Johnson Controls to benefit from start-stop batteries
Estimates suggest that by 2015 around 70% of cars produced in Europe will be based on the technology.
At a time when gasoline prices are rising and emission norms are becoming stricter, the production of these vehicles is rising as they offer significant fuel savings compared to traditional gasoline-powered internal combustion engines. As a result of this technology, fuel isn't used when the vehicle is stationary leading to fuel savings between 5% and 12% depending on traffic.
Johnson Controls, which is the world's largest maker of lead-acid batteries for traditional gasoline-powered vehicles, markets advanced batteries for start-stop vehicles under the VARTA brand. We currently have a stock price estimate of $30.36 for Johnson Control, approximately 5% below its current market price.
Europe leads in the adoption of the technology
The start-stop technology was first introduced in Europe to help comply with the relatively stricter emission norms. Currently, around 65% of vehicles on Europe's roads conform to CO2 emissions of 135 grams/km. By 2015, 100% of vehicles in Europe are expected to conform to this standard and, by 2020, the CO2 emissions standard is set to rise further to 95 grams/km. Thus, the production of start-stop vehicles is expected to continue to rise in Europe to help meet these emission standards. Estimates suggest that by 2015 around 70% of cars produced in the continent will be based on the start-stop technology.
To take advantage of this growth, Johnson Controls is investing $300 million in Germany to establish an annual production capacity of 11 million start-stop batteries in Europe by 2015. Even at present, Europe accounts for the majority of the world's start-stop battery and vehicle production.
N. America and China are also coming along
The technology is also being slowly adopted in North America. Johnson Controls introduced its Absorbent Glass Mat (AGM) batteries used in start-stop vehicles in North America in July 2012. The company intends to expand its annual manufacturing capacity of AGM batteries in the U.S. to 6 million in 2013. It anticipates this higher capacity will address the rising start-stop vehicle production in the U.S. Johnson Controls projects that by 2016 up to 40% of cars produced in the U.S. will adopt the start-stop technology.
Just like in Europe, stricter emission norms are promoting the growth of these vehicles in the U.S. as well. The Corporate Average Fuel Economy (CAFE) standards of the U.S. require vehicle fleets to meet fuel efficiency standards of 35.5 miles per gallon by 2016 and 54.5 miles per gallon by 2025.
In China too, the company is raising its annual manufacturing capacity of AGM start-stop batteries to more than 2 million by 2015.
Johnson Controls to benefit due to its leading position
Start-stop vehicles require minimal changes to existing internal combustion engines and are therefore able to offer fuel savings at a modest price premium. The higher initial investment is also recoverable through fuel savings realized over the long term.
Johnson Controls through its expanding manufacturing capacity of start-stop batteries in Europe, North America and China is expected to take advantage of this increasing production and adoption of start-stop vehicles worldwide.