New Technology Investment In Batteries Pays Off for ‘Green Weenie’

About Small Cap Stocks Article of the Week

Written by Allen Caron

Railroad fans and environmental buffs alike are rejoicing this fall as NS 999, Norfolk Southern’s (NYSE:NSC) all-electric locomotive, hits the rails once more. Nicknamed the “green weenie,” this switcher locomotive was originally powered by more than 1,000 12-volt lead-acid batteries when it was launched in 2009. However, if you look under the hood today, you’ll see a different type of battery.

Norfolk Southern partnered with New Castle, PA-based Axion Power International, Inc* (OTCMKTS:AXPW) to place Axion’s patented PbC batteries in the NS 999. The revamped NS 999 offers many improvements over the old model, as reported by Clean Technica. Axion and Norfolk Southern released an update on the NS 999 at the American Society of Mechanical Engineers (ASME) conference in October. According to Clean Technica,

“The report didn’t pull any punches, critiquing the previous iteration of NS 999 for its unwieldy battery management and battery packaging systems, which piled on maintenance costs.”

While lead-acid batteries are one of the darlings of the hybrid-electric world, they do have many flaws in implementation. They’re often very heavy and can suffer from grid corrosion, which reduces the overall lifespan of the battery. Axion’s PbC batteries are lightweight and offer better battery management due to the unique charging curve of the battery strings. According to the report the two companies presented at the ASME conference,

“PbC® batteries have a unique charging curve, known as ‘concave down, increasing,’ which allows the batteries to self-equalize in strings. This characteristic of PbC® batteries provides for simpler battery management and reduced maintenance charging, while increasing the usable energy available to the string.“

This is just the first phase of the partnership between Norfolk Southern and Axion. The two companies are also working together to develop a line-haul hybrid locomotive, which will likely require twice as many batteries as the NS 999 and will be capable of transporting freight for longer distances.

While there are very few companies working to power locomotives, there are plenty of small cap companies in the hybrid or electric motive power sector. This short list of small cap stocks, while not exhaustive, shows how a few small cap companies are working toward hybrid or electric motive power:

Latham, NY-based Plug Power Inc (Nasdaq:PLUG) creates fuel cells, most notably their GenDrive fuel cell for electric lift trucks. They also provide fuel cells for rider pallet jacks, reach trucks and counterbalanced trucks, all of which are used in high-throughput warehouses and manufacturing facilities. Plug Power creates fuel cells that fit into existing battery compartments of these industrial vehicles, allowing consumers to integrate them more seamlessly. In August of this year, Plug Power was awarded a $650,000 contract from the US Department of Energy to demonstrate hydrogen-based fuel cells in refrigerated cargo trucks. PLUG closed November 4th at $0.587, up $0.007, with a market cap of $58.21 million. Its 52-week trading range is $0.12 – $0.81.

Capstone Turbine Corporation (Nasdaq:CPST), based in Chatsworth, CA, creates microturbines that run on a variety of different fuels, including natural gas and biogas. They also create microturbines for use in electric vehicles, where they act as on-board battery chargers, reducing the need for battery charging or swapping. The microturbines can be used in electric buses and other transit vehicles to extend operational range while gaining the benefits of an electric vehicle. Earlier this year, Capstone received an order from the Denver Regional Transportation District for 34 microturbines to be incorporated into DesignLine’s EcoSaver IV electric buses. CPST closed November 4th at $1.28, up $0.015, with a market cap of $390.25 million. Its 52-week trading range is $0.73 – $1.52.

Axion Power doesn’t just work to create electric locomotives. They’re also known for their work with Class 8 heavy trucks, in combination with Florence, KY-based ePower Engine Systems, LLC. Axion’s PbC batteries use a layer of activated carbon in place of sponge lead, eliminating the wild “swings” in traditional lead-acid batteries. This means that long strings of batteries are “self-equalizing,” leading to a longer lifespan for each battery. AXPW closed November 4th at $0.135, up $0.006, with a market cap of $17.73 million. Its 52-week trading range is $0.10 – $0.38.

As federal standards combine with rising fuel costs to make traditional gasoline and diesel powered vehicles less tenable, more companies will likely add or switch to electric or hybrid vehicles. Small cap companies involved in these technologies are likely to experience future growth as more companies add electric vehicles to their fleet. Companies that can create longer-lasting battery solutions or reduce the need for charging may be in an especially good position for growth.

* Denotes a client of Allen & Caron, author of this blog.