U.S. Must Prepare for Next Oil Shock

South Carolina-based Kemet is not exactly a household word in the automotive industry. With $736 million in revenue last year, it is dwarfed by auto supplier giants such as Robert Bosch, with more than $50 billion in sales.

Kemet’s products are not glamorous, either. It makes capacitors, electronic devices that filter out interference, smooth the output of power supplies or perform numerous other mundane tasks within vehicle electronics systems.

Even so, no vehicle can run without capacitors. And tantalum, ceramic, film and electrolytic capacitors are critical subcomponents of hybrid-electric vehicle drive systems. Unfortunately, most of these essential devices now are built almost exclusively overseas.

What puts Kemet in the spotlight, thanks to a $15.1 million grant from the U.S. Department of Energy, is that it will be building capacitors in the U.S. by the end of the year.

The supplier is matching the DOE grant, part of the American Recovery and Reinvestment Act, with $16.6 million of its own money to create four new production lines in Simpsonville, SC.

It is money well spent. The move creates 113 new jobs, but more importantly, it helps make a U.S. company a major player in an important new technology area.

It also adds another piece of the puzzle, along with new manufacturing facilities for making lithium-ion batteries, in Holland, MI, and Smyrna, TN, being funded by DOE grants.

Hopefully these investments will lead to a U.S.-based supply chain for developing and manufacturing hybrids and electric vehicles.

Commentary

So far, the DOE has awarded 35 auto makers and suppliers more than $8 billion in grants and low-interest loans to produce batteries and related components for EVs and HEVs.

Make no mistake, hybrids and electric vehicles, alone, will not solve the U.S.’s fuel consumption or carbon-emissions issues.

But the vehicles are a growing market. Global sales of hybrids are expected to hit 900,000 units this year and continue to climb steadily.

A recent report by The Goldman Sachs Group predicts sales of HEVs and plug-in HEVs will rise to14 million units in 2020, 13% of the global automotive market. EV sales will reach 1.7 million units then, or 2% of the market.

Japanese auto makers currently dominate the HEV and EV market, but China’s government is vowing to throw all its industrial might into becoming the world leader in these vehicles in 10 years.

Against this backdrop, it does not matter what happens with gas prices. It simply is imperative the U.S. has the knowledge, technology and local supply base to avoid being left in the dust by Japan and China in this emerging technology arena.

But it is doubly important the U.S. be competitive in hybrids, plug-in hybrids and EVs in the event of another oil shock like we experienced in 1973, 1979 and 2008.

Each of these events dealt crippling blows to the U.S. auto industry, and the American economy, because U.S. auto makers and suppliers did not have the products or technology to adapt overnight to radical shifts in consumer demand caused by skyrocketing fuel prices.

We know there will be another oil crisis, caused by conflict in the Middle East, a plummeting U.S. dollar or some other unforeseen event. We just don’t know when. Like it or not, we must develop a world-class supply chain for building HEVs and EVs.

If we don’t, we might as well just turn over the keys to U.S. auto industry to the Japanese, Chinese and European auto makers the next time U.S. fuel starts heading past $4 per gallon.

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