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Growing an American Electric Car Industry, a Tale of Two Companies

Not long after the auto bailouts, the financial crash and the election of President Obama, General Motors Co. had a choice to make.

It had designed an electric car, the Chevrolet Volt, to prove it could build something besides gas guzzlers. To make this car even close to affordable, it would need a battery unlike any that had been made before.

This battery would have to overcome its own bulk to power the Volt for 40 miles. It would have to repeat this for something like the life of a regular car. It had to be flawlessly safe: One explosion, and the electric car renaissance could be over.

Somehow, given all these qualities, it had to put the Volt somewhere near the price of a gasoline car today.

To discover that battery, GM had been working with two companies, one Korean and one American. And the time had come to choose.

So it did: In January 2009, GM chose LG Chem, a division of Korea-based LG Corp., to supply cells for the first model of the Volt, launching in late 2010.

The runner-up was A123 Systems Inc. of Watertown, Mass., a racing startup with a world-leading technology and now, a fresh defeat.

The move to get the United States into making cutting-edge batteries to power the electric car isn’t over. But the starting gun has fired.

DOE is pursuing a double-edged strategy: striving to help existing U.S. companies stay in business until their costs become competitive, and funding possible game-changing technologies that could establish American leadership in these clean energy sectors.

If GM’s Volt takes off, there will be more contracts available to players like A123 and LG Chem. Micky Bly, GM’s executive director of electric systems, said it’s been developing batteries with A123 and one to two other suppliers.

But to the old hands of the battery industry, the first Volt contract was no surprise. They saw an old theme playing out. In the 1980s, American scientists had devised the lithium-ion battery, the technology that will power today’s generation of electric cars. But in the 1990s, Asian firms commercialized them, manufactured them and began exporting them to every corner of the world.

They held the high ground — on experience, on reputation and in existing factories already moving down the cost curve.

“The money has been spent in China, and the factories are up and running, and they’re huge factories, state-of-the-art,” said James Akridge, a U.S. battery consultant, when asked whether Asian companies have the edge.

In the late 1990s, Akridge was working for Energizer, developing lithium-ion batteries at a new plant in Gainesville, Fla. Suddenly, world prices dropped, and company leaders realized it was cheaper to buy batteries from Japan than make them in the United States. They sold the plant in 1999.

“When you drop it like we did, lithium-ion, and then others have continued to invest and push forward and develop their infrastructure and raw materials,” Akridge said, “and then you say, ‘Oh, we’d better get back in the game,’ I think your competitive position is weak.”

To battle for this ground, experts knew, American firms like A123 would need competitive technology, factories of their own, and time to catch up. It would take hundreds of millions of dollars, whether from the government or investors.

All the while, foreign firms would be homing in on the U.S. market, and doing it on U.S. soil.

That’s the picture the Obama administration saw in early 2009, when it had just taken office and the economy lay in ruins. As they designed a stimulus plan to rejuvenate the economy, Obama officials knew they wanted to emphasize manufacturing. Clean energy, including batteries, topped the list.

A lost decade of innovation

Matt Rogers, the energy consultant who became DOE’s chief official implementing the American Recovery and Reinvestment Act, believed “the United States’ greatest competitive advantage is aligning technological innovation and high technology manufacturing to serve growing domestic and global demand.”

“For the last decade, America lost sight of the important linkages along the innovation-manufacturing-deployment chain and lost global leadership in multiple industries as a result,” he continued in a 2010 case study for Harvard Business School outlining DOE’s approach.

In August 2009, DOE awarded $2.4 billion of stimulus funds to jump-start the U.S. industry. A123 got the second-largest grant, $249 million to build battery plants in Michigan.


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