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Saturday, March 26, 2011

Re-assessing AXPW.ob

Over the past few weeks Axion Power (AXPW.ob) saw a tremendous, yet consistent, move upward.

Apparently there were a series of purchases since February reported to the SEC.  IMO, these purchases are high profile. Of the three, one is Blackrock. The other, and more importantly within the alternative energy space, is The Quercus Trust. (The Quercus Trust is well known within the alternative energy space, as it is completely dedicated to the space. It takes a 'shotgun' approach to the technologies/companies out there. Basically, the purchases do not mean much to me, but it does give Axion Power and its technology more visibility within cleantech investors.)

With an appreciation of about 100%, I wanted to re-asses the potential by asking the obvious question, 'what is the potential market cap Axion deserves?' 

I first entered the name at 10/04/10 via the post AXPW - battery play with the premise that the company will benefit from two things: 1. stop-start technology and 2. grid storage.

Stop-start technology progress:

The stars started to align for the stop-start implementation.  Ford told us via a Press Release on 12/27/10 that they will implement the stop-start in 2012 on North American cars via the EcoBoost engine. (I added that day because I thought the market was being inefficient on the news.)

More details started to materialize. An article was released that hinted at the potential market size by 2016. Unfortunately I can not clearly gauge a proper revenue/expense via mass production of the PbC battery Axion produces or components they sell to other manufactures or what they may license out. With 10s of Millions of automobiles and lead-acid batteries being sold every year, a $100M market cap. should be supported for stop-start technology alone.

(The greater efficiency that the PbC technology creates can also be used for the other applications lead-acid is used in: boats, motorcycles and heavy duty equipment.)

Energy Storage:

This is the 800lbs gorilla.  John Petersen provides a plethora of information we can use to estimate market size potential.  He recently wrote an article about it, among many others.  The most important aspects of the article was highlighting the potential and realistic market size.

1. " electric power generating capacity is roughly 4,000 GW, total installed energy storage capacity is less than 128 GW, or 3.2% of generating capacity..."

 2. highlights the potential market size, globally, at $50B.

In another article, he highlights the improvements the PbC technology does to lead-acid batteries. Here is a summary:

"In exhaustive performance tests over the last three years, Axion has demonstrated that the PbC battery:

-Offers a depth of discharge of up to 70%, as compared to 30% for conventional lead-acid;

-Offers stable round-trip energy efficiency of 85%, as compared to 50% to 75% for conventional

-Offers cycle life improvements of 400% or more; and

-Offers dynamic charge acceptance rates that are a 10x improvement over conventional lead-acid.

In combination, these unique features of the PbC battery can reduce capital cost per cycle by an order of magnitude and make the PbC the most cost-effective electrochemical storage system in the industry."

The one thing he does leave out, is that this potential market size will keep growing as the global carbon emissions continue to get cut and enforcement of alternative energy sources supply energy take into effect (wind).

The energy storage potential would have me believe AXPW.ob could have at least a $1billion market cap.

However, the realization of energy storage valuation is a year or two out. Outside of the validation needed for the battery functionality, imo, there needs to be mass market smart grid implementation. But to have mass market smart grid implementation, standards are needed. Industry discussions just started about a month ago. This will not stop testing and minimal commercialization, but to realize mass market appeal standards are needed.

Basically, I think the current market cap. is supported by what is already known about the stop-start emergence. More clarity, and potentially higher appreciation can be given, when we see the production cost and unit/license revenue.

The energy storage industry/concept may have gotten fast-tracked due the political fall out from Japan's nuclear issues.  AXPW.ob will see valuation for energy storage capability depending on how fast industry leaders start pushing this concept.

In the mean time, it is still a very speculative name.

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