Makers of lead-acid batteries are developing new battery types to tap growth in fuel-efficient, stop-start technology -- where a car's engine shuts down when the vehicle's not moving but automatically powers up when the driver hits the gas pedal.
Most automakers will have some application of stop-start technology by 2016, said Paul Lacy, manager of technical research at advisory firm IHS Automotive, as they respond to consumer demand for fuel-efficiency, and tough new emissions standards.
Stop-start technology claims to reduce fuel consumption by up to 15 percent in normal driving.
Major players in the $12 billion lead-acid battery industry are Johnson Controls Inc, Exide Technologies, Japan's GS Yuasa Corp and privately held East Penn Manufacturing Co.
"Until stop-start technology, there wasn't any particularly good hybrid technology that could use lead-acid batteries," said Wunderlich Securities analyst Theodore O'Neill.
Follow usFollow @IBTimesUK
He said the new battery types could reshape the industry, and other analysts predict smaller players such as Axion Power International could beCOME takeover targets.
Standard non-electric vehicles featuring stop-start technology are called micro hybrids. Hybrids use two or more power sources and also use regenerative braking to save fuel.
Stop-start technology can run on a conventional lead-acid battery, but is hard wearing, while newer solutions such as absorbed glass mat (AGM) lead-acid batteries, lead-carbon batteries, and micro-hybrid flooded batteries are better suited to the technology.
In the long term, these newer types of battery will displace conventional lead acid batteries, but for now the per unit profitability of an AGM battery is around double that of a standard car battery, and lead-carbon is expected to be at least as profitable as AGM, said Craig Irwin, analyst at Wedbush Securities.
Exide CEO James Bolch said few manufacturers are currently able to make these newer battery types so, "until capability and capacity catches up, pricing will be somewhat higher."
"The investment is substantial. These batteries are not very simple to build. There's a lot of automation ... a lot of testing that goes with them."
Bolch said that while most lead-acid batteries today are sold for use in cars that are already on the road, the initial opportunity for new types of batteries will be in new car sales.
He predicts that in 5-10 years there will be enough micro-hybrids on the market to create an after-market for AGM batteries.
"Nobody is ready yet in the entire industry to turn over to hybrids or electrics and so, increasingly, automakers will incorporate stop-start," said Larry Fisher, research director for automotive technology at ABI Research.
Ardour Capital analyst Walter Nasdeo agreed, and noted that while lithium-ion batteries are making great strides, they are not yet really in large-scale rollout.
"It probably will be, sometime in the future, but lead-acid is still the cheapest, most readily available, readily used product in the market," Nasdeo said.
Wedbush's Irwin estimates the global market for micro-hybrids is around 2.5 million units a year, but will grow rapidly to 17.5 million units by 2015 and 22.5 million units by 2020.
To date, Europe has taken to stop-start technology with more enthusiasm than North America, driven by tougher emissions rules, said IHS Automotive Managing Director Philip Gott, noting, however, that U.S. automakers including Ford Motor Co have signaled interest.
In addition, stop-start works more easily with manual transmission, more popular in Europe, than with automatic transmission, which is standard in North American cars.
BMW, Peugeot Citroen, Hyundai Motor, Toyota Motor, Porsche, and Mazda Motor are among those with micro-hybrid offerings in Europe.
Exide's Bolch said Asia could move faster even than North America in embracing and developing the technology. In India, Mahindra & Mahindra has micro-hybrid offerings.
Most lead-acid battery makers have already begun looking at AGM batteries.
In July, JCI said it was working with Volkswagen on introducing a new technology innovation for AGM lead-acid batteries, and was expanding its AGM manufacturing capacity in Europe by nearly 70 percent.
Exide, which began making AGM batteries in 2005, has also added capacity. Bolch said that by mid-2011 the company will have capacity to produce 1 million AGM batteries each in Europe and North America.
(Reporting by Jennifer Robin Raj and Divya Sharma in Bangalore, Editing by Ian Geoghegan)