Overview

Only a few years ago, the United States faced the prospect of entering the age of electrified transportation without a significant domestic advanced battery manufacturing industry. Virtually all lithium-ion battery cells, widely expected to be a core technology for electric cars and trucks of the future, were made in Asia. Even though there were many promising U.S. start-ups with innovative lithium-ion battery technology for cars, few could raise funds to build factories in America.

To address this gap and to ensure that the U.S. would have a domestic manufacturing base for advanced batteries, the federal government awarded $2.4 billion in grants in 2009 under the American Recovery and Reinvestment Act to manufacturers of lithium-ion cells, battery packs, and materials.1 A host of other financial incentives were also introduced to help companies commercialize new vehicle technologies, build production lines, and encourage consumers to buy hybrid cars. These grants complemented the $25 billion in debt capital made available by the federal government to encourage automakers produce more energy-efficient cars under the Advanced Technology Vehicles Manufacturing (ATVM) Loan Program.2

The state of Michigan has also made significant investments to develop an electrified-vehicle industrial cluster. The state offered more than $1 billion in grants and tax credits to manufacturers of lithium-ion battery cells, packs, and components. Michigan also invested in research centers and skilled-worker training programs for electrified vehicles.

Based on these federal and state initiatives, some 16 battery-related factories were being built in Michigan as of mid-2010. These investments were projected to create 62,000 jobs in five years.3 However, while Michigan and other states are now building substantial assembly capacity for advanced batteries, the nascent U.S. advanced battery industry remains in a “most critical state of development,” as A123 Systems executive James M. Forcier has observed.4 The core issue is whether there be enough demand for hybrid and electric vehicles to sustain the industry.5 Another pressing question is whether

______________________

1 The American Recovery and Reinvestment Act of 2009 (P. L. 115-5) is a $787 billion economic stimulus packaged signed by President Barack Obama on Feb. 17, 2009. See Department of Energy, “The Recovery Act: Transforming America’s Transportation Sector—Batteries and Electric Vehicles,” July 14, 2010 (http://www.whitehouse.gov/files/documents/Battery-and-Electric-VehicleReport-FINAL.pdf)

2 The Advanced Technology Vehicles Manufacturing (ATVM) Loan Program was authorized under section 136 of the Energy Independence and Security Act of 2007. It makes available $25 billion to provide debt capital to the U.S. automotive industry for projects that help vehicles manufactured in the U.S. meet higher millage requirements and lessen U.S. dependence on foreign oil.

3 Data from Michigan Economic Development Corp.

4 See the summary of presentation by James M. Forcier of A123 Systems in the next chapter.

5 This comment proved to be prescient. A123 has since announced bankruptcy and was acquired by Johnson Controls. Johnson has plans to keep the Michigan based production facilities and



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Overview Only a few years ago, the United States faced the prospect of entering the age of electrified transportation without a significant domestic advanced battery manufacturing industry. Virtually all lithium-ion battery cells, widely expected to be a core technology for electric cars and trucks of the future, were made in Asia. Even though there were many promising U.S. start-ups with innovative lithium-ion battery technology for cars, few could raise funds to build factories in America. To address this gap and to ensure that the U.S. would have a domestic manufacturing base for advanced batteries, the federal government awarded $2.4 billion in grants in 2009 under the American Recovery and Reinvestment Act to manufacturers of lithium-ion cells, battery packs, and materials.1 A host of other financial incentives were also introduced to help companies commercialize new vehicle technologies, build production lines, and encourage consumers to buy hybrid cars. These grants complemented the $25 billion in debt capital made available by the federal government to encourage automakers produce more energy-efficient cars under the Advanced Technology Vehicles Manufacturing (ATVM) Loan Program.2 The state of Michigan has also made significant investments to develop an electrified-vehicle industrial cluster. The state offered more than $1 billion in grants and tax credits to manufacturers of lithium-ion battery cells, packs, and components. Michigan also invested in research centers and skilled-worker training programs for electrified vehicles. Based on these federal and state initiatives, some 16 battery-related factories were being built in Michigan as of mid-2010. These investments were projected to create 62,000 jobs in five years.3 However, while Michigan and other states are now building substantial assembly capacity for advanced batteries, the nascent U.S. advanced battery industry remains in a "most critical state of development," as A123 Systems executive James M. Forcier has observed.4 The core issue is whether there be enough demand for hybrid and electric vehicles to sustain the industry.5 Another pressing question is whether 1 The American Recovery and Reinvestment Act of 2009 (P. L. 115-5) is a $787 billion economic stimulus packaged signed by President Barack Obama on Feb. 17, 2009. See Department of Energy, "The Recovery Act: Transforming America's Transportation Sector--Batteries and Electric Vehicles," July 14, 2010 (http://www.whitehouse.gov/files/documents/Battery-and-Electric-Vehicle- Report-FINAL.pdf) 2 The Advanced Technology Vehicles Manufacturing (ATVM) Loan Program was authorized under section 136 of the Energy Independence and Security Act of 2007. It makes available $25 billion to provide debt capital to the U.S. automotive industry for projects that help vehicles manufactured in the U.S. meet higher millage requirements and lessen U.S. dependence on foreign oil. 3 Data from Michigan Economic Development Corp. 4 See the summary of presentation by James M. Forcier of A123 Systems in the next chapter. 5 This comment proved to be prescient. A123 has since announced bankruptcy and was acquired by Johnson Controls. Johnson has plans to keep the Michigan based production facilities and 3

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4 U.S. BATTERY INDUSTRY FOR ELECTRIC DRIVE VEHICLES the U.S. has the supply base and skilled workforce to sustain a globally competitive industry. These issues present important inter-related questions about the need to stimulate consumer demand, the prioritization of research funding to advance battery technologies, and the need for complementary infrastructure to support the electrification of transportation in the United States. NATIONAL ACADEMIES SYMPOSIUM To better understand the progress, challenges, and opportunities facing America's advanced battery industry for electric-drive vehicles, the National Academies' Board on Science, Technology, and Economic Policy (STEP) convened a symposium in Livonia, Michigan, on July 26 and 27, 2010. Organized in cooperation with the Michigan Economic Development Corporation (MEDC) and the Department of Energy, the conference drew leading authorities from government, industry, the U.S. military, academia, and research institutes. Box A Competitiveness and Government-Industry Collaboration In his keynote address, U.S. Senator Carl Levin of Michigan noted that attitudes toward collaboration between government and industry have shifted dramatically in Washington. "A few years ago, anyone who suggested that government work closely with industry was accused of supporting an `industrial policy.' If that industrial policy label stuck to anything, it was a kiss of death," he recalled. Now, Senator Levin said, policymakers understand U.S. companies are at a competitive disadvantage because they are competing not just with other companies, but also with other governments that support their domestic industries. These days, "the question no longer is about whether government should be teaming up with industry," he said. "The question is about what we need to do, how we do it, and with what timeline." Senator Levin predicted the electric-vehicle industry would burgeon and "be important to our country, to our national security, and to the national economy." Nevertheless, he acknowledged that "more challenges lay ahead of us than behind." To see this vision through, government and industry must resolve the challenges. "Tell us what you need to get us there," he said, "and I can commit to you that most of my colleagues and I in the Congress will do everything we can to give you the tools and support you need." workforce that A123 developed, and to incorporate A123 technology into their product lines. http://www.sfgate.com/business/bloomberg/article/A123-Filing-Shows-Struggle-Extending-MIT- Smarts-3971023.php.

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OVERVIEW 5 In her introductory remarks at the symposium, Dr. Mary Good, of the National Academies STEP Board noted that the conference would inform the Department of Energy and other federal agencies, Congress, and states on the government-industry collaboration required to support the expansion of the market for electric-drive vehicles and "hasten the widespread use of advanced batteries." A. STRATEGIC IMPORTANCE OF ADVANCED BATTERY MANUFACTURING Many nations regard the advanced-battery industry as strategic, both as a means of reducing energy use and as an important manufacturing industry. This is no less the case for the United States. Currently, the transportation sector accounts for two-thirds of U.S. petroleum consumption, and two-thirds of that is burned by the 240 million vehicles on U.S. roads.6 As core components in electricity-powered vehicles, advanced batteries are seen as an important tool to cut U.S. greenhouse gas emissions and limit dependence on imported oil. As speakers at the symposium noted, leadership in the development and manufacture of advanced batteries in the United States is important for the future of the U.S. automobile industry. (See Box B) Despite major U.S. advances in battery research and technology, the United States does not at present lead in the manufacture of this strategic technology. Box B Advanced Batteries and the Future of the U.S. Auto Industry: Trading Oil Dependency for Battery Dependency? Eric Shreffler of the Michigan Economic Development Corporation asserted at the symposium that battery cells and packs are the "the new power train" of future automobiles.7 Reliance on foreign battery technology and products could thus put the competitiveness of the U.S. auto industry at risk. In her keynote remarks at the symposium, U.S. Senator Debbie Stabenow (D-MI) said that the last thing the U.S. needs "is to go from a dependence on foreign oil to a dependence on foreign technology. Building the next generation of energy-efficient vehicles is do-or-die for all of the automakers, for the state of Michigan, and for America."8 6 The remainder is used by air, rail, and marine and off-road transportation. U.S. Department of Energy data cited in presentation by Patrick Davis. 7 See the summary of the presentation by Eric Shreffler of the Michigan Economic Development Corp. in the next chapter. 8 See the summary of the presentation by U.S. Sen. Debbie Stabenow in the next chapter.

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6 U.S. BATTERY INDUSTRY FOR ELECTRIC DRIVE VEHICLES U.S. Currently Produces Only About 1 Percent of Lithium-ion Batteries While American researchers have long been at the forefront of lithium- ion technology, U.S. industry has not dominated the global market for advanced batteries. The industry has been dominated by Asian manufacturers ever since Sony Corporation of Japan marketed lithium-ion batteries for consumer electronics products in 1991. As Mohamed Alamgir of Compact Power noted in his symposium remarks, over this period, a number of U.S. initiatives to manufacture lithium-ion batteries failed, including those by Duracell, Polystor, Motorola, MoliCell, Electro Energy, and Firefly.9 The U.S. currently produces only about 1 percent of lithium-ion batteries. Japan accounts for 46 percent, South Korea for 27 percent, and China for 25 percent.10 Competing in the Market for Advanced Vehicle Batteries As Ann Marie Sastry of the University of Michigan pointed out at the symposium, battery cells using lithium-ion technology are regarded as the most likely candidates to replace nickel-metal hydride as the most common source of power storage in electric vehicles.11 A lithium ion battery produces electrical charges by lithium ions that flow between an anode plate and a cathode plate. The liquid chemical mixture inside the battery, known as electrolyte, contains lithium salts and an organic compound. Pike Research predicts the market for lithium-ion batteries for transportation will grow over 700 percent, from $2.0 billion annually in 2011 to greater than $14.6 billion by 2017.12 The more demanding requirements of lithium-ion batteries for cars rather than consumer electronics present an opportunity for the U.S. to become an important player in the industry. Although U.S. start-ups and national laboratories continue to be leading sources of innovation in the lithium-ion battery "chemistries," or the coatings and materials used in the cathode and 9 According to analysis by Ralph Brodd, "The U.S. battery companies "opted out" of volume manufacturing of Li-ion batteries, primarily because of a low return on investment compared with their existing business, the significant time and investment required from conception to commercialization, and the time and expense required to establish a sales organization in Japan to access product design opportunities and take advantage of them." See Ralph J. Brodd, "Factors Affecting U.S. Production Decisions: Why Are There No Volume Lithium-Ion Battery Manufacturers in the United States." Gaithersburg MD: NIST GCR 06-903, December 2006. Access at http://www.atp.nist.gov/eao/gcr06-903.pdf. Compact Power, which is backed by LG of South Korea announced in late 2012 that they are furloughing workers at their production facility in Michigan. Compact Power is contracted to provide batteries for the Volt and the Ford Focus, but to date they have not produced batteries at their Michigan plant, having satisfied current demand with batteries manufactured in Korea. http://www.theblaze.com/stories/how-many-chevy-volt-batteries- will-150-million-make-hint-less-than-one/ 10 See the summary of the presentation by Patrick Davis of Department of Energy in the next chapter. 11 For an example of such analysis, see Rod Loach, Dan Galves, Patrick Nolan, "Electric Cars: Plugged In. Batteries Must be Included," Deutsche Bank Securities Inc., June 9, 2008. 12 Pike Pulse Report: Electric Vehicle Batteries, February 2012,

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OVERVIEW 7 anode, some analysts have expressed the concern that U.S. industry will not be able to compete successfully in the market for advanced vehicle batteries. Currently, the U.S. remains far behind its competitors in Asia in high- volume manufacturing capability. Japan has targeted lithium-ion batteries for vehicles since 1992, when the Agency of Industrial Science and Technology and the Ministry of International Trade and Industry established the New Sunshine Program.13 South Korea's government has committed $12.5 billion in a bid to become the world's leading producer of advanced batteries.14 China, which is gaining fast, heavily subsidizes domestic battery manufacturers and requires foreign battery companies to manufacture in China if they wish to sell there.15 The Demand for Electrified Vehicles Moreover, demand for electrified vehicles has been stronger outside of the United States. Higher fuel prices, in large part due to high taxes, make hybrids and plug-ins a more economically attractive option in Europe. Other nations have acted more to develop their domestic market for electrified vehicles by offering subsidies and installing battery-charging infrastructure. China, for instance, awards $8,800 to domestic automakers for every electric vehicle sold. Some Chinese regional governments offer additional subsidies.16 Thanks largely to such policies, Pike Research predicts Asia will account for 53 percent of global demand for electrified vehicles in 2015--more than the U.S. and Europe combined.17 Currently, demand for electrified vehicles is being held back by the high cost of a typical hybrid battery pack.18 Although price has dropped by more 13 See Alamgir presentation. Japan's New Sunshine Program established a 10-year research program for lithium-ion batteries that set very ambitious targets for the time for power output, battery density, and cycle life. See Rikio Ishikawa, "Current Status of Lithium-Ion Production in Japan," Central Research Institute of Electric Power Industry, Tokyo (http://www.cheric.org/PDF/Symposium/S-J3- 0003.pdf). 14 Yonhap News Agency, "S. Korea Aims to Become Dominant Producer of Rechargeable Batteries by 2020," July 11, 2010. 15 Forcier presentation, op. cit. For a review of Chinese policies to promote the Chinese automotive industry. See, Terrence Stewart, et al. "China's Support Programs for Automobiles and Auto Parts under the 12th Five-Year Plan." Washington, DC: Law Offices of Stewart and Stewart, 2012. The report notes that certain policies have been found to violate commitments made by China on joining the WTO. Access at http://www.stewartlaw.com/stewartandstewart/Portals/1/Douments/S%20&%20S%20China%20Aut o%20Parts%20Subsidies%20Report.pdf. For a review of the impact of Chinese state capitalism on U.S. innovation, see Andrew Szamosszegi and Cole Kyle, "An Analysis of State-owned Enterprises and State Capitalism in China", Washington, DC: U.S.-China Economic and Security Review Commission, October 26, 2011. For a review of national support around the world for emerging industries including advanced batteries, see National Research Council, Rising to the Challenge, U.S. Innovation Policy in the Global Economy, C. Wessner and A. Wm. Wolff, eds., Washington, DC: 2012, Chapter 6. 16 Forcier presentation, op. cit 17 Forcier presentation, op. cit. 18 Data are for batteries discharging 25 kilowatts of power.

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8 U.S. BATTERY INDUSTRY FOR ELECTRIC DRIVE VEHICLES than two-thirds since 1997, and while densities and life cycles have more than doubled, the battery back for plug-in hybrid cars still costs around $2,500. 19 Unless gas prices skyrocket, some analysts believe costs must drop by around two-thirds and that battery size must shrink dramatically before most consumers see the payoff of abandoning gas-powered cars and paying a $6,000 to $12,000 premium for a battery-powered car. The resulting slow pace of adoption of Electric Drive Vehicles is making it difficult for U.S. Battery Companies to survive and a domestic supply chain to develop.20 The emergence of the US battery industry therefore is likely to depend on markets other than electric vehicles such as Consumer Electronics and Grid Storage. Established companies with good balance sheets and a perspective on long-term investment will be necessary. B. FEDERAL INITIATIVES TO ESTABLISH A U.S. ADVANCED BATTERY INDUSTRY Symposium participants noted that the U.S. government has recently taken a number of active steps to establish a strong U.S. advanced battery industry and market for electrified vehicles.21 The Department of Energy's Vehicle Technologies Program has made lithium-ion battery research and development a high priority since 2000.22 The Department of Energy also leads a government-industry partnership called the U.S. Advanced Battery Consortium, which funds projects aimed at commercializing new battery technologies and sets cost and performance targets for the industry. 23 19 Data cited by David Howell of the Department of Energy in his presentation, which is summarized in the next chapter. 20 Enerl is now in Chapter 11 Bankruptcy. See Businessweek, "Ener1, Battery Maker, Seeks Chapter 11 Bankruptcy Protection," February 08, 2012. Short on cash, A123 Systems had signed a non-binding memorandum with Wanxiang Group Corporation, a Chinese largest auto parts manufacturer, seeking additional investments of up to $450 million. As one analyst has put it, "this investment for Wanxiang is almost certainly about acquiring A123s technology and business contacts at a discount..." See Tom Konrad, "A123s Deal with China's Wanxiang Would Value the Stock at $0.55 a share." altenergystocks.com, August 19, 2012. 21 On March 6, 2012, President Obama announced a $4.7 billion proposal to expand electric vehicles. The EV-Everywhere Challenge is focused on advancing electric car technologies while reducing costs. The EV-Everywhere Challenge is the second of the Energy Department's Grand Challenges, following the model of the $1/watt SunShot Challenge, which seeks to make solar power directly cost-competitive with electricity from fossil fuels by the end of the decade. On March 9, 2012, President Obama called for a $1 billion "National Network for Manufacturing Innovation," that will help develop up to 15 manufacturing "Institutes" to foster innovation around the country. 22 The Vehicle Technologies Program is administered by the Energy Efficiency and Renewable Energy Office of the Department of Energy. It funds projects aimed at developing "leap frog" technologies that will lead to more energy-efficient and environmentally friendly transportation. See presentation by David Howell of the Department of Energy's Vehicle Technologies Program. 23 The United States Advanced Battery Consortium is a collaboration between the Department of Energy and the United States Council for Automotive Research, whose members consist of General

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OVERVIEW 9 The 2009 Recovery Act grants to battery cell, pack, and materials companies are also expected to boost U.S. manufacturing capacity to 1 million batteries a year by 2015.24 The battery industry will also benefit from complementary investments in the smart-grid, funded by $4.5 billion in Recovery Act funds. Additional Federal Initiatives Symposium participants noted that the federal government also supports vehicle electrification in other ways: Funding for Research and Commercialization The Advanced Research Projects Agency-Energy (ARPA-E), a new Department of Energy program that funds "transformational" energy-technology R&D, has funded $100 million for energy- storage research.25 Battery manufacturers are expected to share some of the $25 billion set aside under the government's Advanced Technology Vehicle Manufacturing Program to speed the commercialization of advanced battery technology.26 Tax Incentives and Credits The Advanced Energy Manufacturing Tax Credit program provides $2.3 million to companies to cover 30 percent of investments in new, expanded, or refurbished manufacturing plants producing renewable-energy equipment.27 U.S. consumers buying electrified vehicles also can receive tax deductions. The U.S. government also has recently begun offering loan guarantees to green-technology projects, tax credits for renewable energy "property," and greater access to export financing.28 Congress also has been expanding incentive programs to include suppliers and light trucks.29 Motors, Ford, and Chrysler. The group's stated mission is "to develop electrochemical energy storage technologies that support commercialization of fuel cell, hybrid, and electric vehicles." 24 See the summary of the presentation by Patrick Davis of the Department of Energy in the next chapter. 25 See the summary of the presentation by David Howell of the Department of Energy in the next chapter. 26 See the summary of the presentation by Patrick Davis of the Department of Energy in the next chapter 27 27 See the summary of the presentation by Sen. Stabenow. The Advanced Energy Manufacturing Tax Credit was authorized in Section 1302 of the American Recovery and Reinvestment Act and also is known as Section 48C of the Internal Revenue Code. It authorizes the Department of Treasury to award $2.3 billion in tax credits to cover 30 percent of "investments in advanced energy projects, to support new, expanded, or re-equipped domestic manufacturing facilities." 28 See the summary of the presentation by Michael Reed in the next chapter. 29 See the summary of the presentation by Sen. Stabenow.

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10 U.S. BATTERY INDUSTRY FOR ELECTRIC DRIVE VEHICLES Standards Tougher federal and state environmental standards are being proposed to boost the industry. The Obama Administration wants to set a target of reducing greenhouse gas emissions by at least 30 percent by 2016. 30 California has even more aggressive emission targets. The state is raising requirements on automakers to sell a certain number of zero-emission vehicles and wants the carbon-intensity of all fuels cut by 10 percent.31 Procurement The U.S. military is another important driver of advanced batteries.32 The U.S. Army, which has one of the world's largest vehicle fleets, has committed to cutting its fuel consumption by 20 percent in the next 10 to 15 years. At the same time, new weapons systems and other requirements are boosting the need for power in combat and non-combat vehicles.33 The logistical challenges of transporting fuel into the battlefield present another strong motive for reducing fuel use. Through the Tank-Automotive Command Research, Development, and Engineering Center (TARDEC), which is based in the Detroit area, and the Army Research Laboratory, the Army collaborates with the Department of Energy and industry on research and development in batteries, new materials, and electrical systems.34 Getting in the Game Despite entering the industry late, a number of speakers maintained that the U.S. still has an opportunity to become a major global player in advanced batteries. One reason is that the industry is still young. Most analysts predict that electrified cars will account for only 2 percent to 3 percent of the U.S. market in 30 The U.S. Environmental Protection Agency and the Department of Transportation's National Highway Traffic Safety Administration (NHTSA) are finalizing greenhouse gas-emission standards for model years 2012 to 2016 under the Energy Policy and Conservation Act. For details, see http://www.epa.gov/oms/climate/regulations/420f10014.htm. 31 See the summary of the presentation by Daniel Sperling of the University of California at Davis in the next chapter. For an international comparison of vehicle emission targets, see Feng An, et al. Global Overview on Fuel Efficiency and Motor Vehicle Emission Standards: Policy Options and Perspectives for International Cooperation." New York: United Nations Commission on Sustainable Development, CSD19/2011/BP3, May 2011. See in particular, Figure 5 on page 18. Access at http://www.un.org/esa/dsd/resources/res_pdfs/csd-19/Background-paper3-transport.pdf. 32 In a February 29, 2012 speech at the Energy Innovation Summit of the Department of Energy (ARPA-E), Deputy Defense Secretary Ashton Carter told the audience the Pentagon could be an early adopter of innovations and push the technological edge out further than other entities because it is willing to pay more for better capabilities. It could also buy new hardware in vast quantities, further driving technological refinements that would reduce costs, Carter said. Those lower prices might then lead to wider adoption of such new technologies. 33 See the summary of the presentations by Grace Bochenek and Sonya Zanardelli of the U.S. Army Tank and Automotive Research, Development, and Engineering Center in the next chapter. 34 See the summary of the presentation by Sridhar Kota in the next chapter.

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OVERVIEW 11 2015 and 5 percent in 2020.35 Many industry experts also believe lithium-ion batteries will have to evolve through several more generations of technology and manufacturing improvements before they are affordable, efficient, and light enough to win wide consumer acceptance for electric cars. C. MICHIGAN SEIZES THE INITIATIVE Michigan began studying ways of capturing the electric-vehicle and advanced-battery industries in 2005, well before the federal government got involved.36 As Greg Main, CEO of MEDC, the state's economic development agency, noted in his symposium presentation, this sector was recognized as an opportunity to diversify Michigan's manufacturing base into clean-energy products. Officials believed Michigan's strong base in automotive manufacturing and engineering provided a clear advantage in the nascent industry of lithium-ion batteries for cars. Michigan's decision to offer generous incentives to battery manufacturers "sent a clear signal that Michigan is very serious about being a leader in this industry," Michigan Governor Jennifer Granholm said in her address. Those early corporate commitments paid off when the Department of Energy awarded $1.3 billion of the $2.4 billion allocated for advanced-battery manufacturing projects under the American Recovery and Reinvestment Act of 2009 to Michigan-based factories, including battery plants by A123, Johnson Controls-Saft, Dow Kokam, and Compact Power, a unit of South Korea's LG Chem.37 In her remarks, Governor Granholm noted that this investment has helped to leverage nearly $6 billion in private investment in the 16 advanced battery and battery technology projects underway in Michigan. 35 Pike Research predicts the penetration rate of hybrid and plug-in vehicles will be 2.41 percent in 2015. 36 With support from New York State, General Electric announced in 2009 the building of a $100 million battery manufacturing facility in the Albany region GE has also invested $70 million in A123 Systems with which it has partnered to finesse battery management, battery safety, and fusing systems. Researchers from GE are also working on a dual-battery system with the Department of Energy. See Cora Nucci, "GE to build advanced battery plant in NY state." Information Week, May 12, 2009. 37 See the summary of the presentation by Greg Main in the next chapter. Dow Kokam will complete its $322 million Midland battery plant in 2012. That plant is supported by a $161 million Energy Department loan and $180 million in tax incentives from the state. Johnson Controls Inc. opened its lithium-ion battery cell plant in July 2011. LG Chem is also building a $300 million factory in Holland, MI to produce batteries for the Chevrolet Volt and electric Ford Focus.

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12 U.S. BATTERY INDUSTRY FOR ELECTRIC DRIVE VEHICLES FIGURE 1 Michigan's Advanced Energy Storage Companies. SOURCE: Eric Shreffler, Presentation at July 26-27, 2010 National Academies Symposium on "Building the U.S. Battery Industry for Electric Drive Vehicles: Progress, Challenges, and Opportunities." Box C Growing an Advanced Battery Cluster in Michigan In her symposium address, Michigan Governor Jennifer Granholm predicted that the state "is well on its way to becoming the advanced battery capital of the world. A whole advanced battery supply chain is taking root from the Detroit area to the shores of Lake Michigan." This optimistic view was echoed by Greg Main of the Michigan Economic Development Corporation: "This is a very exciting time for our country and our state. We are giving birth to an entire new industry in North America."

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OVERVIEW 13 Box D Targeting the Heart of the Value Chain The MEDC began by targeting "the heart of the value chain" for batteries--the cell and battery-pack factories and vehicle electrification programs of major auto makers. "We wanted to solidify and cement as much of that here in Michigan as possible," Mr. Shreffler said. The MEDC saw a need for "very aggressive incentives." Michigan's Policy Approach Advanced batteries was one of five promising renewable-energy clusters the MEDC identified, explained Eric Shreffler, who leads the MEDC's advanced energy storage program. Michigan also sought to develop clusters in the technologies related to materials, bio-energy, solar cells and panels, water technology, and wind power. The MEDC formed teams to devise strategies for each cluster. Besides being a major new growth industry, the MEDC viewed advanced batteries as strategically important because they will be the core technology of future automobiles, Mr. Shreffler said. "Michigan did not want to stand by and cede leadership in power-train development to other states and countries". By being the first state to offer strong incentives, Michigan wanted to "send a signal [that] we are serious about developing this ecosystem in this state" and increase its odds of attracting any potential federal funding, Mr. Shreffler explained. The MEDC first targeted cell and battery pack manufacturing and vehicle electrification programs. Michigan launched the Centers of Energy Excellence Program, the first program allowing the MEDC to offer grants to for- profit companies, Mr. Shreffler said. 38 It granted $13 million to Sakti3 and A123 on condition they secure federal funds and establish university partnerships. The other major action was the Michigan Advanced Battery Tax Credits (MABC) program.39 The response from industry was so strong that the legislature boosted funding from $335 million to $1.02 billion. Of that, $600 million went to six companies committing to build fully integrated cell manufacturing facilities: Johnson Controls-Saft, LG Chem/Compact Power, 38 Michigan's Centers of Energy Excellence Program was established under Senate Bill 1380, Public Act 175. In the program's first phase, the Michigan Strategic Fund Board awarded $43 million in grants in 2008. For-profit companies receiving grants must secure matching federal funds and financial backing. Public Act 144 of 2009 allowed a second phase of the COEE program. 39 See the summary of remarks by Eric Shreffler. Michigan's Advanced Battery Tax Credits initiative was created through an amendment to the Michigan Business Tax Act, Public Act 36 of 2007, to allow the Michigan Economic Development Corporation to extend tax credits for battery pack engineering and assembly, vehicle engineering, advanced battery technology development, and battery cell manufacturing.

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34 U.S. BATTERY INDUSTRY FOR ELECTRIC DRIVE VEHICLES pulse power discharged by plug-in hybrid batteries from around 25 kilowatts in 2010 to 38 to 50 kilowatts by 2015 and to 80 kilowatts for all-battery electric vehicles by 2020. Prices for plug-in hybrid batteries "seem to be on track" to drop from around $2,500 now to $1,700 in 2012. "But when you go to higher mileage plug-ins and electric vehicles, the targets get a lot tougher," he said. "So we have to move on to the next generation of lithium ion chemistries or beyond to meet the targets." He noted that A123, Johnson Controls-Saft, EnerDel, 3M, and other companies are completing DoE-funded battery R&D projects, and that 12 new projects are being negotiated. Dr. Howell also noted that improved materials also are receiving greater attention. The Vehicle Technology Program and Oak Ridge National Laboratories support five companies working on materials and processing technologies. In 2009, the DEPARTMENT OF ENERGY awarded several grants to companies working on advanced anode materials. Future research projects, he said, will focus on high-capacity cathode materials, high-voltage electrolytes, and lithium materials. The Vehicles Technologies Program also funds extensive research into many areas of electro-chemical cells, with $34 million a year going into 60 projects at 10 national laboratories and 12 universities Finally, Dr. Howell noted that DoE's ARPA-E program awarded 10 new grants for breakthrough research in 2010. These awards include projects in lithium-air batteries at the Missouri University of Science & Technology, an all- electron battery at Stanford, and high-performance and ultra-low cost rechargeable batteries at MIT. "Even if half of these research projects are successful, "that would be a big win for us," Mr. Howell said. Budgets also have risen for DoE's Basic Energy Sciences project, which focuses on fundamental materials and electrochemical process research. Five of the 46 Energy Frontier Research Centers funded by the project do work related to batteries and vehicle technology, Mr. Howell noted. The grid-storage budget of the DoE's Office of Electricity, meanwhile, rose from $3.6 million in FY 2009 to a requested $40 million in FY 2011. Military Battery Research Programs The Defense Department also is boosting battery research. The U.S. military has invested $150 million over the past six years in R&D in areas like Silent Watch, Silent Mobility, power for soldier communications, and pulse power for armor--all of which require advanced storage, explained Sonya Zanardelli, TARDEC's energy-storage team leader. It also invests in alternative chemistry, new material, and thermal management research. TARDEC alone has 60 research projects underway in energy storage, Ms. Zanardelli said. They encompass basic research, applications, manufacturing processes, and battery management and safety. The Army wants to replace nickel-zinc batteries with lithium-ion for starting, lighting, and

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OVERVIEW 35 ignition systems for combat vehicles, for example. TARDEC also is exploring large-format lithium-ion phosphate and nickel cobalt oxide batteries that are lighter, run longer, and offer greater temperature range. TARDEC has a number of manufacturing technology programs aimed at cutting cost and enabling high-volume manufacturing, Ms. Zanardelli explained. A project started in 2004 for future combat systems focused on automating lithium-ion production processes and halving their cost. TARDEC is applying the knowhow in light-tactical vehicles, she said. TARDEC collaborates with units across the DOD and other federal agencies to share knowhow and minimize overlap, Ms. Zanardelli said. The Army also is developing lighter-weight batteries for soldiers, for example, and the Air Force is developing hybrid systems for unmanned aerial vehicles that operate 40 to 50 hours and need thousands of watts of power. The U.S. Navy is looking to use hybrids for unmanned underwater vehicles, shallow-water combat submersibles, submarine small distributed power systems, and surface ship fuel economy. Kentucky's Advanced Battery Manufacturing Center The state of Kentucky is another state that is seeking to play a role in advanced battery manufacturing by establishing a new R&D center with Argonne National Laboratory. The Kentucky-Argonne Battery Manufacturing Research and Development Center, based at the University of Kentucky, is preparing to erect a new laboratory building with $10 million in funding from NIST and $4 million from the state. Ralph C. Brodd, the director of the Kentucky-Argonne center, noted in the conference that a key mission is to develop new manufacturing processes and lines for advanced batteries. The overall mission, he noted, is to re-establish the United States as a world leader "in manufacturing technology and capability." To cut U.S. dependence on imported cells and equipment, he said, "there need to be new concepts and processes to produce batteries more efficiently at lower cost." The Kentucky-Argonne center aims to accelerate production of advanced technologies from national laboratories and universities, Mr. Brodd said. It expects to design new cell fabrication processes for both the cylindrical and prismatic formats that boost speed, density, and cycle life. It also will facilitate national interactions among industry, universities, and National Laboratories to "optimize a good supply chain and develop a viable battery manufacturing industry here in the U.S." Mr. Brodd said. Another goal of the center is to develop a roadmap identifying the infrastructure and technology elements "required to develop and maintain a leadership position that we feel we absolutely must generate," Mr. Brodd said. These efforts, he added, also could boost Kentucky as cost-competitive manufacturer of cells for the global market.

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36 U.S. BATTERY INDUSTRY FOR ELECTRIC DRIVE VEHICLES The Role of the Manufacturing Extension Partnership American battery manufacturers also can tap the extensive resources of the Manufacturing Extension Partnership, said David C. Stieren, who oversees technology deployment at the MEP. This "federal-state-private partnership" that aids manufacturers is managed by the National Institute of Standards and Technology, which funds programs working on research, performance characterization, and measurement methods for battery technologies. NIST also administers the Technology Innovation Program, which awards grants in the battery sector, he noted. The MEP works with "companies that want to be proactive, want to expand, and want to establish their niche in the marketplace," Mr. Stieren said. Services are delivered through MEP's network of 60 centers, which are found in each state and have 1,600 staff that interacts daily with manufacturers. The MEP also contracts with 2,300 service providers. Staff can tap their nationwide network of contacts in industry, National Laboratories, government agencies, and universities to help manufacturers find technology, funding, suppliers, training programs, or potential customers, he explained. The MEP works some 31,000 companies each year. "We really have a fantastic reach to the nation's manufacturing base," he said. In the battery industry, the MEP engaged in 120 projects with companies across the U.S. between 2005 and 2009, Mr. Stieren said. The projects involved 47 different companies in 26 states. Roughly one-third had 50 employees or fewer. About half had more than 100 employees. The MEP helps battery manufacturers with myriad challenges. They include Six Sigma quality, marketing, road-mapping, lean manufacturing, energy efficiency, export market access, supply-chain management, and product development, Mr. Stieren said. These battery projects are credited with helping generate $69 million in sales, $35 million in cost savings, $32 million in investment, and 1,041 new or retained jobs. L. THE ROAD AHEAD Michigan's Next Steps Now that Michigan has enticed battery manufacturers to set up factories in the state, the MEDC is reassessing its "economic tool kit" to promote the next phase of development, Eric Shreffler, who leads the MEDC's advanced energy storage program, said in his presentation. It also will have to work with a new set of policymakers: Two-thirds of Michigan's legislature will turn over in the fall 2010 elections, and a new governor will be elected. The MEDC also plans to spend more time in Washington urging lawmakers to keep moving the advanced-battery industry forward.

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OVERVIEW 37 The MEDC is focusing on building out the advanced-battery supply chain in Michigan and exposing companies to complementary markets, Mr. Shreffler said. It also will work to strengthen what the MEDC calls "the alliance." The state will attempt to better align its initiatives in batteries and advanced materials with the priorities of federal agencies and national laboratories, he said, to improve the scope "for Michigan companies to plug into federal opportunities," he said. By collaborating on research and commercialization of "dual-use" technologies, the state can create more opportunities to generate and retain jobs, he said. One example of such state and federal collaboration is a new $27 million, three-year joint program involving Michigan, Oak Ridge National Laboratories, and TARDEC to commercialize advanced-storage and light- weight material research in Department of Energy laboratories and adapt it for military use, Mr. Shreffler said. By demonstrating that such approaches work, the MEDC hopes to raise further funding for such "dual-use" projects. The main challenge now is execution, Mr. Shreffler said. "We have to execute as an economic development agency," he said. "Our cell manufacturers and suppliers must execute to build out their capacity. And the federal government has to execute by not abandoning the path that we've gone down." The Growing Market for Electrified Vehicles Where America's nascent battery industry goes next was the key concern raised by industry and economic-development officials in the symposium. The industry has gone through the initial learning stage of R&D, Dr. Smyth of GM said. Now comes the commercialization stage. "It is the Valley of Death," he said. "And it won't be a narrow valley." To sell electric vehicles, car makers must make them affordable, offer the right technologies to consumers, and develop the supply chain, he said. While the U.S. now is installing manufacturing capacity, "the knowledge to build the equipment, set the details, and design the processes for the future is not being brought here yet," said Ms. Gioia of Ford. Without that, the U.S. battery industry will still trail Japan, South Korea, and China. Economic development officials also said they recognize that enticing companies to set up factories with subsidies was the easy part. The question is where to go next. "That is something that we as a state are really very concerned about," said Gary Krause, the MEDC's director of federal partnerships and initiatives. Michigan has "literally bet the farm" on the electrified vehicle industry as a means of diversifying its economy, he said. "There is $6 billion in state, federal, and private investment on the table. That is a lot. So the issue of completing this task from a policy standpoint really is key." One message that emerged is that policymakers will have to be patient. Even under the most optimistic scenarios, the vast majority of new cars sold in America for several decades will be gas-powered, several speakers pointed out. It then will take years before owners must replace those vehicles. "If you are trying to realize maximum benefit out of a new technology that is introduced

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38 U.S. BATTERY INDUSTRY FOR ELECTRIC DRIVE VEHICLES today, it takes three or four decades to get to that point," Mr. Davis of the Department of Energy said. To survive the next four or five years, however, U.S. advanced battery manufacturers will have to be able to sell large volumes of batteries. America's ability to export significant volumes, several speakers said. Dr. Charles Wessner of the National Academies noted that many other nations have industrial policies that favor domestic production and discourage imports. "Most countries are willing to export to us, but the other way is harder," he said. Mr. Forcier of A123 said policies in promising markets like China and Germany strongly favor domestic production. "European business will be won and made in Europe, and Asian business will be won and made in Asia," he said. M. THE ROLE FOR POLICY As we see below, several speakers at the conference suggested how federal policy could advance a U.S. advanced battery industry beyond support for research and manufacturing. Early Procurement to Boost Demand Les Alexander, A123's general manager for government solutions, noted that federal priorities need to shift to "demand-driven stimulation rather than stimulating manufacturing and research. We can create the best battery in the world, but without vehicles to put them in this industry will go back overseas and we will have stimulated another country's industries." One proposal is for the government to boost demand through purchases of electric vehicles for federal fleets. Senator Stabenow noted that the government will, as a symbolic measure, buy the first 100 Chevy Volts. "I would like to add a few zeros to that" and do the same for Ford and Chrysler, she said. Senator Stabenow also noted the federal government owns some 700,000 vehicles, including those operated by the U.S. Postal Service and the military. She noted that she is supporting a Senate bill that encourages federal agencies to buy electric vehicles. In this regard, Mr. Amburg noted that the Advanced Vehicle and Power Initiative, a program backed by TARDEC, calls for replacing 8 percent of the government truck fleet annually with electrified vehicles.66 The initiative, he said, could be "greatly beneficial to the truck world and be really helpful to light-duty manufacturing." 66 The Advanced Vehicle and Power Initiative is an effort facilitated by TARDEC to advance collaboration among manufacturers, academia, and government to accelerate deployment of advanced vehicle technologies. A May 25, 2010, draft of AVPI's policy white paper is available on the CALSTART Website (www.calstart.org/Libraries/HTUF_Documents/AVPI.sflb.ashx).

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OVERVIEW 39 Improving Government Incentives As several executives and policymakers also observed at the conference, modifications in government incentives could also boost demand. In this regard, Mr. Reed suggested extending the length of time incentives are available given that "battery makers operate on a five- to seven-year time horizon." Senator Stabenow recommended that the U.S. adopt a more formal system for longer-term financing for companies commercializing their technology, as do other nations. She noted that bills in the House and Senate call for establishing a Clean Energy Development Administration67 that would help fund early-stage commercialization of new technologies. Allowing buyers of hybrids and plug-ins to get $7,500 federal rebates at the time of purchase rather than as a tax refund could also stimulate more demand, Senator Stabenow said. The Cash for Clunker's program, which was "successful beyond my wildest dreams," used such an approach, she said. "That is more helpful than waiting until you fill out your taxes the next year." Establishing Common Standards Standards are another major question facing the advanced battery industry. Each automaker "has its own special set of requirements that drives the whole process," Mr. Reed of Magna E-Cars said. "Often, you have cell or pack technology that has been developed and qualified to one set of standards. But you may still need to spend millions of dollars to re-qualify it for another OEM68." It may too early for the U.S. to set industry-wide standards for cell size and capacity, as has Germany. Based on his experience in the battery industry, Mr. Reed said, "this is something that is not going to happen by committee," he said. First, electrified vehicles must be produced in much higher volumes than they are now. That will determine the "winners in the survival-of-the-fittest process," he said. Mr. Reed suggested that the U.S. government and industry could start instead by standardizing the way materials and cells are assessed. That way, potential suppliers "have a clear understanding of what the expectation is." If customers have consistent expectations, the costs of qualification and development "can be kept to a reasonable level," he said. Mr. Watson of Johnson Controls-Saft said he also does not see a rush toward standardized cells. 67 Provisions for a Clean Energy Development Administration (CEDA), popularly referred to as a "green bank," to fund commercial-scale deployment of clean-energy technologies was included in Sections 184-190 of the American Clean Energy and Security Act of 2009 (H. R. 24540, which passed the House of Representatives on June 26, 2009. A similar institution, called the Clean Energy Deployment Administration, is included in The American Clean Energy Leadership Act (S. 1492) before the Senate. 68 According to the Dictionary of IBM computing terminology, an Original Equipment Manufacturer, or OEM, is "a manufacturer of equipment that may be marketed by another manufacturer."

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40 U.S. BATTERY INDUSTRY FOR ELECTRIC DRIVE VEHICLES If there were common rules for charging, handling, and transportation standards, however, "the better off we all will be." The Charging Infrastructure Question The question of whether a national network of public-charging stations is required to foster wider consumer acceptance of electric cars is a major issue for federal and state governments interested in advancing vehicle electrification. As Senator Stabenow noted, it will not be enough to have electric vehicles on the road; "We have to make sure that the infrastructure in there as well." Most speakers agreed some public charging facilities are needed to ease the so-called "range anxiety" of drivers who fear they will be stranded should their car batteries run out of power. Dr. Sperling of the University of California at Davis pointed out that few Japanese bought electric cars until a utility set up public charging stations--even though few drivers actually use them. "Public charging stations have psychological value," he said. The problem is that there "is no business model there because they won't be used very much." A minimal number of stations are needed at least in the beginning to address consumer anxiety, he said. "But it is not a key aspect of building up an electric vehicle industry." There is "a fair alignment" among auto makers that public charging is a low priority, said Ms. Gioia of Ford. Dr. Smyth of GM agreed. Charging systems for homes are more urgently needed, they agreed, with charging stations at work sites and vehicle depots occupying the next priorities. Here, cost is a major issue. Home chargers for small, basic plug-in hybrids can be installed for less than $200, Ms. Gioia said. But all-battery electric charging systems cost around $2,000. Workplace or public stations can cost $50,000 each. GM does agree that some public-charging infrastructure is needed "to make this comfortable for customers," Dr. Smyth said. GM is working with around 300 North American utilities to set up charging facilities. Power Grid Concerns America's electrical power grid is another infrastructure concern. Dr. Good questioned whether there will be enough generation capacity around the country to charge all vehicles, especially under the most optimistic scenarios of electric vehicle sales. She said she is "not sure adequate models have been developed" to account for an electric vehicle market penetration rate of 25 to 30 percent in a decade, rather than 5 percent as most analyst project now. Many parts of the U.S. currently do not have much excess capacity, she noted. Responding to Dr. Good's question, Mr. Van Amburg cited analyses by U.S. power utilities that indicate there will be sufficient power in the grid because most cars will be charged at night, during off-peak hours. The bigger issue is making sure there is enough power in specific areas with high

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OVERVIEW 41 concentrations of electric vehicles, he said. Dr. Sperling agreed. First, it will be a "very long time" before 25 percent of cars will be electric. A more immediate concern is whether transformers must be upgraded in areas with high concentrations of electric vehicles, he said. 69 The government's Smart Grid initiative should aid the rollout of electric vehicles, Mr. Davis of the Department of Energy said. The Office of Electricity manages a program that has invested more than $8 billion, both in federal and non-federal funds, in more than 100 projects. They include 100 plug- in hybrid charging stations, 176,000 load control devices, 206,000 "smart transformers" that allow for preventive maintenance, and 671 automated substations that account for 5 percent of the 12,466 transmission and distribution substations in the U.S., he said. Smart grid isn't essential for rolling out of electric cars in 2010, he said. "But when you start talking about a million vehicles, smart grid becomes very important pretty quick." Dr. Good said current statistical models still don't seem adequate to allay concerns that the grid won't be able to support dramatic growth in vehicle electrification. "If you are trying to rev this up to 25 percent in the next 10 years, you had better get on that problem now," she said. N. WHAT WE HAVE LEARNED In the concluding roundtable of the conference, Mary Good asked the participants to offer thoughts on some of the lessons from the Michigan battery initiative. Leadership from the State: Bill Harris noted that he was particularly impressed with the Michigan government's readiness to invest in the future and diversify the state's economy. Capturing Regional Synergies: Mr. Harris noted that "Kentucky's goals and ambitions with Argonne match nicely with what is going on in Michigan, and there could be reasons to look at doing things together." Learning Across State Lines: Mr. Harris further noted that "you need some legislators to understand what other states are doing. The absence of informed representatives hurts the dialogue." Federal-State Partnerships: Mr. Les Alexander of A123 said that the coordination of state, federal, and military efforts remains important to drive development and deployment of the advanced battery industry. 69 "Today, almost every major investor owned utility (IOU) in the U.S. is modernizing, or planning to modernize, its existing power distribution or transmission system or both. This is happening to prepare for expected changes, such as the adoption of renewable power and electric vehicles." See Farah Saeed, "What Does Grid Modernization Mean for the Economy and Job Growth?" Frost & Sullivan Principal Consultant. Access at the Electric Light and Power website at http://www.elp.com/index/display/article-display/1932717179/articles/utility-automation- engineering-td/volume-17/issue-3/departments/notes/miso-delivers-billions-in-benefits-to- region.html.

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42 U.S. BATTERY INDUSTRY FOR ELECTRIC DRIVE VEHICLES Importance of Demand: Mr. Alexander said that at this stage, demand-driven stimulation is more important than stimulating manufacturing and research. He warned that if electric vehicles are not built and purchased, "there is a risk that this industry will go away." He suggested that the electrification of military applications, postal fleets, and other government vehicles can help create this demand. Gary Krause of MEDC added that there also needs to be a cultural shift towards the acceptability of electric vehicles, including cars, large trucks, and other vehicles. He suggested a broad based educational effort that does not bear a heavy government fingerprint. Incentives: Dr. Sastry of the University of Michigan stressed the importance of engaging "the next generation of companies and people." She suggested engaging student teams, education programs, and programs like the X Prize to spur innovation. O. A MATTER OF COMMITMENT An underlying concern voiced by many industry and policy leaders at the conference was that the political commitment needed to take the advanced- battery initiative to the next level may not be sustained over the longer term. As Senator Stabenow put it, many investors are still "sitting on the sidelines." She noted that for industry to make the large, long-term investments needed for the U.S. to be competitive, the direction of federal energy policy must be clear. Speaking at the conference, Mr. Van Amburg observed that efforts such as that to electrify the U.S. trucking fleet will require "a coordinated set of standards, policy incentives, and regulations across the whole continuum to the market." While the U.S. does a good job at R&D, it has been "dropping the ball" when it comes to developing high market volumes "to justify the investment by the manufacturers and suppliers," he said. Battery industry executives who spoke at the conference concurred that continued government financial help is essential as the industry further matures. Mr. Forcier of A123 said loans and incentives will probably be required for four to five years, until the costs of hybrid and plug-in cars approach those of gas- powered cars. Firm commitment by America's leading corporations also is essential, said Mr. Alamgir of Compact Power. Had U.S. companies and the government extended more financial help in the 1990s, as did those in Japan, more U.S. lithium-ion makers may have survived. What's needed are "gutsy and visionary leaders" in the U.S. private sector who "believe in the future of this industry and are committed to providing funds," he said. America now faces a "great, once-in-a-lifetime opportunity" to emerge as a leader in advanced vehicle technologies, said Jim Greenberger, executive director of the National Alliance for Advanced Technology Batteries. "But it also is a tremendous responsibility. It is a responsibility of every one in this room to build an industry that is truly sustainable, to create jobs that are

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OVERVIEW 43 sustainable, and to make some real progress on moving our country away from petroleum dependence." This conference report captures the views of state and federal officials as well leaders in industry and academia on the future of the advanced battery industry in Michigan. The next chapter provides detailed summaries of their remarks.

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