In March I re-assessed my fundamental thesis on Axion Power (AXPW.ob). Since I could not sleep, and the decline in its stock price, I figure now would be a good time to update the assessment.
The premise of my investment in AXPW.ob is that the company will benefit from two things: 1. stop-start technology and 2. grid storage.
1. Stop-start technology (if anyone does not know what stop-start is, read here):
- The stars started to align for the stop-start implementation when 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.
- A recent study by Pike Research indicates the potential market for Stop-Start vehicles will be some 37million annually by 2020. (The study also indicates slower penetration in North America, but Ford is paving the way.)
- Johnson Control will invest $420M globally to support the stop-start market.
-Axion presented jointly with BMW (I will say that again, presented with BMW) at the largest Lead-Acid battery convention regarding the PbC technology. (Which showed very impressive performance compared to other batteries.)
The stop-start market looks more and more interesting and exciting as the days go by.
Unfortunately, there is not enough operational-cost information to clearly gauge a proper revenue/expense model via mass production of a PbC battery Axion would produce or as a component supplier of the PbC technology to OEMs. Instead, I look at AXPW.ob from a market capitalization perspective, and ask a simple question: Does a potential market size of 37M by 2020 merit a current market capitalization of $55M?
With the impressive data on how the PbC technology performs, and increasing evidence of its sizable market, I think a $100M market capitalization on AXPW.ob is conservative and a potential minimum.
2. Grid Storage:
There are a ton of estimates circulating about the size of grid storage. In a recent speech by Vinod Khosla, he highlights what energy storage is competing against, and IMO, it suggests why there is such a wide margin with respect to estimates. But John Petersen had a good write up on the potential market back in March. Basically he highlighted the potential market to be $50B globally.
This potential $50B is before industrialized countries, heavily dependent on nuclear power, have announced the end of their nuclear ambitions. (Swiss, Germany and Italy) The energy vacuum will need to be replaced by alternative energies. Alternative energies (ie Solar and Wind) need to have a storage to even out the load onto the grid. The lack of nuclear energy severely increases the need and potential size of this market globally.
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 started in February. (Some progress was made, but there is still work to do.) This will not stop testing and minimal commercialization, but to realize mass market appeal standards are needed.
With the type of data the PbC technology produced with stop-start, there are real reasons to believe the performance can translate to grid storage performance. And if the PbC technology can bring the cost of Lead-Acid batteries used within the grid to below $100-250/kh, Axion will have a solid foot hold in this sector. (That, imo, merits a valuation far far higher than $100M.)
Axion is also working with Norfork Southern testing batteries powering locomotives. I do not include this aspect into my valuation assessment, but the studies from the results, imo, continue to suggest the grid storage application will work.
Obviously, this is a speculative name, especially with a ".ob" behind its symbol. This is why I only own 4000 shares. (And yes, I still do a shit load of due diligence even if I own only 4000 shares near current prices :)