Why Baby Steps For Fuel Efficiency Mean Major Revenue Gains For Lead-acid Battery Manufacturers


John Petersen

If EV evangelists have everything their way and lithium-ion battery developers can achieve their lofty cost and performance goals, your long-term future may include a car with a plug. While we wait for that glorious day to arrive your short-term future will almost certainly include a car with stop-start engine technology.

The issue is simple – sitting at a stop light with the engine running wastes fuel and fouls the air. Depending on traffic, weather and driving habits, the waste can range from 5% to 15%. On a personal level the waste may seem modest, but on a national scale the numbers are mind-boggling.

The solution is simple – use cheap and effective automatic stop-start technology to turn the engine off every time a car rolls to a stop and automatically re-start the engine when the driver takes his foot off the brake.

If all cars in the US used stop-start systems, the nation would save 10 billion gallons of gasoline a year while reducing CO2 emissions by 100 million tons. I think saving the equivalent of 50 BP-class oil spills per year is a worthwhile goal. The EPA and the NHTSA seem to agree because they’ve recently adopted regulations that are expected to drive stop-start technology into at least 40% of the new car fleet over the next five years.

Ford Motor Company (F) has already announced plans to ramp stop-start engine production to 1.5 million units a year by 2013. Other automakers aggressively pursuing stop-start technology include PSA Peugeot-Citroen, BMW, Hyundai, Mazda, Nissan, and Volkswagen. Market penetration estimates range from 10 to 20 million cars per year by 2015, and those estimates will be woefully inadequate if Chinese proposals to require stop-start systems on all internal combustion engines by 2012 are implemented.

The key takeaway for investors is that stop-start technology is not a somewhere over the rainbow solution. The technology is real, it’s proven and it’s being implemented today in auto factories worldwide.

Reduced to basics stop-start systems are simple. The automaker replaces its normal starter and alternator with a belt driven integrated starter generator and then adds the necessary control electronics. After several years of experience with over a million stop-start vehicles in Europe the biggest issues are battery problems.

Stop-start systems are hard on starter batteries because instead of starting a car once for a normal commute, a car equipped with stop-start can restart the engine 10 or even 20 times. Heavy accessory loads that must be maintained while the engine is off increase the complexity. In stop-and-go urban driving, where two-, three- or even four-light backups at busy intersections are not uncommon, the battery strain is enormous and performance deteriorates rapidly.

Initially, the automakers’ response to battery issues was to upgrade from commodity starter batteries to higher quality valve regulated lead-acid [VRLA] batteries. Since their stop-start systems still fell short of optimal performance, a more recent trend has been to use two high-quality VRLA batteries instead of one.

I frequently write about a new generation of lead-acid batteries that use carbon additives or components to increase cycle-life and power while reducing the time required to bring the battery back to a full charge. Last week I found an obscure presentation that Axion Power International (AXPW.OB) used at last September’s Asian Battery Conference in Macau. This presentation is the first document I’ve found that shows how several different types of lead-acid and lead-carbon batteries perform under simulated stop-start driving conditions.

The testing protocol began with a one-minute discharge at 50 Amps to simulate engine-off accessory loads that was followed by a brief 200 Amp starter load. It then measured the maximum current the battery would accept and the amount of time required to return the battery to a full state of charge.

The first graph shows the performance of a high-quality VRLA battery. The 4,000-cycle test period is roughly equivalent to six months of urban driving at 30 stop-start cycles per day. The downward curving blue line shows the maximum charge current the battery would accept as the number of cycles increased. The upward curving black line shows the amount of time required to restore the battery to its initial state of charge.

8.26.10 VRLA.png

The second graph shows the performance of a high-quality VRLA battery with high surface area carbon added to the electrode pastes. While charge rates and recharge times improve, the performance degradation is still pronounced over the testing period.

8.26.10 VRLA+HSAC.png

The third graph shows the performance of a high-quality VRLA battery with conductive carbon added to the electrode pastes. While charge rates and recharge times show additional incremental improvement over high surface area carbon, the performance degradation is still pronounced.

8.26.10 VRLA+CC.png

The final graph shows the performance of Axion’s PbC® battery, a battery/supercapacitor hybrid that replaces the lead-based negative electrodes with carbon electrode assemblies. Further comment seems superfluous.

8.26.10 PbC.png
Several publicly held energy storage companies are actively developing solutions for the stop-start market. Johnson Controls (JCI) has sold the lion’s share of stop-start batteries to date and seems content to stick with traditional VRLA chemistry while focusing its research and development efforts on lithium-ion batteries.

Exide Technologies (XIDE) and C&D Technologies (CHP) are both actively developing VRLA batteries with carbon additives. Exide is focusing on lead-carbon batteries for stop-start applications and C&D is focusing on lead-carbon batteries for stationary applications.

After seven years of research and development, Axion Power International (AXPW.OB) is just now making the transition to commercial production. Its multi-patented carbon electrode assemblies have been designed to work as plug-and-play replacements for the simple lead electrodes used in battery plants worldwide and its goal is to become a leading manufacturer of high-value electrode assemblies that will be sold to other battery companies that
want to offer a better product to existing customers. Axion’s manufacturing partners include Exide Technologies and privately held East Penn Manufacturing. It has also entered into a development relationship with Norfolk Southern Railroad (NSC) and quietly conducted product testing for a bevy of first tier automotive OEMs over the last 15 months.

The last serious contender in the stop-start game is Maxwell Technologies (MXWL), which has partnered with Continental AG to develop a stop-start system that uses conventional VRLA batteries in tandem with Maxwell’s BoostCap® supercapacitors to satisfy the requirements of stop-start applications.

Given the amount of press and PR hype that have surrounded automakers plans to make tens of thousands of plug-in vehicles over the next few years, most investors are surprised that they haven’t heard more about plans to make tens of millions of stop-start equipped vehicles. The only explanation I can offer is that plug-in vehicles have a great deal of long-term PR value while stop-start systems involve bread and butter production decisions that will materially impact the bottom line over the next few years.

If dual-battery stop-start systems become the norm, the short-term revenue gains for a handful of lead-acid battery and supercapacitor manufacturers could easily amount to a couple billion dollars per year. Since high quality VRLA batteries and carbon-enhanced products will typically command a higher margin than commodity lead-acid starter batteries, the bottom line impact should be impressive. For now, most of the likely beneficiaries of stop-start technology implementation trade at bargain basement valuation multiples. As the automakers begin announcing design wins for their upcoming stop-start product lines, that dynamic will change rapidly.

Unlike the lithium-ion advocates, I don’t believe in the absurd idea of “One Technology To Rule Them All.” Given the size of the market and the variety of potential solutions the only thing that matters in my book is being in the game. Since September is traditionally the month when first tier automakers introduce their new product lines for the coming model year, I think things are about to get interesting.

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


  1. What’s most enticing about the advanced lead acid battery sector these days is that the stocks are way cheap. Which is why I’m long XIDE, CHP, and AXPW. I’ve bought the story since you started telling it 2 years ago, but only reccent prices induced me to buy the stocks, as well.

  2. I’m following 24M and ReVolt, as well as a half dozen other battery companies that I’ve met as a result of writing this blog. There are a lot of interesting things going on in private companies but until the companies present investment opportunities for the general public, I can’t really write about them. I also have seven years of direct experience watching a relatively simple battery technology progress from the laboratory to production and know that the process is extraordinarily difficult, expensive and time consuming. Changes will come, but they won’t come with the frequency or speed we got used to in IT.

  3. Thank you for another excellent written piece about developments in the battery sector. I’ve followed your blog for a long time now and I think it’s very well written and a huge source of valuable knowledge.
    Just like Tom I’ve recently started to buy some stocks (XIDE, CHP, AXPW, ABAT) but I still have my doubts about the general sentiment in the market. You talk about interesting times ahead, but can you share your opinion about the general state of the markets? Even if some stocks are “within spitting distance of their 52 week lows”, don’t you think it’s possible the general sentiment could cause the stocks to go even lower than some of them are these days?
    In other words, do you think this is the right time to buy huge amounts, or would you advice to buy gradually over the next six months or so?
    Thanks again for sharing your knowledge. Greetings from The Netherlands!

  4. There are many market analysts who are far smarter than me, but I’m oddly comforted by the fact that we had a miserable August. In my experience big September drops are not common if August is bad.
    I tend to think we’re about half-way through a 1929 class depression that began in 2000. I recently saw a chart that used price level adjusted numbers and overlaid the 1929 to 1939 and 2000 to 2010 periods. The chart showed that the current reversal is more severe than the 1929 crash was.
    I expect the recovery will take another decade and there will be some bumps along the way, but I’m not expecting things to get much worse.
    We’re in an odd place right now because the world is transitioning into the age of cleantech, the sixth industrial revolution. The early days of those kinds of macro-events are always tumultuous and terrifying. They’re also times of great opportunity.
    If you tend to be a short term trader, I can’t offer any useful thoughts. If you tend to be a long-term holder, I like current pricing and I’ve seen people do very well with dollar cost averaging.
    I expect the next month to be eventful in the energy storage sector as automakers start introducing new product lines and technologies.

  5. Thank you for your quick reply.
    I’m a long-term holder and I do like the current pricing a lot, but I’m just not very comfortable with some macro-economic data these days (especially housing market, unemployment, disinflation)… Then again, your point is valid. When stocks are fundamentally cheap and you are a long-term holder, why bother about current macro-economic data which may already be priced into the SP?

  6. When I was a kid growing up in Arizona a popular poster had two vultures sitting in a tree with one saying to the other “Patience my ass! I want to kill something.” I know the feeling all too well. I also know that buying sound companies at attractive prices does pay off, although not necessarily on my schedule.

  7. John: in prior posts or otherwise, have you studied the cost / benefit of PHEVs vis a vis the grid? Seems to me the press and the government ignore the fact that these batteries need to be charged with energy we must pay for via the grid… Thanks

  8. No doubt the environmental benefit from adopting Stop/Start technology would be impressive, but that would be offset by the increased environmental damage caused by improper battery recycling. With increased loads and perhaps two batteries per car, the number of SLABs (spent lead acid batteries) would increase dramatically. Secondary lead smelting, an industry that recycles and refines lead contained in dead car batteries, is one of the United States’ recycling success stories, yet too many recyclers continue to open factories in Mexico and other developing nations to take advantage of lax environmental standards and lower wages. If the United States is going to commit itself to environmentally friendly technology in automobiles, it cannot turn a blind eye when that same technology causes significant harm in other aspects of its life cycle. The most advanced domestic smelting facilities promote green jobs and significantly reduce emissions – in many cases, by more than 99% compared to technologies considered state of the art just a few years ago. To make Start/Stop truly environmentally friendly, the batteries need to be made and recycled domestically.
    The following link to an article provides more detail about the exports of spent lead-acid batteries to Mexico, which is often done illegally: http://eponline.com/articles/2010/08/16/slab-exports-rule-targets-labeling-practices.aspx?sc_lang=en

  9. The recycling statistics for lead-acid batteries in the US are closer to 99%. I agree wholeheartedly that exporting batteries for recycling under less rigorous conditions is shameful conduct, but I can think of any number of other business practices that are equally shameful.
    One of the nice things about Axion’s PbC solution is that it replaces half of the lead plates with carbon electrode assemblies, and extends battery life significantly. Using 30% to 40% less lead and getting 4x to 5x the cycle life is very friendly.

  10. Tom,
    You’ve twittered and been public in your view about CHP’s attractive valuation lately. Would you share your reaction to results from CHP yesterday and their restructuring plan?

  11. All I can say is I blew it.
    The deal with debt holders took me by surprise.
    If they get 95% of the company for $127M debt conversion, then that puts the value of the current equity at about $6.8M. Since the current market cap is 5.64 at $0.21, that means that the bondholders are accepting $0.25 a share.
    Which of course means I wish I had not bought at $.90 and then again at $.30.
    This goes to show that when you buy any company that’s having liquidity problems, you’re taking a big risk of being diluted.
    Would I buy the stock at $0.21? Probably if I had not bought at higher prices. But I maintain a discipline of capping my total investment in any company, and I hit that number when I bought yesterday.

  12. I’m appalled by this latest travesty arising from the application of newly adopted FASB rules to capital structures that were created in a different era. C&D’s market price fell because it dropped out of the S&P 500. That gave rise to additional selling pressure from funds that couldn’t hold sub-$1 stocks. When the market price fell to a low enough level FASB 144 kicked in and said “since your market capitalization is so low, you need to impair the goodwill and intangible asset values on your balance sheet.” The impairment was enough to create a technical default where one would not have otherwise existed.
    This should not have happened. C&D was doing a good job of working its way out of a hole after a difficult period in its corporate history. That progress was blocked and then aborted by an accounting theory that says appraisals are more important than historical costs.
    This is one of those times when I’m ashamed of the accounting profession.


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