ownership interest in its PbC technology, but Axion has never been implicated in a questionable penny stock promotion.

I hate Mega-C questions because it was a long and emotionally draining battle. Comparing the Mega-C bankruptcy case and the associated adversary proceedings to a can of worms would be a grave insult to worms everywhere. The final outcome of four years of litigation was that 5.7 million Axion shares are held in court-supervised trusts that will sell enough shares to pay the costs of Mega-C’s bankruptcy and the claims of its creditors, and then distribute the remaining shares to holders of allowed equity claims. As a result of several adversary proceedings that were brought and resolved in connection with Mega-C’s bankruptcy, the individuals that I would have considered a threat to Axion have been effectively neutralized. While I’m reluctant to use the word never, I think the risk of future substantive claims is very remote.

Potential Stimulus Axion, East Penn, C&D Technologies (CHP) and Enersys (ENS) are all based in Pennsylvania. Frankly, I wouldn’t be surprised to see all four companies apply for a portion of the $2 billion in advanced battery manufacturing grants and the $4.5 billion in smart grid deployment grants included in the Obama stimulus plan. It’s important to remember, however, that manufacturing lead-acid batteries is far less expensive than making other types of batteries and while Li-ion producers may request billion dollar grants, requests from lead-acid manufacturers are likely to be far more modest despite the cost advantages of lead-acid products.

Given the importance of battery manufacturing to Pennsylvania’s economy, I would expect the political powers to offer whole-hearted support to all eligible in-State manufacturers. Moreover, as the political battle lines are drawn in D.C., I think Senator Specter’s decision to cross the aisle and vote in favor of the stimulus bill may prove helpful.

Due Diligence Resources When I want to perform a due diligence investigation on a public company, the first place I visit is the SEC’s EDGAR Company Search page. All you need to do is type a company name in the text box and the site will bring up a complete list of the company’s SEC reports that you can select and review on-line. If you want to know about Axion, a good starting point will be the prospectus for a resale registration statement that Axion filed last August and the prospectus supplement that it filed in November.

Disclosure: Author holds a large long position in Axion Power International (AXPW.OB) and small long positions in Active Power (ACPW), Exide (XIDE), Enersys (ENS) and ZBB Energy (ZBB).

John L. Petersen, Esq. is a U.S. lawyer based in Switzerland who works as a partner in the law firm of Fefer Petersen & Cie and represents North American, European and Asian clients, principally in the energy and alternative energy sectors. His international practice is limited to corporate securities and small company finance, where he focuses on guiding small growth-oriented companies through the corporate finance process, beginning with seed stage private placements, continuing through growth stage private financing and concluding with a reverse merger or public offering. Mr. Petersen is a 1979 graduate of the Notre Dame Law School and a 1976 graduate of Arizona State University. He was admitted to the Texas Bar Association in 1980 and licensed to practice as a CPA in 1981. From January 2004 through January 2008, he was securities counsel for and a director of Axion Power International, Inc. a small public company involved in advanced lead-acid battery research and development.



was posted on AltEnergyStocks.com.


       

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Comments

From the data provided by you, it is obvious that Lead Acid/Carbon batteries will be much cheaper than Lithium based batteries. It would be nice if you can provide comparative data of charge/discharge cycles, charge times, power density, energy density etc for Lead Carbon and Altair's Lithium Titanate batteries. In particular, what is the fastest charge time of PbC batteries? This performance parameter may be important for batteries destined for full electric vehicles.

Mr. Cheong, the problem with detailed comparative analysis at this point is that the lead-carbon is just moving from prototype to manufactured product and specifications that will allow a complete and accurate side by side comparison have not yet been published. My discussion of the ultrabattery status includes a link to a Sandia slide presentation showing comparative data against a Li-FePO4 battery. But until every battery manufacturer publishes complete and comparable data I can't really analyze it.

In general terms, I think you're looking at roughly comparable cycle-lives and power densities; and lower energy densities for the lead-carbon. The lead carbon will probably not be competitive for small EVs because of volume limitations. But on the other hand, I don't believe most EVs make sense because of raw battery economics. My basic premise is that anything with a vehicle weight to passenger weight ratio of more than about five should not be all electric.

You may also want to review the first article I did on this topic back in January. It is archived at Seeking Alpha:

http://seekingalpha.com/article/115257-lead-carbon-a-game-changer-for-alternative-energy-storage

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