EnerSys (ENS) Earnings Call Transcript & Summary

Hello, and welcome to the EnerSys Tech Talk. I would now like to turn the call over to Lisa Hartman, Vice President of Investor Relations.

Thank you, Tia. Welcome to EnerSys Tech Talk focused on our Intelligent Battery Solutions and Software Technology. Joining me today are Joern Tinnemeyer, EnerSys Senior Vice President and Chief Technology Officer; Mark Mathews, EnerSys Senior Vice President of Specialty Global; Drew Zogby, EnerSys President, Energy Systems Global; Harold Vanasse, Senior Director of Marketing, Motive Power Global; and Andrea Funk, EnerSys Executive Vice President and Chief Financial Officer. We may be making forward-looking statements on today's call that are subject to uncertainties and changes in circumstances. Our actual results may differ materially from these forward-looking statements for a number of reasons. Our forward-looking statements are made only as of today for a list of forward-looking statements and factors which could affect our future results, please refer to our recent 10-K filed with the SEC. Following our prepared remarks, we will be opening the session for questions from the audience. And any time during the webcast, you may submit your questions by clicking ask a question in the top right corner of your screen. The slides for this presentation are currently available in the Events section of our IR website. As a reminder, this is a technology talk, and we will not be taking financial questions or providing customer updates, updated views on the supply chain or current market conditions as those topics are outside the scope of this call. Now I'll turn the call over to Joern.

Hello, everyone, and thank you for joining. Our customers have always expected a very high degree of quality and reliability from our products, no matter if that's in material handling, moving products from A to B or in an overall trucking application, being able to truck and get that delivery moving to a data center to a telecom site. To add to that reliability, of course, is what if we can monitor. What if we cannot only build that great product that we build to today in terms of the electrochemistry and on the systems that we're building or what we can also communicate that real-time data to the customer to create that extra layer of capabilities, stickiness of our ecosystems. And again, the reliability to our customer, can they really start that truck? Is it can they go up with their cell phone or other device or cloud management device to figure out how well is my battery system or my asset working? What we've done at EnerSys is developed a number of platforms to monitor our systems that we develop. So one of those is on the lead acid side. And what we're doing on the lead acid side is creating systems that allow us to measure everything from voltages to temperatures and then from those being able to calculate variables that are interesting to the customer. These may be the ability to say, to crank a vehicle. Those might be the ability to determine the state of charge. If we look at material handling, really, in the end, they buy our systems to move product from A to B reliably. In order to do that, they have to have some type of fuel gauge. Imagine that you have a car without a fuel gauge on it. And you say, "Well, I can maybe make 5 trips to work with that, and then I'll fuel up", nobody wants to have that type of situation. What if you have an excursion, what do you have to go somewhere. You would really be having this anxiety. Do I have enough fuel? Well, imagine having a lift truck and having to move those parts, those -- that material for that Christmas order from A to B and not knowing if I'm stuck on I'll be and I can't move my truck anymore. You have to have that reliable capability for that state of charge, that fuel gauging measurement in order to provide to the user. This is what they expect off of EnerSys products. But then there's a next aspect to it. Can we start to use that data in a much more global manner. Can we use that data in order to start to tie in ecosystems in order to bring in prognostics in order to bring exceptional added value to our products via that data offering? And some of that is what will be discussed today by my colleagues, and I'll first introduce Mark.

Thank you, Joern, and I really appreciate the opportunity to talk about batteries. And I talk about EnerSys what we do and particularly the intelligence that we're putting into these batteries because they are incredibly game-changing. And I think as we got into this conversation, I wanted to highlight on why people choose the ODYSSEY battery. So running the transportation team, we get to deal with a lot of customers and a lot of different people that have different opinions on how batteries should operate and how batteries should be managed. But we start understanding what value we bring. So EnerSys, we do something very unique on the lead acid side, and that is the thin plate pure lead. That technology is game changing within a lead acid industry. It provides orders of magnitude performance improvements, 3x the life of an existing lead acid battery. We'll talk about that in a minute. And one of the reasons we want to be intelligent is to be able to build the confidence of our customer base that, that technology is going to perform the way they expect it to. So -- just first couple of slides here. I just wanted to walk everyone through why it's important that we have this capability and have the smart battery on what is rising. Most people think as a dump flood of battery in their car. That's not what it is anymore. The industry has evolved. And what we tried to go after this industry is to create value at the fleet level. So when we go out and we try to show who we work with or how our battery will operate, we go to someone like Penske and we work very closely with them. So they understand that even though the battery is more expensive, the battery adds significant capabilities that they can't get through other products. So it's going to have a better cold cranking apps. It has a larger capacity. It's going to run longer. It's going to enable them to power all the things that are in the hotel load, so your TV, your refrigerator all the things in the truck, now require a battery backup to provide that. That kills traditional batteries. And so there's been a lack of confidence in the industry. So we introduced thin plate pure lead to accomplish and move forward. The fleets have embraced it with a great excitement. So then the fleets didn't influence the OEMs to design and into their battery. And then ultimately, our goal is to, as we won this upfront win, we wanted to put an intelligent system in place that allows the battery to be tracked over time so that when it comes to replacement, we have stickiness there. One, the customer has confidence that the battery has lasted as long and performed the way it's supposed to. And secondly, that when they go to replace it, they're looking for an EnerSys battery with our intelligent capabilities inside, so you can see that benefit for the long term. So we created partnerships throughout the supply chain to make sure we're not only capturing the front end, but also the replacement cycles down the road as these trucks the last 10 to 15 years. So on the next slide, you kind of get a feel for what it is that we do from a total cost of ownership. What TPPL enables. So thin plate in pure lead actually enables a lot. The first thing it does is it lasts a lot longer. So you're going to get 5 years versus 20 months. So you're talking about something that's lasting 3x to 4x the traditional batteries. And that's only getting worse as electronic boats continue to move forward on these vehicles. The second thing is, it prevents downtime. So what we really are important to us is that every time a truck that's carrying goods, and you can imagine how much freight is costing. It goes down. It needs to be jump-started. It needs to be towed in. That creates downtime. That means that, that asset at our fleet level is not getting utilized the way it needs to. So our job is to show -- to give confidence that battery is going to work every time, but also show people through intelligence that, that battery is going to perform long term the way it's supposed to. And then finally, we really look to work with our partnerships that own these fleets to say we're also going to manage your warranty issues. So if something is wrong with the battery, the battery has been beaten up or misused, both the OEM and the fleets want to understand why. And we can use these intelligent batteries to manage the warranty claims and help manage not only the warranty claims, but also learn from those issues that they have to correct other problems within a truck that are cost the batteries to fail early. Those are all elements of what we want to put in this ecosystem. So for example, we've been told more than once that we've seen up to 80% or 80% or more reduction in warranty claims for batteries that have this intelligence system in it. So these are real savings that we're demonstrating to our customers. And the question we had to ask ourselves going back when we started to develop this program is what information are you going to provide to the fleet and provide to the owner-operator of a vehicle that indicates that their investment in a high-end battery is paying off. And so that's really what -- on the next slide started us with the ODYSSEY Connect. So what this is the battery monitoring system. Everyone's familiar as we all cellphones, we all got more familiar with how to manage our battery and when to charge and not to charge. Imagine having 4, 5 or 6 of these in your vehicle and trying to manage others and you're livelihood tied to the performance of that battery and making sure it starts and operates every time. So what we've done is we've created an ecosystem to help people manage that. So the people that invest in these batteries, this ODYSSEY Connect system is really inserted chip into the battery. It's just a small microchip in the battery that monitors and stores information. And then there's an app associate at that goes with it and you get that through Android or Apple, that starts to indicate several things, and we'll walk through it that a indicates. But the first thing we decided is what information do we want? And Joern, myself and all our battery guys. Well, we want every bit of information you can post beget because we like that. So we try to find what really the end user needs to go forward. And so that's what we started to do. So from day 1 on the next slide, you'll see that the first thing we'll do is key track the battery status. So when the battery is built from the day it leaves the dock, we start to record information on that battery. So we're recording the state of health of the battery, the state of charge, voltage intimate, how it's being charged, state-of-charge graph for the last 6 days. So we're going to have a history around how this battery is used, what it's been exposed to, and then we communicate that via Bluetooth. So no longer you pop in the hood, fricking the battery out, taking it to a battery tester, you're literally opening your phone, opening our app and they're starting to tell you what you need to know. So the first thing we wanted to do is we put this ecosystem together is to make sure we have a history of the battery, so we can say how it's been used and what can we learn from it. And that's the starting point. The next thing we wanted to do on the next slide, is to give you a battery health on the go. So probably the simplest thing this particular ecosystem does the battery connect system does, it tells you is your battery good or not, right? So you can pop up in your phone, flip it open and say you have to have a good battery, know the voltage is too low or heads up, there's something wrong your system, the battery is not performing out supposed to. So from our standpoint, we're talking about Class 8 vehicles here, and we're talking about fleets. I can relate to is a very easy having a 19-year-old daughter, right? So you buy her a car and I probably shut but a better car, but her battery dies the first time and see them inside the one running out. If I could have had this app with me to walk in to the car before she leaves on the road trip and hit it and say, "Yes, your battery is good. I don't have to worry about the midnight call and the panic that comes with that". That's the kind of confidence that we're trying to give. And I think when you're buying advanced technology like thin plate pure lead, as we evolve into lithium long term, these are the type of information that people want to know. They want to know that the investments they're making in these products is going to result in the return, which is the reliability and uptime that a fleet manager wants. So that's the first thing we do and tell you what the better health as on the go. The second one, this is the next slide. This is where I get more excited. Now we start to talk about the detail. So now you're starting to talk about what's really happening in the battery. What's the charge profile look, what voltage and temperatures does it look? So this helps us in a lot of ways. One, it helps us as we collect data with our partners to say, how is your battery being used? What can we do long term to pick that data back and make the battery better in cold environments or you're seeing hotter environments than we expected? We're understanding this data charge and increments. So we're really starting to get into the detail. And so that enables us not only as EnerSys to continue to improve the product, but also for the customer to understand or the fleet manager to understand this is how the process is being used, right? So that's a big one for us. And then kind of the next level down is to detect anomalies. And this is where -- when you see the warranty improvement that we see with the Daimler, we see our other customers, and we're seeing people say, we've gone from 3% to 4% warranty claims down to less than 0.5%. It's because of this. It's not because we're preventing warranty creation happening is that when we have an issue, we have the ability to go in and look at that data and put our teams together and understand what went wrong in that vehicle that allows us to -- that the battery didn't fail, but something else in the vehicle cause an issue was an alternator issue, was it a charge issue, was this battery was stored inappropriate heat? Is there something else going on that's caused the battery to fail early. We can now detect those anomalies and correct them at the vehicle level and hopefully at the fleet level. So what we've done at EnerSys has created a real stickiness with the OEMs. And this was almost an unintended benefit that we now have more information about our batteries anybody else does, which enables the OEMs to see the value in this information moving forward. And we'll talk about that means long term for us. But in the short term, what it does is it provides savings to the fleet and allows us to correct vehicles who we continue to through batteries because they have an issue in them. So we can really address a real problem that's causing downtime in the fleets, and we're doing that by understanding how the battery is being treated because it is a central part of the electrical system so we can really do an analysis starting there, and you're doing it on your phone, and you can do it in a matter of seconds. You can get into this information, and we can utilize our people to look at that. So what does that mean long term? So if you go to the next slide, -- where do we see this taking this? So we've created is Bluetooth capability. We've built this app. It's been a lot of excitement in the industry about what we've created. And there's opportunities for that on a lot of fronts. The opportunity in the short term is to continue to roll this out in different product lines. So everybody who buys an ODYSSEY battery. Years down the road has the ability to understand what's going on with the product if they get a local retailer if they're buying it in bulk because they can understand how their battery is performing. So that's the vision we have for this product line. In the short term, go back on in the short term, I kind of get the last point out before I turn over to Drew. In the short term, what we want to do is we're working closely with the truck builders as batteries become a larger and larger part of the overall system. Even as we move to EV, there's 48-volt systems that are going to require our technology. And we want to continue to integrate this intelligence that we're learning into the actual vehicle itself. So we want to turn it to the canvas, the telematics piece. We want to look at individual performance and in banks of batteries, so batteries and series and parallel, what does that mean to us? So we're continuing down the road of after we've proven the capability through Bluetooth. How do we take this intelligence or putting it into the battery and make it even a more significant part of the vehicle. We do that for 2 reasons. One, because they make sure the battery is utilized, right? And 2, people become used to this technology. And when they replace this battery, they're only going to -- they're going to demand that has ODYSSEY and this ODYSSEY Connect system in it because that is what's enabling them to operate at a higher uptime than they traditionally ever have been able to. So that's the future where we see this going. It seems relatively straightforward to put this intelligence in. It hasn't been done before on these types of levels, particularly for lead acid batteries. And I think what it's enabled us to do is take the TPPL technology in these markets and really build a confidence level with the customer around it and build a future around these product lines as we continue to continue to evolve this technology to meet the end customer needs. So it's been an exciting game-changing technology for us to prove the value of our electrochemistry that we have in the battery. So with that, I'll turn it over to Drew, and he can talk about what we're doing in ESG.

Thanks, Mark. Good to be with everybody to talk about this intelligent battery capability that we're bringing into the energy systems markets. The network operators, in particular, look to all the elements in the network and want to be able to manage them both from a monitoring and performance standpoint, also asset tracking and preventative maintenance readiness, et cetera. And the lead acid battery has never been able to have that capability per se in the past. So bringing ACE capability into the energy system markets like telecom, cable and even data center allows us to have now an element management capability that can tie into the overall network management capabilities and systems of our customers. So this intelligence gives them a readiness reading, a current monitoring of performance data set and really important, actually, asset tracking, just knowing where the asset is, what's the age of the asset and when's the last time maybe the asset has been seen. We do a tremendous amount of preventative maintenance in these markets, which is a just in case kind of maintenance. It's very expensive and it's not very structured. Having this intelligence for the backup battery systems provides a kind of a just-in-time capability so that we can, through the performance management systems that the customers deploy bring the knowledge of what's going on with their backup capability into that mix. So it's a very key feature set that the customers are looking forward to bringing into their operations and looking to EnerSys to lead that. It's also something that can be consistently deployed using smartphone apps. So our customers will be able to basically provision and set up the site very efficiently like we do with a lot of the other network elements. So it provides a great capability and ease of integration. And more importantly, it provides that bridge to lithium to the advanced technologies for which in our backup or float applications, the benefits of lithium versus lead acid in a lot of cases are not that pronounced. But a lot of the intelligence inherent in the lithium battery because, in essence, it's a piece of electronics, it's a key part of the overall power system has not yet been able to replicate it with legacy lead acid technology with this advanced lead-acid technology and EAS capability. We're now able to bring that bridge to future deployment of lithium, but also in the applications where lithium does not fit the capability and the dependence and utilization of that intelligence is provided, and it is very much attractive to a lot of our key customers. We have data center customers that really need this intelligence but are resistant to put lithium into their sites. Well, now we can do it with TPPL, which they like, but they want that intelligence. All across the 5G networks, we have remote cell sites and wanted to keep track of those assets and keep track of the maintenance protocols and timing is now able to be done at the battery level, not just the power system level and across all the rest of our traditional wireline network operators. This now becomes a much more consistent element to fit in the overall network management and data collection and preventative maintenance protocols that they have. So great value here, very consistent with the EnerSys complete power system approach that we're taking into the key markets creates a lot of close interactions with the customers, and it gives us, again, let's say, that longer-term stickiness with not only our batteries, but the complete network powering solutions that ACE functionality is very complementary to. With that, we can go on quite a bit with energy systems and this functionality, but that's enough for today, and I'm happy to turn over the presentation here, I have been asked for a little touch on the motive utilization of the technology.

Thank you, Mark. Thank you, Joern. So like we've heard from both Mark and Drew, customers want integration into their vehicle. They want to be able to access information on the fly on their phone or perhaps in another system about how those assets, how their batteries are performing for them? Are they doing well? Do they need to be replaced? What steps can they take to improve and optimize the performance, get more life out of the battery? Motive power is no different, right? We have the same challenges with our technology, be it advanced lithium-ion, advanced thin plate pure lead or our traditional lead acid offering, right? So in motive, while we're not currently using the ship, we've been using a technology called WI-IQ, which we've had and developed by EnerSys back in 2014, we're on the generation of that product now as we've advanced it and it does things like can communicate with our chargers and with trucks. And so we can integrate those batteries. Again, it can be anything from lithium to TPPL to lead acid by putting a WI-IQ on it. We can integrate it to the truck and do things like prevent the livestream lifting and slowing the drive reels down on the truck, if the battery is at a lower state of charge and the operator has ignored go back and charge me. Those red-light button that come on and tell them to go and charge. So you've got things like that. So we also do things with doing an E Connect mobile app. So you heard Mark talk a lot about that for the ACE product for the ODYSSEY. We as something very similar for flooded products that integrates with our WI-IQ. Again, I can be it an operator, be it a manager, be it one of our own technicians come in and quickly find out how that battery is working. That information also goes to the cloud. And through our Zinc's battery operations management system, we can work with customers, and the customers can also look at it on themselves to figure out how they're doing, do they need more batteries? Do they need less batteries? How are those batteries operating? We tie with our chargers. Our chargers provide the exact right charge profile for that technology that's plugged into it by looking at our technology. So it's the smart ecosystem that we combine everything. And again, it's all part of this connect world that we're looking at. So next slide, please. Just a little bit further detail on the E Connect. We can see -- I think I've touched on most of these points already. But to Mark's earlier point, you get some great graphs for those that want them. And if you don't, it's some pretty basic information new that tells you what you need to do because, again, stickiness to that customer really depends on who is using the product. Is it an operator? Is it an engineer that may be overlooking in enterprise where they have to make those power decisions? Or is it a buying team or is it EnerSys. We also tie this information into our WI-IQ sorry, our insight modeling software so that when it's time to evaluate a facility or perhaps replace technology because they've updated or replaced their trucks. We can come back and say, okay, well, we take a look at how we've used those batteries in your application over time, pumped it all into the model and then can make a prediction for them on what we think will give them the best total cost of ownership by most likely selecting a hybrid solution. It could be a lithium or TPPL or a flooded option mixed in together with the right chargers to give them exactly what they need. So next slide, please. Here's an example of what we can do with a real basic approach, which is we take that WI-IQ information. Again, it's the same device that we're using for all of the other things I've talked about. But here we connected to our Bluetooth to a Truck-IQ that sits on a truck, and it gives a real basic operating performance to that operator to let them know what they need to do. Go back and recharge or I can still go now I can go and make another couple of runs and move what I need to do before I get to break and before I go back and charge. So some real basic technology here, but I shouldn't say basic is fairly advanced, but the way we portray the information is very, very usable. Now in the back side, all this information then becomes used when there's an issue like Mark was talking about earlier. It's not meant to be that [indiscernible] device, but it's really meant to be that device that our team works with our customer to design a solution that prevents them from having problems in the future. And to Joern's very first point, -- that's why customers work with EnerSys because we can do this. We've got the technology and the people that give that customer that a great experience. Lisa, back to you.

I will turn it back over to the operator for Q&A.

[Operator Instructions] And our first question comes from Noah Kaye.

Thanks, EnerSys, for doing this talk really interesting elements here to touch on. I guess maybe, Drew, can you talk a little bit about how these readiness and performance monitoring capabilities optimizes your service network or the telecom and broadband customers. I mean how much of the benefit is maybe here around cost reduction potential for you in terms of just the logistics and the dispatch savings versus maybe driving revenue events?

So I would say from the customer standpoint, they do fairly regularly scheduled preventative maintenance visits, for instance, to a lot of these sites, not knowing exactly what the state of the asset would be. And we can save them quite a substantial amount of operating expense by having this data available to them, so they can scan and profile the asset status, age, et cetera, as the means to kind of target where their preventive maintenance is going to go. And that is a justification of the premium they would pay for the product. So we like that mix. They like that mix. And if we have the preventative maintenance contract with them, this can become part of how we would be able to actually secure that business because if we have in it that we can monitor and use the data to give executive reports and drive the actual on-site maintenance visits, or more importantly, rate when an asset is ready to be transitioned, but before failure, we can do that kind of a preemptive replacement and without becoming a failure kind of a drill. So it is an opportunity for us to generate, I think, a tighter relationship on the PM side and also gives the customers, I think, a more secure way to look at the readiness of their energy storage or backup of that network element. Does that…

This is a follow-up. I mean, how prevalent if you can help us all understand how prevalent today are those types of preventative maintenance contracts for providers with the telcos for systems like this? Is this really a kind of a new growth opportunity for the company? Or would it just sort of build on kind of existing penetration that you have?

It builds on existing business that we have. We already have a fairly significant preventative maintenance business, both in the outside plant, portions of the network and in the critical facilities. In both cases, the battery element of it is a key piece that is part of that maintenance, call it, the maintenance protocol. And by having this additional data that we can mine and basically segment into executive reports that gives us asset tracking capability, aging, et cetera. It's something that customers really depend on, and it will just allow us to expand some of that preventive maintenance business and also to keep those contracts and also to keep the customers being motivated to take that work in-house because they wouldn't have the same necessarily access or ability to manage that data like we can.

Yes. Great. If I could sneak in one more, and this may either be for Mark or Joern or both of you. You had mentioned the 48-volt architecture, even an electrified truck. I was wondering if you could maybe elaborate on the potential value of the ACE functionality in an electrified truck? How that might be advantageous? And if you can describe any testing you've done with the system specifically in electrified trucks.

So you're talking about -- this is Mark. So it's a very good question. When we talk about trucks, we're talking about 2 things. We're talking about true potential battery EV trucks. We're also going about hydrogen EV trucks as well. And so 48-volt systems have already been really early adopted with some of our partners into some of the hydrogen trucks because of this the run time is much longer. But those are still electric trucks that don't have emissions as traditional trucks do. They create a 48-volt system that powers the overall electronics of the vehicle. So you're talking about steered power steering, lighting, those type of things that are all at the lower voltage systems in those vehicles. And we've actually started to be integrated in several of those new opportunities, and they like the ACE they like the potential of a particularly integrated ACE to the canvas of that system, so they can report not only on the high-voltage system but the low voltage performance as well because a lot of the safety and security things are tied to those 48-volt systems that we're putting back. So it's really a redundant system to the overall high-voltage EV or hydrogen fuel cell application that we're seeing. So yes, it's very early on for us. We've been designed in to one significant partner that started to grow that market. And we're early on at testing with several of the other OEMs that see the value of tinplate pure lead in those applications. It's a perfect fit in that 48-volt solution for us.

Our next question comes from Greg Wasikowski.

Great. Thank you, and thanks, everyone, for doing this. It remains pretty cool and very helpful for us. So thanks again for taking the time to do it. Very, very similar question to Noah's last question, I'm just going to ask about the energy transition and kind of the evolution of heavy-duty trucking and the application of ODYSSEY Connect through the different directions that, that could move in. And I was just curious, I guess taking it one step further. Is there a certain type of technology that EnerSys kind of benefits more from or would like to see it move in a certain direction? If we look out over the course of the next call it, 5 or 10 years, and we see significant fleet announcements transitioning to one technology or the other. Does any direction kind of benefit EnerSys more than another one, whether it's battery electric or hydrogen fuel cells, RNG or biofuels are just remaining with like a traditional diesel? How do you guys see that?

So I think -- this is Mark. I'll take a shot at that question. So obviously, we love the hydrogen fuel cell piece because we've had some early on success there. So -- but we also see that there is an application for our batteries, both TPPL and lithium in these moderate range voltage applications in this 48-volt system. So we've seen emissions regulations drive requirements for a little bit higher voltage systems. We've seen some secondary systems on the larger EVs. But we also know that just continual improvement of traditional combustion engine, there's a long runway there for us. I mean it is -- these are massive loads, particularly on the over-the-whole over-the-road truck at applications with hotel loads. Those are massive loads and mass requirements for a traditional or for a new EV type solution. So we see this as an evolution of regulations on emissions as we can help in that with our thin plate pure lead and the moving away from any kind of auxiliary power source. And we also see then that moving into fuel cells and ultimately to the battery electric systems. And we see there's a place for EnerSys solutions throughout that. And we're trying to be as chemistry agnostic as possible. So Joern and his team have built some great lithium solutions that Harold has taken advantage of motive right now. We are ready when our customers are ready to start to move lithium into that forefront. Right now, thin plate pure lead does the job, and it's going to do the job for the foreseeable future. But as those new battery systems come on, we're obviously not going to be the drive chain, but anything else on that vehicle that requires power we're comfortable doing either in thin plate pure lead or lithium. Not just too much a chemistry. I'm a cost go the connect helps, right? So... That's good.

All right. And then, Mark, you kind of alluded to this already in terms of kind of what's next for ODYSSEY Connect. And beyond the vehicle chemistry, the vehicle, like fuel application itself, what could be next in terms of expanding the ecosystem within the vehicle itself or connecting to other systems, auxiliary systems or different ways to connect with the vehicle? How do you see that ultimately evolving?

So what's happened over the last several years, as that APU system or the auxiliary power system, which was obviously, fuel is basically a generator that was attached to do the off-cycle loads, if you will, has been removed. More and more batteries have been added to a Class 8 truck to a large vehicle. So you've gone from having -- starting battery to now in the military terms, we call I don't watch battery, but that's really what it is. It's a battery that's powering the electrical loads when it's not running. What they've done is they've started a series and parallel batteries, right? So you're seeing 4, 6, 8 batteries on a vehicle that creates a complexity around integrating all those and understanding how those are operated, how those are changed out. And that's, I think, where you saw the real need for ODYSSEY Connect to be more further integrated into the vehicle ecosystem, more than just a Bluetooth capability that we have now, but really integrated to the can bus where you can see how these batteries are interacting, how they're performing when we need to change the entirety of the system and also how they're being electrically managed and charged because it becomes more complex once you get several of these connected in these different configurations. So I think that from our standpoint, the connect and the intelligence behind of these batteries are only going to create a further integration to what we know as battery providers to folks like Daimler and others that we work really closely with. I mean we tell our teams all the time that we'd like to be considered the battery or the battery arm of these companies, right, that these OEMs. We've done that in the aerospace and defense field. And now we're doing that in the automotive field, where we want them to come with us to be the battery experts to manage not only the data but also the electrochemical improvements that are needed as they evolve their road maps going forward. So that's really where we see the focus on is the complexity of the battery integration has increased. And with that, intelligence is going to drive our stickiness into those environments.

Got it. Okay. And one more, if I could, on E Connect and motive power. So last call, we talked a lot -- I think it was last call, talked a lot about wireless charging within material handling. I'm assuming software systems have pretty seamless integration into all things wireless charging. But maybe if you could talk about that or any other added features when it comes to the software for wireless charging.

Sure. So we're going to show our wireless charger at ProMat coming up in Chicago, which is the large material handling show here at the end of March in North America. And we'll also show it over in Logement at our trade show over in Germany, which is our European trade show at the end of April. But yes, all of the motive technologies that you're seeing do work in this ecosystem. So in the wireless charger for instance, you've got a portion that's on the truck and then the primary or the charging equipment that doesn't sit on the truck. And as those 2 come together, they wirelessly communicated the battery not the charger knows what battery is on there, not only chemistry but voltage and capacity so that it charges correctly. It's no different than when we put a WI-IQ onto any of our batteries. Again, an advanced lithium and advanced thin plate pure lead or a traditional flooded product. Again, the YI charge, it talks through Bluetooth to that charger to say, "Hey, I'm a thin plate pure lead battery. I've got this much capacity this voltage and charge me correctly" because it's not just plugging it in and charging it. It's charging it correctly for the chemistry and the voltage that it is. So all of that does exist, our E Connect works with all of it. And then we have some other technologies that allow us to pull that into the cloud so that we can monitor as well. Sometimes it's through a service program. Sometimes a customer will do it as a subscription, and then we'll do it as well just to keep an eye on it. But yes, it's all part of that same ecosystem. It has to be because -- and I think you're hearing that from Mark, you've heard or from Drew and certainly Joern started off with this, it's expected, right? Our customers are expecting this anymore. And that's really what we have to bring.

So -- and I would maybe add to that is the wireless charger is our first device that's in our next-generation set of products from EnerSys as we start to create a compatible interconnected set of platforms. So it uses a system on a module. It has its own software stack that's associated with it. And that software stack will become general. So this is one that's wireless charging and the top end of that software stack, its application is a wireless charger, but the IoT stack that's connected and eventually also the AI stack, the communication stack, the CAN stack and so forth. They're all generalized product. So the next product that's coming out will be on the telecom side. It also, again, uses that same stack setup. What that enables is that once we look at the cloud resources moving in, there are parts, the information is all very much the same information. So then we can start to look at this at a much more enterprise level these interconnected devices. So what we're seeing is just the beginning of a next generation of software interconnectedness by EnerSys.

We currently have no raise hand, therefore, I'll pass you back to Lisa for any webcast questions we have received.

Thank you, Tia. We do have a couple of questions that have come in on the webcast. And the first is asking, is the battery monitoring technology included as a standard feature with purchase at the battery? Is there any potential aftermarket subscription revenue associated with this?

So I can start from a transportation perspective, it is included in the overall purchase of the battery. So we charge a premium for this battery and this capability. It's obviously well accepted by our customer base that is part of that. And we don't do a service monitoring for transportation. It's all included in the cost of the battery.

For Motive, in some products, it's included in others, it's not. And then the monitoring is the subscription-based service.

Energy Systems, again, it would be a premium option on the battery, and that would include some of the functionality, certainly, but any kind of ongoing monitoring or maintenance services would be an add-on sale that we would make.

All right. And another question that's come in kind of a broader question asking about our technology. And -- do we have any comments regarding iron flow battery technology or other industrial power and utility end market opportunities as the grid becomes more driven by wind or solar?

So I'll take a go with this one. That particular chemistry, we haven't been looking at EnerSys, but we're certainly always very interested to see what new systems are out there. flow batteries are one of them. But at this point, we're not too -- I would say, it's not fitting into our market profiles that we currently have. That said, though, we are doing some work on BPP. So virtual power plants and open ADR. So for instance, I think Dave mentioned in our last analyst call that our DC fast charger now is open ADR certified. And so this allows us the starting point of allowing our products to participate directly on to the grid and eventually becoming grid resources. So it's the starting part of this path. It's a very interesting path for us and lost to explore.

Great. And this next question is for Drew. Again, a broader question around 5G and some of this we covered in our recent call. But the question is asking what stage we're in on 5G mega trends. And what percentage of the small cell towers you think are already installed versus future complete network?

Well, I think that, first of all, we touch upon this quite often in our quarterly calls, and we'll certainly be touching upon this and any investor events we have coming up in the future because it's a big topic. Clearly, the 5G deployments are moving at a particular cadence right now, where you see macro sites being reinforced or put into place, so they're able to monetize the various spectrum that the different carriers have. The small cell deployment that was initially anticipated prior to, let's just say, the rearrangement of the markets with COVID and things of that sort have been pushed out. But that now is starting to become a very active piece of our business. There is densification still being done on the LTE portion of the network, and there's now very defined plans that both the tower cos, like Crown Castle and et cetera, would be working on behalf of the network operators and the network operators themselves, both to increase capacity through densification on their 5G spectrum, that would be mid-band spectrum. And then certainly, as millimeter wave spectrum comes back into the mix and the kind of the requisite small cell deployment around that. Certainly, we see that it's going to start to grow at a much faster clip and a much wider deployment than we've seen in the past. But I don't think we're going to get into numbers or any specifics right now on this call. But technically, we certainly have a great suite of products to support that. And we also are building that into a lot of our future business forecast as we see that evolution or let's just say that, that portion of the network is starting to become more critical to the build-out plans that all the operators and tower cos are going to be deploying.

All right. Another question that's come in from the webcast. Could you discuss how the software intelligent technology is developed, Glen Software Development group serving the 3 divisions or our separate groups at each division? If the latter, how our best solutions practice is being shared.

So what we try to do is -- and I alluded to it with the system on the module when we're speaking to the wireless, is everything is starting to uniform on a particular stack. All the 3 businesses use very similar electrochemical technologies, right? And that's also part of one of the pillars within EnerSys. So there'll be a lead flooded technology imply pure led or lithium technology. As such, we know very well how to monitor these systems. We know very well how warfare modes are necessary. And so it creates that -- it allows us to create that much more generalized platform. What we're doing today is a lot of the core components of that technology. So for instance, a lot of the diagnostics, the AI component, the training of the AI component, the deep learn and so forth that we're moving into, that's all held within EnerSys. And then as that moves then up to the top level, the application layer, and that -- so for instance, in Harold's example, if he has a lift truck, their state of health algorithms and so forth and the prognostics from the lithium systems or TPPL system will flow in. And that's the same TPPL system that then Mark uses for his system. And so therefore, the failure modes are very similar at that level, and then they'll just be served directly into their applications for whatever needs their customer has had. And this has always been the premise of EnerSys. We're very wide in our product portfolio, but we're really strict upon how we set up those technology platforms to keep ourselves extremely concise. And that's why we can have one software pillar to service all 3 LOBs.

Thank you. And one more from the webcast. What role do you see sodium ion batteries playing in the motive power industry over the next 5 years? What are the pros and cons of this technology relative to?

It's a great question. I mean sodium ion for those just who are not aware. So this is a replacement of the lithium on the cathode side with sodium. The sodium though presents a number of the benefit, of course, of sodium, it's all around us. It's installed, for instance, right? And so there's a huge amount of sodium. And so when everyone is looking at the pricing of lithium and how this is moving. The problem, though, is that the lithium is really just a component of a lithium cell. So for instance, in a typical lithium battery, the lithium is only found right now today on the capital side. And so in the systems that we're using, the NMC systems, it's lithium, nickel manganese cobalt oxide. So if you look at the overall BOM or the bill of material, it's about 20% to 30% of that bill of material, the actual lithium. And so then if you just have some savings just on that 20%, 30%, which might be 6 or so percent by going into sodium, say that they are 20% cheaper by putting this all together a cathode chemistry that doesn't have a very large impact. There's larger impacts on the generalized overall system of the site, particularly when we look at much smaller capacities that we have motor power. This doesn't speak to say if I look at hundreds of megawatt hours of grid connected supply, that's a very different argument. But for the systems that we're looking at for motive power the sizes are small enough that the difference between sodium ion and lithium state ion-based technologies is insignificant from a price level. However, there is a huge difference on the performance level. We do know that from a sodium ion the post the energy density is significantly lapsed. This means that you have less run time. And one thing that Harold's team needs is more run time on those vehicles that we can pack more energy into that area. So our method moving or our premise moving forward is higher energy density system and sodium ion for us is not that solution. Runtime is king. It was once told to me by a person that runs a very large automotive plant run times King, I've never forgotten it.

Well, that's all the questions we have on the webcast. Tia, are there any other hands raised in the queue?

We have no further questions at this time. So I'll hand back to you for closing remarks.

All right. Well, thank you, everybody, for joining us. We look forward to discussing our Q4 and full year fiscal 2023 results at the end of May. And with that, have a fantastic day, everyone. Thank you.