Jan
15
How the Deal Was Lost
January 15, 2009 | Leave a Comment
I was surprised a few weeks back when GM announced the winner of the deal to provide batteries for the Chevy Volt hybrid model due out eventually if things at GM can stay financially together. The leading American contender is A123Systems with their advanced lithium ion battery. The winner for now is LG Chem of Korea’s U.S. company Compact Power. By no means do I wish to seem parochial, but A123Systems lost for reasons – perfectly reasonable ones that as a society we need to be aware of to make sound adjustments.
Here from mlive.com are a few quotes that point out the main reasons.
No domestic infrastructure yet exists to supply cells at the volumes needed.
“It’s a business decision,” said Prabhakar Patil, Compact Power’s CEO, “Some people try to make it into an emotional issue but it really isn’t. It’s driven by the volume.”
“The bigger question is actually infrastructure. The labor content in the cell is relatively low. So as a result, there is flexibility. But in order to make that kind of an investment, not only for LG Chem but for suppliers for materials, etcetera, that’s a significant level of investment and therefore you need to have enough of a business proposition, sustainable business, and of course infrastructure. That infrastructure doesn’t yet exist in the U.S.”
Bob Lutz, GM’s vice chairman, explained, “LG Chem has massive support from the Korean government in terms of a whole research campus was paid for by the Korean government because Korea recognizes that advanced battery technology is a key component of the country’s competitiveness.”
Meanwhile A123 has plans to apply for federal grant money to build a production facility in Southeast Michigan. Patil offered the fact that the U.S. hasn’t any infrastructure ready, “That’s something that is evolving and I have to give state of Michigan a lot of credit for what they are trying to do to support that. That’s something we continue to evaluate and when the time is right we are open.” A123Systems better be open too. And so should other states.
LG Chem Cells in Compact Power Pack
But the hard economics, the certainty of delivery is primary, and GM is getting in far enough that the cell pack assembly will be done at a new GM facility in Michigan. The engineering needs to gain sophistication too. Lutz said, “A123 is still sort of a startup, they’re still ramping up, and A123 has been specializing mostly in …cylindrical cells, which are good with power tools and stuff. What we need here is prismatic, which is flat cells. And LG Chem is just farther along.” Prismatic designs allow for higher density of cells in lower-volume battery packs that consume less interior space.
A123Systems M1 Nanophosphate Cell
The decision is the safe (and at the current moment, a smart) move for GM. The Volt is a lot of GM’s pitch to Congress for bailout funds, and it would be a risky and perhaps time consuming to rely on a startup that itself needs government aid to build out the manufacturing facilities.
Lutz pointed to the U.S. Congress for failing to support energy storage technology R&D at the level in South Korea and Japan, the world’s EV and laptop battery heavyweight saying, “This is one of the things why we say, if we’re serious about the electrification of the automobile, as part of the national energy policy we do need government support for advanced battery development, which of course (Korea) and Japan (have).”
It’s an example of a market that would build and grow the U.S. economy. Where’s the leadership? Bailing out investment bankers last I checked.
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