JCI to End Lead Battery Production

In the wake of Shanghai municipal government’s order to stall lead-acid battery production, Johnson Controls Inc. (JCI - Analyst Report) recently announced that it will close its lead-processing operations at the Kangqiao battery plant in China. The municipal government’s decision was triggered by the pollution arising from the plant that has resulted in increased blood-lead levels in children, making them sick.

However, the move undertaken by the company is not expected to affect the customers as the lead-processing capacity will be shifted to its other facilities in China. The Kangqiao plant will continue storing, labeling, prepping, and shipping batteries manufactured by other facilities.

Subsequent to the closure of lead-processing operation, the company will be retrenching some of the employees in the Kangqiao plant. Johnson Controls has shown concern about the employees; it even plans to shift the interested employees to other facilities. The company will also be providing severance packages to the affected employees, which are well above the legal requirements.

Lead acid batteries are used in cars and electric scooters. Production and recycling of the batteries results in lead pollution. According to sources, emission levels at the Kangqiao plant were below national standards and high lead levels were due to the waste recycling facility near Kanghua New Village. Meanwhile, the company will be working with governments and the industry to deal with such environmental issues.

Johnson Controls is a supplier of automotive interiors, batteries, and other control equipment. Its main competitors include Magna International Inc. (MGA - Analyst Report) in the Automotive Experience segment, Honeywell International Inc. (HON - Analyst Report) in the Building Efficiency segment and Exide Technologies (XIDE - Snapshot Report) in the Power Solutions segment.

Johnson Controls remains under pressure due to the challenging global markets, pricing pressure from OEMs and strong competition. Currently, the company retains a Zacks #4 Rank, which translates into a short-term Sell rating. We have a long-term (more than 6 months) Underperform recommendation on the stock.