Fears America could be left behind in the race to establish a battery infrastructure for future-generation plug-in hybrid and electric vehicles are waning, and industry insiders and other experts say momentum is building quickly toward the launch of full-scale manufacturing of high-powered lithium-ion cells in the U.S.
Two things are changing the landscape that once favored Asia as the all-but sole source of Li-ion batteries: heightened interest by U.S. auto makers in EVs and hybrids and suddenly available government funding.
Earlier this year, A123Systems Inc. announced plans to set up “world-class” Li-ion manufacturing operations in the U.S. with capacity to supply batteries for 5 million HEVs or 500,000 plug-in hybrids per year by 2013. The facilities, beginning with a new plant in southeast Michigan, would produce both cells and systems.
Now, officials fromCorp. and Compact Power Inc., whose parent, South Korea’s LG Chem Ltd., will supply Li-ion cells for the upcoming Chevrolet Volt extended-range EV, say they are eying the next step in U.S. advanced-battery sourcing, as well.
Cash-strapped GM surprised industry watchers in January when it announced it would establish a $43 million plant to assemble battery packs for the Volt in the Detroit area using cells manufactured by LG Chem in South Korea, rather than sourcing completed units directly from the supplier.
And Robert A. Kruse, executive director of global vehicle engineering-hybrids, electric vehicles and batteries for GM, says the auto maker’s creep up the supply chain may not stop there.
Providing new momentum is the $2 billion in funding allocated to manufacturing of advanced batteries and components in the $800 billion economic stimulus package signed into law by President Obama in mid-February.
“We’re all scrambling,” Kruse says following a panel discussion on Li-ion battery manufacturing in Ypsilanti, MI, sponsored by the Ann Arbor, MI-based Center for Automotive Research. “The federal institutions that were given this money (as part of the stimulus plan) don’t even know how they’re going to distribute it or value it right now. There are parts of the Volt in our current plan that will be able to take advantage of some of those grants.
“And we may have to reformulate our plan of record very quickly to take advantage of some of the (other) cell incentives that are out there.”
Although considered a long shot, the availability of new funding ultimately could mean GM would move toward in-house production of Li-ion cells in the U.S.
“With the right chain of events, that’s a possibility,” Kruse admits. “I don’t know what the future holds. I wouldn’t exclude it, I wouldn’t include it at this point in time.
“Color me cautiously interested in what (the stimulus package) means and what that means to our business model.”
Cells are a huge part of the cost of the battery packs, he adds. Driving that down is critical to achieving mass appeal for the technology.
“I’m very attracted to what I see in the federal stimulus package, because it represents lots of capital coming into this space,” Kruse says. “It can be an attractive incentive to reducing costs of first-generation technology by having capital in the form of grants, as (opposed) to capital you have to borrow from a bank and pay back.”
In addition to the federal funding, the state of Michigan is offering a so-far unclaimed $100 million grant that could be used to back 50% of the investment in a cell-manufacturing plant. The operation would have to create at least 300 jobs to qualify.
Last year’s federal energy act makes another $25 billion available through the Department of Energy to pay for retooling of manufacturing facilities related to advanced-propulsion vehicles. A123Systems has applied for $1.84 billion in DOE grants to fund its proposed U.S. plants.
Compact Power CEO Prabhakar Patil says it would take little time to tool up a cell-manufacturing operation in the U.S., because the process is highly automated and well understood. What is needed is sufficient volume – a minimum of 50,000 plug-in vehicles annually – to justify the huge outlays required, he says.
“It is the natural progression,” Patil says of the move upstream from pack assembly to cell manufacturing. “There’s nothing magical about setting up cell manufacturing.”
Compact Power, which is establishing its own low-volume pack operation in Troy, MI, also has an eye on expanding into U.S. cell production.
“I can’t give you a specific timeline, because it’s (about) volume and demand,” Patil says.
The battery maker is studying the federal stimulus package, but hasn’t decided whether it will seek funding to expand its U.S. footprint.
Although focused mostly on marketing to European commercial- and light-vehicle manufacturers, Valence Technology Inc., an Austin, TX-based Li-ion battery maker, is considering full-scale cell manufacturing in the U.S. to supply urban-bus applications.
Valence, which stakes a claim to the only “1-step manufacturing process in the world,” currently sources its Li-ion batteries from two plants in China.
“We’re looking at applying for DOE incentives,” CEO Robert Kanode tells Ward’s. “We could replicate one of our plants quickly (in the U.S.), because we know the equipment and we know the process.”
Government funding is a big reason GM decided to move into the pack-building business, as well.
Michigan is offering a total of $135 million in credits toward battery-pack manufacturing that take effect from 2011 to 2014. The incentives provide manufacturers $500 toward each 4 kWh battery, plus $125 per additional kWh, topping out at $2,000 per pack in 2011. The incentives decrease to a maximum $1,500 per unit in subsequent years.
The auto maker also may be able to draw down a share of the $2 billion federal stimulus money to backstop its U.S. operation further.
“We anticipate for the pack work…there will be some portion of that grant money that may be appropriate,” Kruse says.
That would be on top of municipal tax abatements expected to support the Detroit-area plant.
“We’re finalizing with some local governments on a couple of sites, and I think very shortly we’ll be able to announce that location,” Kruse says.
GM also has drawn on state incentives to help fund the largest automotive battery test lab in the U.S., which it will open later this year, likely in Warren, MI. The 31,000-sq.-ft. (3,251-sq.-m) facility will test new energy-storage-system technologies, as well as Li-ion and nickel-metal-hydride batteries. In addition, GM is working closely with the University of Michigan on research and development and launching a master’s degree program on energy-systems engineering.
In all, GM’s battery programs have qualified for about $165 million in state funding.
But government backing isn’t the only reason GM is investing in battery-pack manufacturing and other electrification projects, Kruse says.
“In trying to commercialize this technology, we decided very strategically we wanted to move up the value chain – or down the value chain depending on your perspective – to actually make pack manufacturing core to,” he says. “The ability to put things together and do that efficiently…allows us to do a very unique concept (of) integrating cells into modules and cooling them and connecting electronics to it.”
Kruse says he isn’t concerned GM will lose its competitive advantage once Volts are on the road and rivals have a chance to peek inside the battery pack. Unlike typical automotive projects, where development occurs on one generation of technology at a time, GM is working simultaneously on second- and third-generation Volt systems, and the wide sweep of investment in research, engineering and manufacturing will help the auto maker optimize designs and lower costs, Kruse believes.
“Fortune favors the bold,” he says. “I am making an investment in (engineering) capability, lab development (and) research at the U of M. I’m not doing the Volt and stopping.
“I have folks here in Michigan and all over the world working on my Generation 2 and Generation 3 systems in parallel, because it is absolutely critical that I drive myself down the learning curve and down the cost curve for this to have widespread application.
“We have a compelling business case for first-generation technology. What we don’t have is how you take this and double or triple or quadruple (demand for it).”
Patil says North America historically has trailed in battery manufacturing only because cash-strapped domestic auto makers didn’t pursue hybrid-electric vehicles as aggressively as the Japanese. But there’s plenty of intellectual property in the U.S., he adds, and a slight shift in the battery manufacturing landscape could be taking hold.
In its restructuring plan submitted to the government in February, GM said it will offer 14 hybrid and plug-in models by 2012 and 26 by 2014.LLC’s recovery strategy calls for 10 electrified models by 2015, while Motor Co. plans four new models by 2012.
“It’s not like God smiled and said, (Asia) is where batteries should be made,” Patil says. “It’s just where HEVs are made (today).”
Ann Marie Sastry, director of the new Energy Systems Engineering Program at the U of M, says it is critical the U.S. build up its battery infrastructure ahead of the movement to electrify the automobile.
“Not enough people know enough about batteries,” she says. “Thousands, possibly tens of thousands of engineers will be needed in the next 10 years.”
She points to a world map pinpointing countries – many in Asia – where large volumes of vehicles and batteries are produced.
“Looking at where cars and batteries are made gives you a sense of the threat if we don’t (do more in the U.S.),” Sastry says, predicting manufacturing for the next-generation of Li-ion batteries “will be different. It will be important to locate nearer the customer.”