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Technology Stocks : VALENCE TECHNOLOGY (VLNC)

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To: P. Ramamoorthy who wrote (26270)2/29/2004 5:29:48 PM
From: rli123  Read Replies (2) of 27311
 
Here's an article that appeared in the business section of today's Cleveland Plain Dealer about Eaton Corp., a Cleveland-based company. Note the reference to batteries in general and lithium ion batteries in particular. They talk about large lithium ion batteries -- I thought that the VLNC batteries were the only ones that could be safely made into large format because of heat generation problems (associated with the competitors' products).

Eaton hopes to deliver the hybrid goods

02/29/04
Thomas W. Gerdel
Plain Dealer Reporter

Galesburg, Mich.

From the outside, the box-shaped vehicle parked at Eaton Corp.'s truck group headquarters looks like a typical delivery truck. But as you ease into the driver's seat, you begin to notice some odd things.

There's no gearshift. Instead, you touch the "D" square on a vertical automatic transmission touchpad on the dashboard. As you step on the gas pedal, you hear the faint whirring of an electric motor that adds to the thrust from a throaty diesel engine for faster acceleration. When you slow down as you navigate the looping dirt-road test track against a snowy, rural landscape, the truck itself seems to help put on the brakes.

After three years of development, engineers here are putting the finishing touches on an innovative powertrain for cleaner-burning, more fuel-efficient delivery trucks. The new power system could have a substantial impact on Eaton's truck components business, and the efficiency with which it's pushing the project forward is part of how the company has coped with a slowdown in some other markets.

Within a few weeks, the first of about 18 "pre-production" hybrids will be on the road in several cities, delivering and picking up packages for FedEx Corp.

The Nashville-based package-delivery company is expected to reach a preliminary decision late this year about whether to order the trucks as replacements for its existing fleet of 30,000 six-cylinder diesel vehicles.

"We think the major criteria will be driver acceptance, fuel economy and reliability," said Kevin Beaty, business unit manager for Eaton's hybrid electric powertrains.

"I think they need to see better than 40 percent improvement in fuel economy, on average." Officials also anticipate a 90 percent reduction in particulate emissions soot and a 75 percent cut in smog-causing nitrogen oxide emissions.

Eaton, which makes the transmission and clutch, also has the key role of designing and engineering the entire powertrain. The diesel engine, electric motor and batteries are made by other companies. The powertrain for the FedEx vehicle is being installed in conventional Freightliner truck chassis.

In addition, Eaton is working on hybrid projects for other customers to meet government deadlines for cleaner-burning vehicles.

The federal limit on nitrogen oxide emissions is expected to tighten by nearly 90 percent, to 0.2 gram per horsepower hour, for new trucks sold after 2010.

Putting it all together
The hybrid uses a four-cylinder diesel engine, an electric motor/generator and four batteries, as well as an automated transmission, clutch and electronic controls. Beaty said the "heart and soul" of the system is the way all the parts work together.

"Just connecting all these bits and pieces does not create even half the benefit," Beaty said. "You have to do the right systems engineering before you can harvest the rest of the benefits."

Engineers had to calculate what size engine worked best with a given size battery and electric motor, transmission and clutch. Then they virtually built hundreds of different trucks on the computer, to see how to control all those pieces to make the most effective and smooth-running system.

Eaton did some early development work on all-electric trucks in the 1970s and 1980s at its innovation center in Southfield, Mich. That effort was put on hold in the late 1980s because of the lack of commercially viable battery technology.

In 2000, Eaton began work on diesel-electric hybrids, after seeing advances in batteries, the introduction of hybrid gasoline-electric passenger cars by Toyota and Honda, and mounting interest from truck makers and other customers.

Twenty-eight engineers and technicians now share ideas as they work in a section of the building here called Hybrid Village, not far from a garage bay where components are installed for testing. Work stations were designed to be as open as possible to facilitate personal communication.

In a separate room, control engineers sit in front of a large computer simulation display, doing everything they can to "break" the software system, from simulating running the truck at full speed and then throwing the transmission into reverse to stomping hard on the brake and gas pedals at the same time.

Outside, other engineers gather data from driving the trucks around the test track.

Battery is the key
Sitting in the driver's seat in a test truck, you can feel the electric motor as it helps the vehicle accelerate.

When stopping, you don't have to hit the brakes very hard because the electric motor, now acting as a generator, resists the truck's forward motion and converts energy normally lost in braking into recharging the lithium-ion batteries. This is important because delivery trucks do a lot of stop-and-go driving that's hard on brakes and the engine.

Everything is done automatically, so the driver does not have to shift gears manually.

The batteries, under the floor of the truck, supply power to the electric motor. Unlike a car's traditional lead-acid battery that must recharge slowly, the truck's lithium-ion batteries can absorb the sudden, intense flood of energy that comes from braking, said Tim Morscheck, vice president of technology for Eaton's truck group.

Each battery is slightly longer and about as heavy as a conventional 12-volt car battery, but much more powerful. Because it's based on the same chemistry that powers a cell phone, it has a higher price tag. To offset the added cost - estimated at $5,000 per truck - engineers look for savings from improved fuel economy, lower maintenance costs and longer life for brakes and engines.

Morscheck expects prices to fall as manufacturers scale up to produce the batteries in higher volumes. A large order from FedEx could help bring down prices, making hybrids more economical for other truck fleets.

Seeking the right market
Morscheck, who was an early promoter of hybrids at Eaton, sees a huge sales potential. The package-delivery business is growing as more people buy things on the Internet and have them shipped to their homes, and lower-polluting hybrids could help large cities reduce smog and other air pollution.

On Thursday, at a presentation to analysts in New York, Eaton officials said they expect healthy growth for all kinds of hybrid vehicles, projecting industry sales increasing from 200,000 units this year to 2 million units by 2010, said Mark Koznarek, an analyst at Midwest Research in Cleveland.

However, Koznarek said, the growth of hybrids probably will be somewhat offset by declines in sales of conventional trucks for which Eaton now makes parts. Eaton expects it will have about the same dollar content in a hybrid as it now has in a conventional vehicle.

"They win either way," Koznarek said. "But it's not a big positive upside opportunity for Eaton. They really are hedging their bets."

In the race to develop hybrids, Eaton has plenty of competition, including Japanese company Hino, Allison Transmission, BAE Systems, Mercedes-Benz and Enova Systems, a California firm working with Mack Truck.

Dan Benjamin, an analyst for ABI Research Inc. in Oyster Bay, N.Y., said the market for hybrid trucks will be limited to situations involving a lot of stop-and-go driving and long periods of engine idling. They don't make much sense in long-distance hauling, during which trucks mostly cruise at a constant speed and make relatively few stops, he said.

Growth also will depend on hybrid powertrains becoming available on a variety of types of vehicles. Hybrids are going beyond compact cars such as the Toyota Prius to the Chevrolet Silverado pickup truck and several models of SUVs - Ford Escape, Toyota Highlander and Lexus RX 400h. Benjamin said Toyota and Honda are much farther ahead in their hybrid development programs than any American manufacturer.

Eaton on the rise
The last several years have been tough for many manufacturers in North America. Despite the downturn, Eaton has managed to show increased profit and sales. Last week, the Cleveland company, whose products include hydraulic pumps and electrical circuit breakers, split its stock 2-for-1 and increased its quarterly dividend by 12.5 percent. That follows a 37 percent increase in net income and a 12 percent gain in sales in 2003.

Analysts said Eaton's product innovations and emphasis on rapid commercialization of new technologies have helped it offset slow growth in many of its industrial markets.

"They're good at investing in [research and development] and coming up with new commercial products," said Jeff Hammond, an analyst at McDonald Investments in Cleveland. "That has helped them outperform their end markets."

To get the hybrids into commercial production as soon as possible, for example, Eaton has been focusing on debugging and reliability testing up front. Engineers from Galesburg have spent days aboard conventional delivery trucks to see how drivers do their jobs.

"Our early prototypes are designed to meet what we understand is the voice of the customer," said Beaty, who was among the Eaton employees wearing a delivery driver's uniform for a day. "That allows us to move very quickly from prototype to pre-production."
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