Johnson Controls ( JCI ) recently announced plans to form a joint venture with Binzhou Bohai Piston Co. , an auto parts affiliate of Beijing Automotive Industry Group Co. (BAIC Group), to build its fourth automotive battery plant in China. This plant will manufacture both conventional flooded, and absorbent glass mat ( AGM ) battery technologies. AGM, which powers start-stop systems, are technologically advanced car batteries that are more expensive than a conventional lead acid battery, but are better equipped to handle the strain of frequent engine restarts and the ever-increasing load placed on car batteries. They are employed in vehicles with the start-stop technology, which, while being fuel-saving, can tax a car battery since the electrical system still uses the energy from the battery when the vehicle turns off. In the China market there is a large demand for auto part technologies that can improve fuel efficiency, and the demand for AGM batteries is expected to soar, as they increase fuel efficiency by up to 5%.
The new facility in Binzhou, Shandong Province, reflects an investment of over $200 million, the construction of which will begin in 2017, with production starting two years later. Once up and running, the plant is expected to produce 7.5 million batteries per year. Johnson Controls has been well-established in the largest automotive market in the world for decades, through joint ventures and strategic partnerships with Chinese companies, as well as its own plant openings. It entered the Chinese automotive battery supply market in 2005, and set up two manufacturing plants in Chongqing and Changxing. The plant in Chongqing city reflects an investment of $154 million and produces 6 million automotive batteries a year. Johnson Controls also increased production of AGM batteries in its Changxing facility , from 1.5 million to 3.4 million per year. Its third battery manufacturing facility is in the city of Shenyang, with an investment agreement of a $200 million plant. The production in this facility is expected to begin in 2018, with a capacity of six million automotive batteries. The company has also started establishing a second worldwide headquarters office in Shanghai, expected to open in 2017.
JCI considers the growth in the country to be attractive, and the new joint venture will position the company to take advantage of the market opportunity, as China is expected to be the largest automotive battery market in the world by 2020. The fuel savings with the start-stop technology is one of the main drivers for its increased adoption. Under average driving conditions, savings amount to 3% to 5%. However, with a high number of stops and with traffic lights staying red for extended periods, the figure can rise to 10%, according to Robert Fascetti, vice president for powertrains at Ford. Car manufacturers are also under intense pressure to meet strict fuel economy standards by 2025, and with the increased fuel efficiency of AGM batteries, this technology is destined to be in a majority of cars in the next few years.
Currently, this technology is present in between 5% and 10% of the Chinese market. This figure is expected to rise to 50% during the next five years, according to Alex Molinaroli, CEO of Johnson Controls. 50% would imply about 15 million new vehicles that will be equipped with start-stop functionality in China, saving an estimated 1.2 billion liters of gasoline per year. It also reduces greenhouse gas emissions by 2.8 million metric tons per year. This is also key, as the increasing regulatory trends have been putting pressure on automotive manufacturers to reduce their carbon emissions. A number of factors work in the favor of this AGM technology. As stated by Lisa Bahash, group vice president and general manager Original Equipment of Johnson Controls, strong growth is expected from this technology as it requires minimal changes to the vehicles, and costs considerably less than battery systems in hybrid or electric cars. It is also the best solution to aid automotive manufacturers to meet regulatory targets. Another factor precipitating a rise in battery demand is the aging of cars in China. Ray Shemanski, a vice president of Johnson Controls, believes about 67% of vehicles would have been in use for more than four years in 2020, a typical age necessitating battery replacement.
Have more questions on Johnson Controls? See the links below:
- Why Is Johnson Controls Increasing The Production Of Its Absorbent Glass Mat ( AGM ) Batteries?
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Notes:
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2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Johnson Controls .
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
