- Quick Take
- Johnson Controls' AGM batteries, which power start-stop vehicles, increased its market penetration in the U.S. with the addition of Chevrolet's 2014 Malibu.
- The company is also investing in its global AGM production capacity to take advantage of the rapid rise in demand for batteries that can power start-stop vehicles.
Johnson Controls ( JCI ) announced recently that Chevrolet's 2014 Malibu featuring start-stop technology will be powered by its Absorbent Glass Mat ( AGM ) batteries. With this deal, the largest auto battery manufacturer in the world has increased the penetration of its start-stop technology in the important U.S. market. Earlier in the year, Johnson Controls announced that Ford's ( F ) 2013 Fusion auto in the U.S. featuring start-stop technology will also be powered by its AGM batteries.
Start-stop technology saves around 5% on fuel consumption by switching-off the engine when the vehicle comes to a halt at traffic lights or elsewhere. The engine restarts as soon as the driver's foot comes off the brake or engages the clutch. During the halt, Johnson Controls' AGM batteries power the vehicle air-conditioning, music and other utilities. Their key feature being that they can power the deep cycling that is needed for frequent engine starts and stops. Apart from savings on fuel, this technology also reduces vehicle emissions considerably.
We currently have a stock price estimate of $40 for Johnson Controls , marginally below its current market price.
Stricter Emission Norms Is Driving Adoption Of Start-Stop Technology
As start-stop technology is a cost-effective way of reducing vehicle emissions, it was first adopted in Europe driven by the region's strong focus on cutting emissions. Though overtime customers in Europe increasingly adopted this technology as the price premium paid for start-stop technology was offset by fuel savings realized during the vehicle's life time. According to a recent study commissioned by Johnson Controls, around 91% of start-stop vehicle owners in Europe said that they would like to purchase such a vehicle again.
The company estimates that nearly 80% of all new cars that will be built in Europe by 2018 will feature start-stop technology. This means a huge and growing market for Johnson Controls' AGM batteries exists in Europe. Accordingly, the company is investing in its production capacity in the continent to capture a large share of this market. Currently, Johnson Controls produces 4.5 million AGM batteries annually in Europe, but by 2015 it anticipates to raise its annual production output of AGM batteries in the continent to 11 million. Since 2001, Johnson Controls has sold over 21 million AGM batteries in Europe.
Start-Stop Technology Beginning To Gain Foothold In The U.S.
In the U.S., with emission norms becoming stricter, start-stop technology is gaining interest among vehicle manufacturers. The U.S. Corporate Average Fuel Economy ( CAFE ) standards require vehicle fleets to meet fuel efficiency standards of 35.5 miles per gallon by 2016 and 54.5 miles per gallon by 2025. Accordingly, vehicle manufacturers are looking at ways to increase fuel efficiency and reduce emission levels of their vehicles. A current alternative to start-stop technology in front of car manufacturers for meeting the tougher emission norms is hybrid vehicles, however, the much higher price premium asked of customers in the case of hybrids makes start-stop vehicles an attractive option.
Catching on this growing adoption of start-stop technology in the U.S., Johnson Controls introduced its AGM batteries in the country in July last year and is currently expanding its annual AGM battery production capacity in the country to 6 million units. The company estimates that by 2016 nearly 40% of all new cars that will be built in the U.S. could feature start-stop technology requiring AGM batteries. Thus, like in Europe, there is a large market opportunity for Johnson Controls' AGM batteries in the U.S. However, the company competes with many auto battery manufacturers including Exide, GS Yuasa among others for a share of this advanced battery market that can power start-stop vehicles. The addition of Chevy's Malibu to Johnson Controls' list of customers will strengthen its position in this evolving start-stop batteries market in the U.S..
Apart from the U.S. and Europe, the company is also investing in China to raise its AGM production capacity in that country to 2 million units by 2015. Overall, these investments in all key global vehicle markets will make sure that Johnson Controls retains its position as the largest auto battery manufacturer in the world, even as the market shifts from conventional lead-acid to advanced auto batteries.