It also doesn’t hurt to manufacture in China. At the time of my visit, A123 had five factories in China, all of which, coincidentally, were forty-five minutes from the Jiangsu Province village where Chiang’s father grew up. Their presence in Asia dates from their initial deal to build batteries for Black & Decker, when it became “eminently obvious” that they would have to go to China.
It’s not all about labor costs, Chiang said. Battery manufacturing isn’t incredibly labor-intensive, anyway. Manufacturing in China is easier as much because of the speed with which you can build a new factory and get it running as for the lower labor costs. Chiang says A123’s first electrode powder facility in China went from greenfield to production in only nine months. If you need machinery, steel, aluminum, you can get high-precision-grade specimens almost immediately. Chinese manufacturing has its drawbacks, however, notably the potential for intellectual property theft. “We ended up having to teach these guys how to make our state-of-the-art, world-class batteries,” Chiang’s cofounder Bart Riley told the Chicago Tribune a few months after my meeting with Chiang. “And some of them are [now] competing with us directly.”
The new line of batteries that Chiang seemed most excited about were not, however, assembled in China. The individual battery cells were made in China, yes. But it’s in Hopkinton where A123 builds the tractor-trailer-size grid batteries that could be an important lifeline as the company attempts to scale into a giant.
We arrived in an office park surrounded by pine trees and drove around back, where Chiang plugged his Prius into a charging station. Three shipping containers stood attached to loading docks, as if delivering shipments of Blu-ray players to Best Buy. These were A123’s gigantic grid-scale batteries, each one in a different stage of assembly.
On the factory floor, Bud Collins, vice president for engineering in A123’s Energy Systems Group, walked me through the various projects that can keep the company standing until building batteries for electrically driven passenger cars becomes a large and profitable business. He showed me a lithium-ion starter battery for a new supercar by a “well-known automaker.” Next, the first and only FAA-approved lithium-ion aircraft battery, which Cessna uses to start the jet engines on Citations. Soon we arrived at a stack of giant white slabs that sit atop city buses in New York, Toronto, and San Francisco. Each was a 770-pound lithium-ion battery that turns a bus into an enormous Prius. They can produce 200 kilowatts of power on demand, which is enough, Collins said, that bus drivers have had to recalibrate their pedal-heavy feet. So far, they had shipped two thousand bus packs, which together had logged a total of four million miles.
Soon we were standing inside what Chiang said was the largest lithium-ion battery on the planet. A123 calls it the SGSS (Smart Grid Stabilization System). In this heavily modified fifty-three-foot-long shipping container, harsh fluorescent lights glowed overhead, and the white-noise roar of high-voltage current piled atop the hum of the cooling fans. Against one wall stood a supercomputerlike mass of battery—eighteen computer racks with eight trays per rack, and six battery “modules” per tray, and 96 individual lithium-ion battery cells per module, for a total of 82,000 cells per container. (The Chevy Volt’s four-hundred-pound battery pack contains 220 cells.) It looked like some kind of portable cyberwarfare command center.
This was all impressive, but A123 faces challenges. The lawsuits with the University of Texas were still unresolved. The day I visited, Chiang was excited about a new deal with the plug-in-hybrid start-up Fisker Automotive, but Fisker had more doubters than any of the other major EV entrants. Enerdel had actually passed on the Fisker deal, because it would have involved investing in the company, and they didn’t see the value in such an arrangement. (Enerdel already has an ownership stake in a car company—Norway’s Think, a manufacturer of spartan, Euro-style electric microcars that are scheduled to arrive in the United States in 2011.) A123 took the chance, putting up to $23 million into Fisker in a combination of cash and stock. To some observers, this arrangement—and, for that matter, the Enerdel-Think deal—looked like pay-to-play. As one industry insider told me, this kind of deal made the American battery companies look desperate.
Well before the American battery stimulus, the Japanese, Korean, and Chinese manufacturers that rule the lithium-ion market were expanding their empires.
In May 2008, Sanyo, which at the time was the largest lithium-ion manufacturer in the world, announced a partnership with Volkswagen AG to build batteries for Volkswagens and Audis; Sanyo said it would spend $769 million by 2015 on the venture. That July, Panasonic announced that it was considering investing almost $1 billion to build a new factory in Osaka Prefecture that could produce fifty million lithium-ion cells a month. A month later, Mitsubishi, through a joint venture with the Japanese battery company GS Yuasa, would build a new lithium-ion factory in Shiga Prefecture. Nissan’s joint venture with NEC, Automotive Energy Supply Corporation, declared plans to start building batteries for Nissan’s upcoming electric car (the Leaf hadn’t yet been officially announced).
During a 2008 talk at an electric-car conference in Washington, D.C., Charles Gassenheimer cited Nissan’s recent purchase of twelve electrode-coating machines at a cost of some $150 million as evidence that this boom was serious. He said it was an encouraging sign that automakers were enthusiastic about electrification, and that this time, the electric car was not going to go away.
But Gassenheimer could also have seen Nissan’s investment as an existential threat. In addition to the preparations in Japan, Chinese and Korean companies were arming themselves. In China, battery manufacturers in Shenzhen and Tianjin were increasing production, and some of them stated their intent to build cars too. Within a year, the Chinese government would make the conquest of the world electric car market an official state goal. In South Korea, not only was LG Chem planning to devote a factory to producing battery cells for as many as sixty thousand Chevy Volts a year, but Samsung was also launching an automotive joint venture with the German company Bosch at a cost of up to $400 million over the following five years.
The new factories that these companies were building were enormous, on the order of five hundred thousand square feet each, which is five times the size of the Enerdel cell plant I visited. China’s BYD provides an excellent example of the scale that many Asian manufacturers have already achieved. The fifth largest lithium-ion manufacturer in the world, BYD’s thirty thousand workers live in high-rise dorms on the company’s four-square-mile Shenzhen campus. They work twelve-hour days. In early 2010, one industry analyst told me that BYD would soon inevitably be the world’s fourth-largest lithium-ion supplier.
The colossus of the battery world was created in the fall of 2008, when Panasonic announced plans to buy Sanyo. Many analysts agreed that forming a battery juggernaut was exactly the strategy behind the merger. At the time, one Japanese analyst told The New York Times, “This appears to be the kind of deal where you add one and one and get three, instead of two. Their battery operations would truly be world-class.” Including all their battery operations (not just lithium-ion), Sanyo sold more than $5 billion worth that year and had hybrid-battery partnerships lined up with Honda, Ford, and Peugeot Citroën.
“Battery manufacturers have realized that their marketplace gets bigger by like a factor of a thousand if we have electric cars instead of just handheld electronics,” said Martin Eberhard, who had gone on to become a director of electric vehicles for Volkswagen-Audi. When I spoke to Eberhard in April 2010, he had just returned from a battery-hunting trip in Asia. “They realize that. So they realize that’s a place to spend money. And I was in both Japan and Korea, and what I saw was great promise with many, many companies.” He emphasized how unsettled the field is at the moment—few people even agree about the best shape for lithium-ion batteries. Small cylinders? Big cylinders? Prismatic cells? Vacuum-sealed pouches? “It’s really the wild wild west,” he said. “People are out there grabbing land while it’s there to grab. What turns
out to be the good land and the bad land is not clear yet.”
“People always ask, ‘Are we winning the battery race?’” James Greenberger said. “And I tell them: It’s not a race, it’s a boxing match. We didn’t even show up in round one. Got knocked on our ass in round two. And we’re about to be knocked down in round three and round four, because nobody’s going to be able to outdo Panasonic or NEC or LG Chem. But the key to winning the boxing match is to stay in the fight long enough that you can pull out your left hook in the fifth and the sixth rounds. And in the United States our left hook is technology.”
Yet the Asian companies are developing new technology too, committing tremendous sums to research and development. And that means that extraordinary challenges lie ahead for American lithium-ion startups—particularly, Eberhard believes, A123. “I think A123’s doomed,” Eberhard said. “Their technology is no good. The energy density is too low, and you can’t overcome it.” He mentioned that Panasonic had recently announced that in 2013 it would begin selling new 18650 cells that hold 4 amp-hours at 3.4 volts. “That’s like triple what you can do with an iron phosphate battery!” Eberhard argues that A123’s original advantage, the inherent safety of its chemistry, is beside the point. For Eberhard, safety is a systems-engineering problem; what battery companies should be concentrating on, above all else, is increasing energy density and driving down cost. The companies with the most obvious advantage in the cost battle, of course, are the existing market giants, who have paid off their equipment and are already making billions of dollars a year.
The argument for dropping battery plants in the same neighborhood as the car companies they’re supplying is straightforward: shipping these several-hundred-pounders across the world is a waste of time and money, and the distance introduces the kind of contingencies (dockworker strikes, trouble with Customs) that terrify procurement managers. But the argument that building batteries in the United States is a national-security issue is tougher to defend, and it involves weighing the relative advantages and disadvantages of generating American jobs and getting off oil as quickly as possible, even if the batteries that make that possible are imported. After all, imported batteries are not like imported oil. An advanced auto battery is a piece of high technology designed to last for years. Oil is a commodity we buy millions of barrels of each day and then burn for fuel.
Some national-security-focused Americans are fine with this. “If you care about, for example, climate change, your number one priority should be, how do I get those technologies into the marketplace quickly?” said Gal Luft, executive director of the Institute for the Analysis of Global Security, a Washington, D.C., think tank that focuses on energy-security issues. “Today—not in ten years, not in twenty. So if China does it, great. If Japan does it, great. If the U.S., even better. But I want to see it happen.”
The key to making it happen is undoubtedly reducing cost. “Dollars per kilowatt-hour stored is all that matters,” Eberhard said. “Let’s picture an approximate Tesla battery. Let’s say that it’s 50 kilowatt-hours, it’s $20,000, and it weighs one thousand pounds, just for nice round numbers. Now I’ll give you two choices. In choice number one you can have the exact same battery with five times the energy density, so instead of being one thousand pounds it now weighs two hundred pounds. The second choice is that you have the same battery but it costs one-fifth. Instead of costing $20,000 it costs $4,000. Which world would you rather have? In the first world, the Tesla Roadster gets to be a rocking car. It’s a really nice sports car. In the second world, it’s game over for gasoline.”
For an industry cheerleader, James Greenberger is sober to the point of being a bit of a buzzkill. “In our mind the single greatest barrier to adoption of electric-drive and grid-balancing technologies is that electrochemical energy storage simply costs more today than do competing technologies that perform the same function,” he said. “And until you solve that problem, a lot of the hoopla may not yet occur.”
Greenberger likes to cite Geoffrey A. Moore, author of Crossing the Chasm, on the challenges of mass-marketing new technologies. “If you take a look at high-tech marketing and the experience of the high-tech industry, you know that the early adopter market for these transformative technologies is relatively easy to come by. We will sell EVs and PHEVs [plug-in hybrid electric vehicles] to folks who bought the Prius, there’s no question about that. But that is not an economically sustainable market, and it’s not a politically sustainable market, because if we find ourselves in five years with a PHEV and EV market that is entirely dependent on wealthy consumers and government subsidies, the government subsidies will go away. And so we have a fairly short time period—in my view, probably within five years—to figure out how we sell EVs to the general U.S. consumer, who is completely nonideological and not particularly interested in new technology. They just want a product that does something they do already and does it a little bit better.”
For this to happen, automotive-grade lithium-ion batteries will have to get much cheaper. The most ambitious cost benchmarks come from the United States Advanced Battery Consortium: $300 per kilowatt-hour in a plug-in hybrid that can run for ten miles on electricity alone, and $200 per kilowatt-hour for a forty-mile plug-in like the Volt. Ted Miller, chairman of USABC and senior manager of energy storage strategy at Ford, explained the goals: “We want to produce plug-in electric vehicles as competitively as any other vehicle. That’s the objective of $200.” Two hundred dollars per kilowatt-hour is aggressive—an ideal to strive for—and Miller said he hadn’t yet seen the technology that would make it possible, not even in the lab.
Still, that some of the biggest corporations on earth have invested billions of dollars in lithium-ion-powered automotive electrification suggests that, according to the kinds of internal calculations that carmakers and battery companies don’t share, the math can work. “Last year we went out and did a benchmarking survey of lithium ion for various systems,” said Dan Rastler, an energy storage analyst with the Electric Power Research Institute. “Vendor replies were all over the place, so we’re going back to them and asking them to give more numbers. It’s kind of a moving target.” According to their bottom-up analysis, however, Rastler believes that there’s no reason the large-format prismatic cells now going into cars won’t eventually cost the same as the lithium-ion cells for consumer electronics that are today sold as a commodity. Rastler said that as of spring 2010, they were finding that lithium ion had already gotten down to a cost of about $600 per kilowatt-hour, essentially the same as a lead-acid module designed to do the same task. The results of a study by Paul Nelson and Danilo Santini at Argonne National Laboratory align with these estimates.
“Costs are coming down very fast,” Yet-Ming Chiang said. “If you look at the pie chart of battery cost, there’s no single thing that dominates.” He said that hydrogen fuel cells are expensive largely because they use a platinum catalyst; platinum is pricey, and in hydrogen fuel cells nothing else can easily replace it. In lithium-ion batteries, on the other hand, “there are lots of things to cut.”
Giant grid batteries like the ones Chiang showed me could actually help solve the fundamental scaling catch-22, which is this: Until they’re built in massive numbers, electric cars will be too expensive for the majority of car buyers, primarily because of the cost of their exotic hand-built batteries. But they won’t be built in bulk until there are hundreds of thousands of electrified cars on the road.
The economics are different for grid batteries than they are for cars. The electrical grid is so idiotically inefficient today that spending a small fortune on giant lithium-ion batteries to hook into the system could actually be a moneymaker. Chiang and Bud Collins say the only reason A123 got into the grid-battery business is that the global energy company AES called them up and asked for some. “This is all financially driven,” Collins says. Enerdel is in the grid-battery market as well, starting with a deal to supply Portland General Electric with five 1-megawatt batteries th
at the utility will use for wind and solar power—to store electricity generated when the wind is blowing and the sun is shining so that it can be used anytime.
Silicon Valley veterans seem to be the most optimistic forecasters of battery cost, which isn’t surprising considering the shrink-to-nothing economics of computing. The absolute lowest possible cost of a lithium-ion battery is called the cost floor, and that is something that Martin Eberhard says does not exist. “I don’t know what a cost floor is,” he said. “That’s a concept I don’t believe in. I have seen cost floors—absolutely cannot get cheaper than X—presented by many a company, and then I can go to company Y and show you a price that’s already below that.”
Once the research and development and the factories and machinery are paid for; after the cost of labor and shipping, of keeping the lights on and the water running—eventually cost comes down to raw materials. And as the battery boom began, concerns about the availability of lithium, which had never before been mined or traded in significant quantities, raised an entirely new set of questions about the inevitability of an electric-car age.
9
THE PROSPECTORS
In December 2006, an energy analyst named William Tahil posted a paper online titled “The Trouble with Lithium.” In it, he argued that basing an electric-car revival on the lithium-ion battery was nothing but a headlong rush into dependence on yet another finite resource, an addiction to oil traded for an addiction to lithium. According to Tahil’s analysis, lithium reserves were dangerously limited; there was nowhere near enough economically recoverable lithium in the world to support a global switch to lithium-ion-powered electric cars. “If the world was to exchange oil for Li-ion based battery propulsion,” Tahil wrote, “South America would become the new Middle East. Bolivia would become far more of a focus of world attention than Saudi Arabia ever was. The USA would again become dependent on external sources of supply of a critical strategic mineral while China”—home to significant lithium deposits—“would have a large degree of self sufficiency.”
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