Watson said. It began producing the 19-kilowatt S400 Hybrid battery system for Daimler in March 2009. The same system is used in the BMW 7 series.

Mr. Watson described the electric-vehicle battery supply chain as a “circle of life.” Johnson Controls must leverage its partners in materials supply, research-and-development expertise, and infrastructure for charging vehicles, he explained. Internally, it must leverage its own resources in terms of advanced manufacturing capability and energy-efficiency expertise in all parts the company for the lithium-ion business, he said. Because Johnson Controls is a large corporation, it also has the ability to service product warranties, “something our customers are extremely interested in,” he said.

Johnson Controls received a sizable grant through the Recovery Act to build a manufacturing plant in Michigan, he noted. “However, that won’t be sustained if we don’t continuously have new innovations that will drive higher levels of energy and power density and more cost-effectiveness in the products made in that plant.”

To keep innovating, Johnson Controls is collaborating with Argonne and Oak Ridge national laboratories and many universities, Mr. Watson said. Existing and future suppliers are working with the company on new materials. Johnson Controls also works with technology start-ups. “We can’t ignore the ability of some small, fast-moving innovators to come up with innovations even for a large company like ours,” he said.

Johnson Controls has assembled a “world-class team” of suppliers and manufacturers for its supply chain, Mr. Watson said. “We have gone around the world to find what we believe are the best suppliers,” he said. The supply chain extends all the way to recycling. In addition to Toxco and Umicore, which are major recyclers, Johnson Controls itself is the world’s largest recycler of lead-acid batteries, Mr. Watson explained. It is leveraging this expertise in processing used batteries and recovering and reusing materials for its lithium-ion business.

One problem is that most key suppliers are based overseas, Mr. Watson said. For Johnson Controls’ U.S.-based manufacturing plants, “we really like to work with local suppliers,” he said. “It follows along with the social responsibility of our Triple Bottom Line.” But the cells, separators, and cathode materials “pretty much are coming out of Europe, Japan, and Korea,” Mr. Watson explained. There is more U.S. involvement with battery packs in terms of software and mechanical components, Mr. Watson said. “But again, a lot of the supply base is offshore.

Some suppliers are developing capability in the U.S. Johnson Controls also is requiring foreign suppliers to set up manufacturing in the U.S., Mr. Watson said. “We need to do more in terms of capturing a larger part of the value chain

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