Pennsylvania Battery Plant Cashes In on $3 Billion Micro-Hybrid Vehicle Market

Fuel efficiency standards in the U.S. and Europe are driving up demand for “micro-hybrid” vehicles — conventional cars that boost gas mileage by adding hybrid technologies. The market’s boom has meant big business for a little-known Pennsylvania battery plant.

The New Castle, Pa.-based subsidiary of Axion Power International has nearly doubled its facility space and added more than a dozen jobs recently to help accommodate the soaring interest from major automakers.

The firm makes a patented lead-carbon PbC battery that is well-suited for the charge-intensive nature of the start-stop technology used in micro-hybrids, especially when compared with traditional lead-acid car batteries.

The start-stop systems reduce emissions and improve fuel economy by minimizing the time a car spends idling. At stoplights or in heavy traffic, the engine automatically turns off and restarts as needed while keeping the headlights, air conditioning and radio running.

Germany’s BMW has already tapped Axion to provide its lead-carbon batteries in micro-hybrid test models and is expected to strengthen the partnership over the next 18 months.

The auto giant is planning to introduce its start-stop M5 sports sedan later this month at a Shanghai car show, though Axion was not involved in that project. BMW’s next-generation vehicle improves the earlier model’s fuel economy by 25 percent.

Axion is also working with several other vehicle manufacturers, including one U.S. giant, though none can be named at this time, said Thomas Granville, Axion’s CEO and president of Axion Power Battery Manufacturing.

European automakers like Mazda, Mercedes-Benz, Mini and PSA Peugeot-Citroën have already introduced start-stop technology into their fleets. In the U.S., Ford and General Motors are expected to introduce micro-hybrids in 2012.

“We’ve been working closely with [manufacturers] to try to see how our product can test,” Granville told SolveClimate News. “This is an emerging proposition for us.”

Axion to Produce 1 Million Batteries a Year

Axion has invested some $63 million in research and development since starting up in 2003. The company also recently acquired a 55,000 square-foot manufacturing facility for robotic electrode equipment and is upgrading its existing 75,000 square-foot battery manufacturing facility.

The plants together will have the capacity to produce 1 million batteries, or battery equivalents, per year — up from a 3,000-battery capacity in previous years.

Axion also added electro-chemists, engineers and other employees to its 74-person workforce with the expansion and aims to continue adding jobs each year.

Granville said the surge in demand for vehicle batteries began shortly after April 2009, when the European Union passed legislation on fuel emissions.

Axion had previously presented its small advanced battery to original equipment manufacturers (OEMs), but it wasn’t until the standards were set that automakers really began to listen.

“That really got the attention of European OEMs, and it moved our lead-carbon PbC product to the forefront,” Granville said.

It also gave the eight-year-old company a share of a lead-acid battery market widely dominated by two global giants: Milwaukee-based Johnson Controls Inc. and Exide Technologies in Milton, Georgia.

Under the European regulations, 65 percent of newly registered cars in 2012 must achieve an average fuel economy of 130 grams per kilometer (42 miles per gallon). The target rises each year before reaching 100 percent of new cars in 2015 and beyond.

The law also sets a limit of 95 g/km (57.6 mpg) for vehicles made in 2020.

Granville noted that automakers will be fined for each vehicle over the fuel efficiency limit, giving the car industry a hefty incentive to install some form of hybridization in new models.

“It begins with a rather small amount — 5 euros for the first gram over 130 grams — but [the fines] quickly ramp up, and they’re assessed against the entire fleet,” he said.

U.S. interests in micro-hybrid vehicles surged after the Obama administration outlined emissions standards on passenger cars, light-duty trucks and medium-duty vehicles for model years 2012 to 2016.

The emissions rules require new models to meet a fuel efficiency standard of 35.5 mpg, for a combined average emissions level of 250 grams of carbon dioxide per mile.

The standards are part of President Obama’s larger effort to put 1 million electric vehicles on America’s roads by 2015 and make the nation a hub for 40 percent of the world’s advanced battery manufacturing.

In 2009, the Obama administration announced that 48 new advanced battery and electric drive projects would receive $2.4 billion in federal stimulus funds, to be coupled with another $2.4 billion in cost share from the project leaders.

The U.S. Environmental Protection Agency says the fuel standards can cut greenhouse gas emissions by around 960 million metric tons and 1.8 billion barrels of oil over the lifetime of vehicles sold during the four-year program.

In 2009, transportation sources accounted for 27 percent of total U.S. greenhouse gas emissions and one-third — or 1.7 billion metric tons — of emissions from fossil fuel combustion. Of that third, more than 50 percent of emissions came from gasoline consumption for personal vehicle use.

European and U.S. emissions standards are not entirely comparable.

Half of European models use diesel fuel and 80 percent have manual transmissions — resulting in an inherently better fuel economy and fewer emissions than gasoline-burning cars with automatic transmissions, according to the United Nations Environment Programme (UNEP).

In the U.S., only 0.5 percent of vehicles use diesel and 7 percent of cars are equipped with manual transmissions.

Battery Market to Grow 44 Percent by 2016

Kevin See, an analyst at Lux Research, explained: “The fastest, most incremental way for an automaker to meet these limits is to start to implement these micro-hybrids, or some degree of hybridization.”

“You can use existing vehicle lines and retrofit them or re-design the power train … whereas with a full hybrid or more complex [electric] vehicles, you really have to design a new vehicle,” he told SolveClimate News.

Granville noted: “Our products could be used in a full hybrid, but the OEMs have been really telling us that that is not where their focus is going to be because of the cost” and the desire to roll new models out quickly.

See authored a recent report projecting that the market for micro-hybrid batteries would grow to $3.1 billion — a 44 percent increase — by 2016 due partly to the emissions standards.

He noted that much of that production would come from U.S. manufacturers that are attracted by federal stimulus funds and tax incentives.

Lux Research estimated last November that global sales of micro-hybrids would top 3 million units in 2010 and climb to 34 million by 2015.

By comparison, global sales of hybrid electric and all-electric vehicles are expected to total 5.2 million units in 2020, just more than 7 percent of the nearly 80 million passenger vehicles projected to be sold that year, according to an October report by J.D. Power and Associates.

See’s research pointed to lead-acid batteries as the leader in the micro-hybrid storage market.

But Waltham, Mass.-based A123 Systems has also found success with its patented Nanophosphate lithium-ion technology.

“In the micro-hybrid space in particular, we have five customers that we’re currently working with, and one of those has already awarded us a production contract,” said Jeff Kessen, vice president of automotive marketing and communications.

The company has ten locations across Michigan, Massachusetts, Germany, China and Korea, and sells transportation applications to firms like Fisker Automotive, BAE Systems, Navistar and Eaton.

“Most auto manufacturers are looking at start-stop technology because it is arguably the most evolutionary in change from today’s technology and is the easiest to integrate,” he said. “It doesn’t take long to engineer the vehicles, and they can take another step toward their fuel economy targets with comparatively modest investments.”

A123 Systems, which originally supplied batteries for power tools, opened its auto-focused business unit in 2009 and kicked off a $1 billion investment campaign to run through 2012.

Under its expansion efforts, the firm built the largest lithium-ion automotive battery manufacturing facility in North America. The 291,000 square-foot plant in Livonia, Mich., will produce battery cells and packs to be used in micro-hybrid, hybrid electric and all-electric vehicles.

The firm received $249 million in stimulus funds for the expansion and $125 million in refundable tax credits from Michigan’s 21st Century Jobs Fund.

So far, jobs at the plant have jumped from 100 positions a year and a half ago to more than 700 jobs today.

Axion’s Competition Mainly from U.S., Europe

Axion’s Granville said that his firm anticipates its competition will mainly come from other U.S. and European battery makers, as most of the major hybrid vehicle OEMs have stringent safety and quality standards in this emerging market.

For a lithium-ion battery company, however, the biggest competition comes from China, as well as Japan and South Korea — the three largest markets for those products.

In late 2009, A123 Systems became the first non-Chinese company to form a joint venture for lithium-ion production in China.

The firm is now developing and manufacturing batteries for hybrid-electric and all-electric systems in passenger cars made by SAIC Motor Co. Ltd.

“In terms of incentives and investment support, China is arguably the most aggressive in the world with that” for lithium-ion production,” Kessen said.

“As their population continues to buy vehicles, they realize that it is going to become economically difficult to procure as much oil as the country would need. That drives policy in China on electrification,” he said.