Yesterday Axion Power International (AXWP.OB)
announced the signing of a memorandum of understanding with Exide Technologies (XIDE)
following fourteen months of negotiation and technical investigation.
This alliance could prove to be a sea-change event for the domestic
battery
industry. Copies of the press release and an archived version of the
subsequent investor conference call are available on Axion’s website.
As a former chairman of Axion’s board of directors and a very
substantial
Axion stockholder, I’ve been waiting for an agreement like this for a
very long time. I’m delighted to see confirmation from Exide that my
faith in Axion’s PbC technology, its management and its technical team
were justified.
Over the last nine months I’ve written a series
of articles on the energy storage sector in general and the battery
industry in particular. My basic premise has been that none of the
battery technologies we’ve relied on in the past are robust
enough and cheap enough to satisfy the requirements of cleantech,
the sixth industrial revolution. The result has been a race to fill
the void as lead-acid battery manufacturers worked to improve
performance and Li-ion battery developers worked to reduce costs. The
prize to the winners will be major chunks of market share in an industry
that expects explosive growth from $30 billion to over $100 billion per
year in the next decade. In the words of Merrill Lynch analyst
Steve Milunovich:
“. . . cleantech markets dwarf IT to
the tune of two orders of magnitude. Unlike tech names, cleantech
companies often don’t need huge unit growth to succeed – modest
improvements mean more. New IT vendors often face a hurdle of a 5-10x
improvement over incumbent technology to succeed while in cleantech
doing the same amount of work with reduced CO2 emissions might be
enough.”
Axion has always been unusual because there was never a question about
whether its PbC technology worked. Early technical studies
conclusively showed that replacing the lead-based negative electrode in
a conventional lead-acid battery with a carbon electrode like you find
in most supercapacitors had a tremendous impact on both cycle life and
power. Two years ago, when Axion received the prestigious 2006
Technology Innovation Award for North America in the field of lead acid
batteries, Frost & Sullivan noted that Axion’s PbC technology
had:
“. . . the potential to revitalize the
lead-acid battery industry by breathing new life into an established
technology that was not well-suited to the requirements of important
new applications like hybrid electric vehicles and renewable power.”
The real challenge has always been transitioning the science from a
laboratory bench to a factory floor. The commercialization
alliance with Exide is clear independent confirmation that Axion has
succeeded where the vast majority of R&D companies fail.
Over the last couple of months the battery industry has been headline
news as the Federal government adopted massive loan,
grant and subsidy regimes for advanced battery technologies. While
the mainstream press has focused most of its attention on the potential
of plug-in vehicles, the enabling legislation also recognizes the
crucial role that cost-effective energy storage will play in the development
and implementation of the smart grid and the more widespread use
of wind and solar power. The fundamental goals
of all the recent legislation are to build a new domestic
battery manufacturing infrastructure that will help liberate
America from the economic
tyranny of imported oil while enabling the more widespread use of
alternative
energy technologies and cutting carbon-dioxide
emissions.
The biggest advantages Axion’s PbC technology offers are low cost and
rapid deployment. As of today, there are no large-scale Li-ion battery
manufacturing facilities in the U.S. and while a number of companies
have disclosed
plans to build new factories if Federal subsidies are made
available to them, there are significant
unanswered questions about whether the battery technology solutions
these
companies are proposing are cheap enough, robust enough and safe enough
to warrant a multi-billion
dollar implementation effort. Even if the hoped-for subsidies
materialize and the proposed factories are built, the process of
building the factories, perfecting manufacturing techniques,
establishing reliable supply chains for imported raw materials,
introducing new products and
training an entire country to use those products will be a major
undertaking.
In comparison, there are dozens of companies that already operate
lead-acid battery factories in the U.S. and Axion’s PbC technology has
now reached a point in the development process where it can be
implemented in the existing factories starting immediately without
substantial changes to existing equipment, components or manufacturing
processes. So for the first time America has a real a choice between
“sometime a few years from now” and today.
I love it when a plan comes together.
I cannot begin to predict the impact the new alliance will have on
Axion or Exide. After giving pro-forma effect to the conversion of its
outstanding preferred stock, Axion has 34.7 million shares outstanding
and a market capitalization of roughly $31.2 million at yesterday’s
closing price of $0.89. Exide, in comparison, has a market
capitalization of roughly $364 million and annual sales of
approximately $3.7 billion. The combination of Axion’s technical
expertise in lead-carbon chemistry with Exide’s manufacturing,
distribution and customer service prowess should be exciting. I
certainly expect that the news will have a positive short-term impact
on both companies and an even greater long-term impact as the pervasive
scope of the alliance becomes clearer.
Disclosure: Author is a former
director and executive officer of Axion
Power International (AXWP.OB)
and holds a large long position in its stock. He also holds a small
long position in Exide Technologies
(XIDE).
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-carbon battery research and development.