Economic stimulus money is helping to build a U.S. manufacturing hub for batteries that will power a coming wave of electric cars, but the nation still faces unrelenting competition from Asia, a top executive at Johnson Controls told Congress.
Speaking at a hearing of the U.S. House Select Committee on Energy Independence and Global Warming, Mary Ann Wright, a vice president at Wisconsin-based Johnson Controls, said Asia currently controls almost 100 percent of the lithium-ion battery market.
The Pacific Rim "has a stranglehold on the supply base," Wright said. "If we don’t change this, we will change our oil cartel for an Asian battery cartel."
But Wright also said her company, a leading supplier of battery systems for hybrid and electric cars, is in a strong position to help the U.S. catch up and even corner the lion’s share of the market — if the government keeps up incentives.
The company is currently working with France-based Saft Groupe to convert an idled factory in Holland, Mich., into a manufacturing plant for car battery packs and next-generation lithium-ion cells. Assembly of the packs is set to begin in August and cell production in 2011. The plant will employ 550 people.
The project is supported by a $299 million grant awarded by the Obama administration as part of the American Recovery and Reinvestment Act. The money is part of the $2.4 billion allotted by the government this year to fund 48 companies to kick-start development of advanced batteries.
Johnson Controls snagged the biggest single slice of that pie. The state of Michigan also kicked in $148.5 million in subsidies to help get the plant off the ground.
"Our commitment wasn’t just to put up a plant, but we would help stand up an industry," Wright said.
So far, Ford has signed up Johnson Controls to supply batteries for its first plug-in vehicle, slated to hit showrooms in 2012. Johnson Controls has also secured long-term contracts with Daimler and BMW, and pre-production development contracts with Jaguar Land Rover and Volkswagen.
No Stimulus, No U.S. Battery Market
As the nation’s first-ever carbon regulations loom, switching from gas to electric cars is seen as vital tool cut carbon dioxide — as well as a way to breathe life into the auto industry and U.S. manufacturing.
Worldwide, estimates put the value of the lithium-ion cell market between $20 billion and $60 billion by 2020.
According to Rep. Ed Markey, chairman of the U.S. House Select Committee on Energy Independence and Global Warming, Recovery Act investments could increase America’s global market share from close to zero to 20 percent in 2011 and 40 percent by 2015.
Wright said Johnson Controls would not have built the Michigan facility were it not for the massive stimulus injection.
"We were looking in Europe and in Asia," she said. "In absence of this grant, we would not have expanded our manufacturing in the United States."
In 2008, Johnson Controls and Saft opened the world’s first lithium-ion manufacturing and assembly plant in Marseilles, France. The facility is currently providing packs and cells for the hybrid cars of Mercedes and BMW, but not for long.
"By 2012, we will move and transition all of our European production into this U.S. facility," Wright said. "That’s a real feather in our cap versus what typically is happening in our economy."
The company’s goal is to develop a domestic supply base across the entire supply chain.
In the meantime, it has helped lure two Asian suppliers of battery materials to Michigan to feed the U.S. market.
Creating some competition for Johnson Controls, Korea-based LG Chem just announced that it will also build a battery plant in Holland, Mich., that will begin making lithium-ion cells for GM to power its Chevy Volt. The company similarly won $151 million in federal stimulus last year.
Supply Glut, Demand Sluggish
Combined, the federal battery stimulus will spur short-term capacity but experts worry about demand.
"The sustained success of this investment will depend ultimately upon creating demand for electric drive vehicles," Johnson Controls said in written testimony to Congress.
Wright said that by 2015, there will be 4 million vehicle units of global capacity versus 2 million units of demand. One way to create demand is to get the federal government to electrify its 1 million vehicle fleet, especially the delivery trucks of the U.S. Postal Service, she said. The chosen vehicles should be built with batteries made by stimulus recipients.
"The risk if we do not leverage our investment is that our tax dollars could go to purchase electrified vehicles assembled in the United States but with batteries and components made in foreign countries," Wright said.
While the goal is for America’s advanced battery industry to one day stand on its own without subsidies, for now "the private sector is not going to bear that cost all by itself," she said. "We’re going to need strong collaboration with the government."
Wright suggested that Korea, Japan and other Asian nations would be waiting to eat America’s lunch in batteries if government support drops off.
"Our Pacific Rim friends aren’t standing still," she said. "They continue to invest in manufacturing capability, technology and capacity."