[pagebreak:PowerGenix Stakes Out Hybrid Space]
PowerGenix plans to unveil a nickel-zinc battery pack for hybrid vehicles this week at a conference in Tampa, Fla.
In an announcement Monday, the San Diego-based company said its battery pack, called the D-Cell, has 30 percent more energy density than nickel-metal-hydride, or NiMH technologies. That means the batteries can deliver 30 percent more power in the same size, or the same amount of power in a 30 percent smaller package, as the batteries currently used in the popular Toyota Prius.
PowerGenix claims its batteries cost 20 percent less per watt-hour than NiMH batteries (and about half the cost of lithium-ions), and can be manufactured on existing nickel-cadmium and NiMH production lines. It also says the batteries are nontoxic, made of more recyclable materials than any other battery chemistry and noncombustible – making them safer than lithium-ion batteries, which occasionally have been known to overheat and catch fire.
The company intends to showcase a retrofitted Prius, with its battery pack installed next to the original battery pack to demonstrate the size and weight savings, at the Advanced Automotive Battery and Ultracapacitor Conference, which begins Wednesday.
But the technology isn’t ready to hit the market. CEO Dan Squiller said PowerGenix hopes to license the technology within a year, and said it would likely take three to four years to get into commercially available cars.
The company plans to use the demonstration to collect data and establish benchmarks that it can then take to a large battery company, such as Sanyo, Panasonic, LG or Johnson Controls, for licensing, he said.
“We’ve made a lot of progress,” he said. “Being able to demonstrate the performance benefits of a nickel-zinc cell in a mainstream hybrid-electric vehicle not only validates nickel-zinc as a battery platform, but validates it as a much better solution for HEVs (hybrid-electric vehicles).”
Squiller spoke with Greentech Media about PowerGenix’s automotive strategy, the challenges ahead and plans for an initial public offering.
Q: As a company that already produces batteries for other segments, including power tools, why have you decided to pursue licensing agreements in the auto industry instead of manufacturing them yourself?
A: We have a view of the auto industry that there’s probably only five or six companies in the world that have the financial strength, systems, processes and logistics to do business with the auto companies. It’s the LGs of the world, the Sanyos and the Panasonics. We have very realistic expectations of how we’re going to enter the market. We think we have to enter the market by piggybacking on the coattails of someone who has an entrance into that channel.
Q: Are you already in discussions with any potential customers?
A: With respect to the battery companies, we’re not in any serious discussions with anybody. But because of relationships with a couple of our VPs [including Joe Carcone, who started Sanyo’s battery business in North America], we’re on these guys’ radar screens and they know we exist.
Q: The automotive industry isn’t known for its speed to market. How long do you think it will take to get your battery packs into cars on dealership lots?
A: We think that for anybody that’s got a battery product that’s not yet been optimized for this very demanding segment, you’re talking at least three years of engineering the manufacturing and hardening the manufacturing processes for the thing to see the light of day. We’re thinking it’s probably three years before it starts getting manufactured, then, depending on the model year, it could be four years.
Q: Many car companies have talked about lithium-ion batteries, or li-ions, as the next-generation beyond NiMH. Although li-ions have some challenges, such as cost and – in a few cases -- overheating, li-ion companies say they can get double the energy density compared to NiMH, which is more than the 30 percent improvement PowerGenix is claiming. How do you expect to be able to compete?
A: One advantage is that nickel-zinc is sort of a kissing cousin to NiMH in that the discharge characteristics are very similar. Our charging is actually a little bit simpler and the safety and thermal controls are either the same or a little bit [easier] than NiMH. Our pack’s got 30 percent less cells, but if you look at it as a black box, it behaves very similarly to NiMH and that’s good because it means that auto manufacturers, in terms of tuning their software, don’t have to reinvent the wheel. With lithium, it’s a whole different category. And they are asking people to change their production lines, which for millions of dollars is a real hard sell. We’re saying, “Hey, just change some chemicals.”
[pagebreak:PowerGenix: Continued] Q: What about cost?
A: Each cell costs 15 percent less than NiMH and then you’re using 30 percent less cells, so from both a cell and pack perspective, the cost gets lower.
Q: Car manufacturers have said they plan to use lithium-ions for plug-in hybrids. Is this also a market you’re going after?
A: We don’t think so. We think that there’s a demarcation between HEVs and then electric vehicles and plug-in [hybrids]. In HEVs, the differentiator is miles per gallon. Nickel-zinc is half the cost of lithium and delivers 70 percent of the performance. When all that stuff gets embedded in a car, it means li-ions would have just a few miles per gallon advantage over us, but at half the cost, nickel-zinc is pretty compelling. That changes in EVs and plug-in HEVs because the differentiating factor there is range. If we can get 80 miles and li-ion can get 110, that’s a big difference. We have realistic expectations of the market in thinking that people will pay the price for lithium to get that kind of range.
Q: Doesn’t that limit the size of your market?
A: We think HEVs are going to be around for a long time because the internal combustion engine isn’t going to be going anywhere soon and li-ion packs for plug-in HEVs and EVs are going to be extremely expensive.
Q: Are you planning to target mainly the U.S. market at first?
A: I think people kind of forget the things that are going on far away. The HEV market in China is growing very, very quickly as well. In China, which traditionally has been a very cost-sensitive market, nickel-zinc has a value proposition in cars. And China is where we manufacture our cells and do produce development of the cells. That’s a very important market, so talking to some of the large Chinese manufacturers like BYD is definitely in the cards.
Q: Does having only a handful of potential customers increase your risk of not being able to get a licensee?
A: We don’t think so, because it’s a very competitive market. Folks need some kind of competitive advantage and this isn’t like microprocessors, where there’s a new one every few years. We think definitely in somebody’s competitive strategy and the market space they are going after, nickel-zinc is going to work for them. At the same time, we realize this is not for everybody. GM, for example, is hell bent on the path to lithium. They are not going to stop for everything – it’s lithium or bust.
Q: How big a part of PowerGenix’s business do you expect this automotive segment to become?
A: I think if I went to the board of directors and said, “Guys, I’m going to bet the future of the company on the auto industry,” I’d be asking you for a job. It’s a high-volume, low-profit proposition. It’s something very important that could potentially turn PowerGenix from a good to a great company, but we’re by no means basing the future of the company on getting into this industry. We sell batteries for power tools, lawn and gardens, military business and we’re soon getting into consumer rechargeables, and those [segments] provide a good foundation for the business that lets us invest in this HEV business without risking the store. [pagebreak:PowerGenix Q&A: Continued] Q: Why are you so interested in pursuing this tricky market segment?
A: One of the reasons is PowerGenix is going to be public within a couple of years, and the public market values [alternative-vehicle and cleantech] companies in a much different way than they do companies that just focus on industrial spaces. So for the long-term value to shareholders and the market cap we can build into this company, I think it’s very important that we make some sort of substantive inroads in the segment. It may not help [profit and loss] in the short run, but it sure as hell helps the balance sheet in the longer run.
Also, the market numbers [forecast] a couple-billion-dollar market in just a few years, so the size of the market is interesting, and in three to four years we can have a revenue stream from license fees in the millions of dollars, and most of that drops to the bottom line. The technology has been developed in prior periods, so the effect that license fees have on your [profit and loss] is pretty substantial and a very good business.
Q: How much has PowerGenix spent on developing this technology?
A: About $31 million has been invested in PowerGenix, and you could argue that just about all of that money has made possible the technology platform we will be using for HEVs. [Because it’s based on our core technology platform], it’s hard to say how much we’ve spent on automotive.
Q: When do you hope to close licensing deals for the D-Cell and to go public?
A: I think we could have some deals done within a year. The IPO will take longer; we’re probably looking at 2010. And the market right now is incredible.
A: A123, we believe, will have a very successful offering and that will serve as a kind of deal benchmark for us. It’s very likely that A123 is going to see that the market is going to place a somewhat irrational value of it because of the general buoyancy of the cleantech space. I don’t think those macros are going to change, I think even if we come out 18 to 20 months behind A123. It’s going to have the effect of attracting a lot of attention and probably money into the energy-storage space.