One of the more intriguing—and controversial—parts of the 2009 stimulus bill was a $2.4 billion provision to kick-start a domestic battery industry in the United States. As Michael Grunwald described in his book, "The New New Deal," the Obama administration was hoping that these battery funds could help make the widespread adoption of electric cars a reality:
The battery effort was one of the most ambitious stimulus programs, positioning the United States as a major player in a twenty-first-century manufacturing industry almost overnight, repatriating lithium-ion technologies that were invented in America but had followed the consumer electronics business to Asia.
Before the Recovery Act, the U.S. had a chicken-and-egg problem: Nobody wanted to build or buy electric cars because the batteries were too weak and expensive, and nobody wanted to try to make better and cheaper batteries because nobody wanted to build or buy electric cars. But now 30 stimulus-funded factories are creating a supply chain that could support half a million plug-ins by 2015. Battery packs aren't easy to import—the Volt's weighs more than a washer-dryer—so if plug-ins are going to be made in America, batteries probably have to be as well. And if plug-ins are going to be popular in America, batteries have to get much cheaper...
Fast forward three years. Those battery factories do exist. But many of them are now running idle. The problem? Electric cars have been much slower to take off in the United States than anticipated, which means that the supply of batteries in the United States has vastly outstripped demand. Kevin Bullis of MIT's Technology Review passes along this chart from the consulting firm Advanced Automotive Batteries:
What's striking is that the consulting firm actually expects U.S. plug-in vehicle sales to increase more than seven-fold next year. And even then, there are expected to be too many U.S. battery factories and not enough electric cars to supply. (Hybrid vehicles like Toyota's Prius are selling at a faster clip, but they tend to use nickel-metal hydride batteries rather than the newer lithium-ion batteries produced in factories funded by the stimulus.)
That means many of the battery factories are hurting. In Holland, Mich., LG Chem's battery factory—which received a $150 million grant from the Department of Energy—has recently furloughed its 200 employees. The company had expected to produce batteries for the Chevy Volt, but early Volt sales have been relatively sluggish, and most of the car's batteries are still produced in LG Chem's Korean factories.
Similarly, A123, the innovative battery firm founded by MIT scientists that received a $249 million federal grant to build two factories in Michigan, has been struggling to find customers. Last month, the company announced that it would take a major cash infusion by a Chinese auto-parts-maker, Wanxiang Group, just to stay alive. A123 also has its eye on China's growing electric-vehicle market, with five of its factories in Asia.
This is all just another way of saying that there's still a chicken-and-egg problem, as Grunwald pointed out in his book. As long as electric vehicle sales remain in a torpor, the U.S. battery industry will struggle along with it. What's more, as Bullis reports, many newer electric-car models, such as Renault's Zoe, are still getting their batteries from Asia, where the battery industry has had many years' head start.
So can the U.S. battery industry survive? Obviously it's still early days for the electric-car industry. If plug-in vehicle sales pick up, some of these battery firms could rebound (LG Chem's Michigan factory, for instance, has until 2015 to create 300 jobs before its local tax breaks get revoked). There's also hope for some of the innovative new U.S. research into battery technology—one Energy Department-funded battery maker out in California, Envia Systems, recently claimed to have made a breakthrough in lithium-ion cell technology that would allow smaller and cheaper battery packs.
Eventually, such innovations could upend the vehicle market. In July, a report from McKinsey & Company predicted that the price for lithium-ion batteries could drop by as much as two-thirds by 2020, thanks to new economies of scale in factories as well as other, smaller technical advances. At that price, electric cars would become much cheaper than their conventional counterparts, assuming that gasoline prices keep hovering above $3.50 per gallon. Plug-ins would surge. Oil use would drop. That's the idea, at least.
But for now, it's still very much an open question as to whether the nascent U.S. battery industry will be the one leading that charge.