Fighting for ‘made in the USA’ – A Story about A123 Batteries

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Fighting for ‘made in the USA’

A battery maker’s story shows the hopes and hurdles of green technology.

By Don Lee, Los Angeles Times

9:00 PM PDT, May 8, 2010

Yet-Ming Chiang relishes his 20-mile drive to work. His hybrid car gets more than 100 miles per gallon, recharges by plugging into a regular wall outlet and purrs so quietly that it’s his favorite place for making important phone calls.

But what makes Chiang’s ordinary-looking beige Toyota Prius even more special is that it’s powered by a breakthrough battery that he invented and is working to turn into the kind of high-tech, green, “Made in America” product that many see as the key to the nation’s economic future.

Safer and longer-lasting than conventional lithium-ion car batteries, the 52-year old MIT professor’s invention packs 600 cells into a case the size of an airplane carry-on bag. His technology has transformed the batteries used in many cordless power tools.

So why are Chiang and his company, A123 Systems, having trouble moving to full-scale commercial production and creating thousands of new American jobs with his better mousetrap?

The answer is a story of the obstacles to a rebirth of U.S. manufacturing, and of the tantalizing possibilities if such a rebirth could be achieved. For Chiang’s company has one foot in China and the other in the U.S., reflecting the forces that drive manufacturers overseas and the potential for a renaissance at home.

The obstacles here are rooted in the sad history of manufacturing’s decline in the United States: Despite the promise of Chiang’s batteries, many on Wall Street and in Silicon Valley were incredulous when he and other leaders at A123 asked for capital to build factories in America — Asia, yes, but Michigan, why would you want to?

Even more daunting, nearly all of the world’s battery manufacturing industry is in Asia, where plants can be built faster and supplies and equipment are much easier to get than in the United States. These days, it’s hard to find Americans who even know how to build a battery factory.

That’s why A123 had to give in and build its first plants in China, where the company could move into production quickly to show auto industry customers that it could deliver on future contracts.

“Without question, we would rather have done it all in the U.S.,” said Chiang, who left Taiwan as a 6-year-old with his family, earned degrees at MIT and has been a materials science professor there since the mid-1980s. “I’m an American citizen. We’re an American company. It’s an American-born technology.”

Despite the obstacles, A123 and a few other advanced battery producers are building plants in Michigan and other states, thanks to massive government support that has offset Wall Street’s skepticism and should help domestic producers narrow cost disadvantages with Asian rivals.

A123 is getting $250 million in aid from the Obama administration’s stimulus program as well as tax incentives from Michigan. Its first U.S. plant opens in June in an abandoned brick building near Detroit that once made VHS tapes for Disney.

That achievement is a testament to American inventiveness, still-flourishing entrepreneurism and a belated conclusion on the part of government that making things in America is crucial to the nation’s economic future.

“Too often we’ve done the innovation and we’ve outsourced the manufacturing,” said Matt Rogers, a senior advisor to Secretary of Energy Steven Chu. “That’s where A123 becomes important.”

Such talk challenges the long-held view that the U.S. economy could continue to prosper even when manufacturing moved overseas, so long as Americans churned out the best research and ideas for high-value products.

But recent experience has suggested that big manufacturing complexes devoted to a single industry, such as those in China, act as magnets for research-and-development facilities too.

Chiang, who wears big silver-rimmed glasses and smiles easily, won an initial $100,000 grant from the Energy Department in late 2001. It helped pay graduate students who, working in an MIT lab on a June night in 2002, suddenly shouted the battery developer’s equivalent of eureka: “Higher power!”

The team was testing nanoscale phosphate materials as a substitute for the cobalt that’s used in conventional lithium-ion batteries. The results surprised even Chiang.

“Keep going, keep going,” he told his students that night as they logged discharge rates five to 10 times those of other high-powered lithium-ion batteries. The idea of applying the battery to electric vehicles wasn’t far from Chiang’s mind; achieving rapid acceleration from a reasonably sized battery was crucial for hybrids.

“Gee, what can you really enable if you can do this?” he thought to himself.

Yet going from lab results to commercial products and mass production looked daunting. After all, rechargeable lithium-ion battery technologies were pioneered in the United States in the early 1990s, but their most lucrative application, for laptops and cellphones, gave companies in Asia a huge advantage because almost all electronics design and manufacturing had shifted to that part of the world.

Japanese firms such as Sony Corp. and Panasonic Corp. led early commercial developments in the field. Then South Korea and China built up such scale and low-cost production capabilities that large U.S. battery makers such as Duracell and Eveready couldn’t compete.

American manufacturing in the last three decades is replete with similar stories. That came across when David Vieau, A123’s chief executive, made the rounds seeking capital in Silicon Valley and on Route 128, Boston’s version of California’s high-tech hub.

“A majority of the people liked the idea of letting someone else make things,” said Vieau, sitting in his small office at A123 headquarters in Watertown, a Boston suburb. “In the software-oriented, Internet-age investment environment, ‘they’ suggested you do the thinking and let someone else put together the bricks and mortar.”

With limited funds, the company went to Asia.

A123 has five plants in China, coincidentally located in Chiang’s father’s hometown of Changzhou, about two hours’ drive west of Shanghai.

Bart Riley, an A123 co-founder and chief technology officer, figured it took about nine months to get a Chinese factory up and running, one-third the time typical for the U.S.

The quicker launch helped A123 make a name for itself through Black & Decker, which in early 2006 began putting A123 batteries in its DeWalt power tools.

Since then, A123 has been supplying batteries and battery systems for New York City buses built by Daimler, among other customers, and the company has agreements to develop products for Chrysler, Navistar and American green-car maker Fisker Automotive.

But in ramping up production in China, A123 paid an immeasurable price: loss of its intellectual property, the ideas and engineering that made its products better.

The company did what it could to slow the technology transfer by breaking down the manufacturing process into steps, Riley said, but “we ended up having to teach these guys how to make our state-of-the-art, world-class batteries. … And some of them are now competing with us directly.”

By the end of next year, A123 expects to have two plants in Michigan employing 400 people, with plans to go up to 2,000 workers able to produce about 30,000 battery systems a year.

The company’s sales reached $91 million last year, and it has about 1,700 employees, two-thirds in Asia.

If experts are right, sales of hybrid and electric cars will begin to take off next year, putting at least 1 million such vehicles on American roads by 2015.

“If we win more [orders], we get more jobs,” said Sean Hendrix, a top program manager at Enerdel, a rival lithium-ion car battery maker based in Indianapolis.

U.S. officials see green cars as an opportunity to revive American automaking and, with other clean-energy manufacturing, reverse decades of declining factory employment.

In addition to backing battery makers, President Obama’s stimulus package awarded millions of dollars to build domestic factories supplying separators and other crucial parts for advanced car cells.

For battery makers, the need to be close to vehicle-producing customers, hefty shipping costs and the high degree of automation also argue for substantial domestic production over the long haul.

Labor costs won’t be on their side. Average wages for production workers at major suppliers to carmakers run about $13.50 an hour in Michigan, about five times the rate in Changzhou.

Chiang is betting that America’s superior technological capabilities will not only help close cost gaps but also force foreign rivals to keep chasing American innovations.

He thinks that may be the only way, apart from government policies, to ensure his company and green-car manufacturing in the United States flourish.

“It’s going to be a fight,” he said.

don.lee@latimes.com

Copyright © 2010, The Los Angeles Times

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