Solyndra's demise raises questions: Is Michigan investing hastily in batteries?
Electric vehicle batteries offer Michigan’s next great hope for manufacturing jobs, we’re often told.
The federal government has funneled $1.3 billion in economic stimulus cash to fuel battery manufacturing expansions through Michigan in places like Holland, the Saginaw area and Livonia. And Michigan has distributed $700 million in tax credits to the battery industry.
But the recent sudden closure of Silicon Valley solar panel manufacturer Solyndra — which had received $537 million in federal loans, not to mention a high-profile visit by President Barack Obama himself — should give us reason to pause.
The government has clearly decided that advanced battery production is one of the next great “green jobs” opportunities for the economy — and Michigan wants to become the global capital of battery manufacturing.
But in light of Solyndra’s disintegration and skepticism among industry experts about whether battery costs will rapidly decline, it’s time to ask an important question: Are we investing too much and too fast in batteries?
If a promising solar company can collapse so suddenly, so can a promising battery company.
U.S. Sen. Debbie Stabenow, D-Michigan, believes the government’s battery investments are appropriate — and she wants to do more. In July, she proposed the Battery Innovation Act. She said the $2 billion bill would help the U.S. boost its share of advanced battery manufacturing production from 2 percent a few years ago to 40 percent within three years.
The bill would create new grants and funding opportunities for battery research and production, identify domestic supplies of raw lithium and provide loan guarantees for businesses that buy batteries for on-site energy storage.
“I’m looking for every opportunity I possibly can to leverage what we have to create jobs,” she said last week at an event hosted by the Ann Arbor/Ypsilanti Regional Chamber of Commerce.
Michigan’s battery sector has also benefited from $700 million in tax credits hailed by former Gov. Jennifer Granholm as crucial for creating new advanced manufacturing jobs.
A123 Systems recently hired its 1,000th Michigan employee, mostly at its Livonia battery manufacturing plant (above).
Photo courtesy of A123 Systems
These initiatives are already creating jobs. A123 Systems, which received $249 million in grants from the federal government and more than $125 million in tax credits from the Michigan Economic Development Corp., recently hired its 1,000th Michigan worker.
After securing a new contract to supply nanophosphate lithium batteries for future electric vehicles made by General Motors, A123 also expects to hire more workers for its research and government solutions group in Ann Arbor.
Other Michigan-based beneficiaries of federal dollars, state tax relief or both include Dow Chemical, Johnson Controls and LG Chem's Compact Power unit — companies that are constructing battery plants that will collectively create thousands of jobs.
Understandably, these early successes have generated buzz. Now, Democratic state legislators are proposing more tax credits for battery makers. (After first-term Republican Gov. Rick Snyder successfully slashed virtually all of the state’s business tax credits, the latest Democratic proposal seems unlikely to gain traction.)
But what if we’re picking the wrong industry? Isn’t it possible?
Could we end up with abandoned battery plants to go along with our abandoned auto plants?
I asked David Cole, chairman emeritus of the Ann Arbor-based Center for Automotive Research and founder of intellectual property exchange Auto Harvest, whether we could be investing too quickly in batteries.
“Absolutely,” he said. “This is one of my most basic concerns.”
The problem, he said, is there’s no guarantee that gobs of money will accelerate the technology. Engineers at battery companies and automakers are already working around the clock to deliver technological advances, he said.
“You could go pass money on the street to people and tell them to go work on batteries and it won’t do anything because you’re already fully deployed with your technological assets,” he said.
With Solyndra, which had more than 1,000 workers, the government invested too much and too fast — and the company got beat by the global market, including Chinese solar panel makers. (Now, the government is investigating the possibility of impropriety by Solyndra.)
Alternative energy technologies like batteries and photovoltaic energy conversion are evolving rapidly. These are dynamic industries in which competition is fierce and today's winners could quickly become tomorrow's losers.
And, let’s be honest, solar panels are still too expensive for the common homeowner to invest.
Similarly, electric vehicles — even semi-electric cars like the Chevrolet Volt, which can travel up to 40 miles on a single charge of electricity before its gasoline engine kicks in — are too expensive for most consumers.
How quickly they’ll become affordable is the great debate. Two years? Four years? 10 years? 20 years?
“You push it too hard, too fast, before the technology is economic and you’ve got a problem,” Cole said. “The problem is consumers aren’t going to buy something that’s not economic.”
Right now, the cost of lithium battery packs is ranging between $800 to $900 per kilowatt hour, Cole said.
“To become competitive, where it’s a game changer, it needs to be in the area of $250, $350,” he said.
That could be many years away. And, in the meantime, the fight to get there is likely to produce many losers.
“As it stands today, the stage is set for a shakeout among the various battery chemistries, powertrain technologies, business models, and even regions,” the Boston Consulting Group reported in a major paper on battery costs in 2010. “OEMs, suppliers, power companies, and governments will need to work together to establish the right conditions for a large, viable electric-vehicle market to emerge. The stakes are very high.”
Getting the price down to $250 by 2020 presents “substantial challenges,” BSG concluded.
In a recent interview, I asked Chevrolet Volt proponent and General Motors executive Bob Lutz whether Michigan’s investment in the battery industry would turn out to be successful.
“I would say over time, yes,” Lutz said. “But there’s a possibility that it may have been somewhat overdone and that the massive investments were undertaken at a time when the technology wasn’t quite ready yet.”
Lutz said that if electric vehicles and semi-electric vehicles account for 5 percent of auto sales within the next few years, that would be considered a big win.
Here’s the problem: Without a major technological breakthrough that boosts the energy storage capabilities, density and durability of lithium batteries, electric vehicles will stay expensive for years.
And that means battery plants probably won’t employ more than a few thousand workers in Michigan over the next decade.
In a worst-case scenario, some battery makers could end up like Solyndra — out of business.
Maybe that’s a risk worth taking. Perhaps it’s acceptable for the government to invest millions in a few losers in exchange for funding a few big winners.
But it’s a risk that we must consider before investing further in this industry.
Contact AnnArbor.com's Nathan Bomey at (734) 623-2587 or nathanbomey@annarbor.com. You can also follow him on Twitter or subscribe to AnnArbor.com's newsletters.
Comments
Obee
Thu, Sep 22, 2011 : 11:22 a.m.
It seems to me that if the federal government is going to invest money in these technologies, then it ought to commit to buying the products once they are on the market. That would give the industry a boost in demand and perhaps help lower the overall cost. Likewise, the state of Michigan should commit to buying products developed at places like the University of Michigan to give those startups a leg up in the marketplace.
Diagenes
Fri, Sep 16, 2011 : 12:58 p.m.
As in all investment strategies, investment in battery production should be viewed with return on investment as the primary goal. If U of M follows such a startegy and does its due dilligence in a dispassionate way it will be fine. Solyndra is a pefect example of the Obama administration playing croney capitalism. At this point in time, gasoline and diesel fuel are still two of the best energy storage units we have.
mw
Thu, Sep 15, 2011 : 11:04 p.m.
The Volt and Leaf aren't exactly flying off dealers lots -- just a few thousand sold this year (volume which isn't going to mean much battery business). The difference between $800-$900 and $250-300 is huge, and there is really no good reason to expect that kind of improvement. Lithium ion batteries are new *in cars*, but they've been in use for a long time in electronics, where power/weight/price is also very important. Which means there have been strong incentives toward improvement in place for 15 years at least. So this isn't an infant technology where we should expect a quick decrease in cost. Sure, it's a different market than Solyndra, but the same kind of government investments in sexy technologies for political reasons, and it's likely to lead to similar results, I'm afraid.
Jim
Thu, Sep 15, 2011 : 10:03 p.m.
It's not the same market. And more importantly, not the same market forces. Solar cells compete against coal/nuclear which (possible environmental issues aside) will remain cost-effective. Contrast this to declining or at least not-rising oil production, which will drive the price of gasoline higher. There is a market force in place (peak oil) which will drive demand for more efficient automobiles. Not so much with solar.
djacks24
Thu, Sep 15, 2011 : 9:51 p.m.
If this country can't find a way to seriously bring down the cost of living for everybody (through revamping the tax structure including income taxes and absurb property taxes for properties that aren't even nearly worth the amount they are being taxed) then we will never be able to compete in any kind of manufacturing on a global scale. It costs too much to produce anything here period! Unless we have one or more highly competitive reasons for industries to choose to produce here, its going to take more than tax credits and hopes to get industries to produce here. If other countries can do it just a good and as fast as we can, but for a fraction of the price, then what is the competitive advantage to producing here? The only thing we have left is innovation and massive consumption. The cycle of we discover, China produces then turns around and sells to us will continue unless some serious changes to our entire economic system are made.
Kilgore Trout
Thu, Sep 15, 2011 : 8:56 p.m.
Tom, love the name, steinbeck is my hero and I love the boss. I don't think NPR characterized it well. China subsidizes their panels to current price levels, cost basis is actually higher. Therefore I think its safe to say the playing fields aren't level, and crying capitalism is ineffectual. I would like to note that China justified it's subsidies on a national security basis, just like the US military, but our politicians seem to think they know better. China dominates the solar market even though an American company First Solar is the current industry cost leader. Why didn't First Solar get more backing?
Olan Owen Barnes
Thu, Sep 15, 2011 : 8:36 p.m.
A total waste of money, no one will buy them in sufficent numbers. Not a great car for the fly over country. on battery power. Just try to carry the whole family on a road trip with one. It is silly beyond belief.
Gordon
Thu, Sep 15, 2011 : 8:35 p.m.
Lets see, how many start-ups fail a year? If you invested in one then too many. If you didn't invest in one then one that might have worked didn't get the funding. It's risky business. As bad when an invention / idea hits the market the competition becomes fierice and you can lose. Obviously more R & D is needed; but trial & error on the road today is part of that R & D. Only the winners make sense economically.
grimgrey
Thu, Sep 15, 2011 : 8:21 p.m.
So... let me get this straight... These technologies shouldn't be manufactured in Michigan because they will quickly become TOO CHEAP to sell... yet the same technologies will also remain TOO EXPENSIVE to buy?! Now THERE's a neat trick! Nathan Bomey's article never even tries to demonstrate a plausible connection between solar panel manufacturers (like Solyndra) and the completely separate industry of battery manufacturers. The main idea presented here; that since world markets are generally investing MORE in both solar and in battery technology, the USA should retreat from such investments, is absurd.
Mike K
Thu, Sep 15, 2011 : 8:08 p.m.
The really sad part is that one of my customers is an unsecured creditor to Solyndra. The whole concept of "government investment" is bewildering to me. They throw around our tax dollars as if we earn it for free. Investing in companies is best left to investors. You know, many promote high speed rail. If it were that appealing, Buffet or Soros would have dumped billions into it already. We'll see how these battery companies work out. If you want some info on A123 system look at the stock ticker AONE.
Dcam
Fri, Sep 16, 2011 : 5:53 p.m.
"Investing in companies is best left to investors. You know, many promote high speed rail. If it were that appealing, Buffet or Soros would have dumped billions into it already." Ah...for the good old days and Justice Thomas Cooley when he his ruling clearly stated that if businessmen want a railroad from Howell to Detroit, let them pay for it. Taxpayers shouldn't be funding or subsidizing private enterprises. The 1850 Michigan Constitution spelled it out - after several costly scams had been taxpayer funded. <a href="http://en.wikipedia.org/wiki/People_v._Salem" rel='nofollow'>http://en.wikipedia.org/wiki/People_v._Salem</a>
Soothslayer
Thu, Sep 15, 2011 : 7:56 p.m.
If jobs were needed and the industries were competitive the jobs would be able to be created without having to be subsidized. We will never win the war on manufacturing of batteries, we don't have direct access to the natural material resources (China does).
DonBee
Fri, Sep 16, 2011 : 8:47 p.m.
Mr Jacobs - Lithium mostly comes from South America. The rare earths that you are probably referring to, are mostly mined today in China because of environmental laws in the US. We actually have more rare earths available in the US than China does but the EPA and other regulators forced the closure of the US mines. Right now several are trying to reopen on the west coast.
Larry Weisenthal
Thu, Sep 15, 2011 : 7:46 p.m.
The comparison with Solyndra is entirely odious. Two entirely different technologies. Battery technology is central to the future of the auto industry. There's no guarantee that every government investment will pay off. That's the nature of competitive capitalism. The economic world is changing. Taking a position in opposition to the government "choosing winners and losers" makes a lot of sense in a closed national economy. But it's a prescription for failure in a globally competitive market, where the nations which are currently cleaning our economic clocks are making judicious decisions to invest -- at the level of government -- in supporting the activities of private companies engaged in applied research and marketing in groundbreaking industries. - Larry Weisenthal/Huntington Beach, CA
DeeDee
Thu, Sep 15, 2011 : 7:29 p.m.
Sorry to be picking on you Nathan, but the point is that Korea, Japan and China are all investing massively in batteries, as nations, on levels far higher than in the US. If we don't we are GUARANTEED to lose. The, in comparison, minimal investments being made in the US are just the ante to be at the table, not a guarantee to win, but just the price to play. Do we want to just say, "never mind," we don't care if the EV components industry doesn't even has a chance to emerge here? You should have talked to people like Maria Thompson and Ann Marie Sastry who are doing everything they to make sure that at least we have a horse in the race. You may not win the Derby but you have to have some horse breeders in Kentucky, even if it's an expensive business.
DonBee
Fri, Sep 16, 2011 : 8:45 p.m.
DeeDee - It will not matter how much we invest, the environmental and safety regulations are high enough bars that dealing with potentially toxic and/or hazardous materials in the US is so much more expensive than in many countries that even if the wages, tax and capital costs all even - the regulatory costs would drive the manufacturing off shore. We have a clean country, but we use "dirty" products that are made in countries with lower regulatory standards.
Mike K
Thu, Sep 15, 2011 : 7:57 p.m.
You make a good point DeeDee. I'm under the belief that not one cell phone battery is made in the US. Can you believe that? It's not that we don't have the production and the jobs; we don't have the know how. I'm not sure we even have a clue on how to produce them. Anyway, I am not a big fan of picking and choosing companies for our government to invest in with my tax dollars.
Macabre Sunset
Thu, Sep 15, 2011 : 7:28 p.m.
$374 million for 1,000 jobs. That's a little less than 3 jobs for every million dollars spent. So it's not a good solution from an economic perspective. One problem you get when you start handing tax money over to the private sector, willy-nilly, is that you waste a lot of it. Politicians are very good at wasting money - after all, they have to reward the people who paid for their elections. When Obama fast-tracked half a billion dollars for his friends at Solyndra (also "creating" around 1,000 temporary jobs), all he cared about was politics. That the company really didn't have any solutions other than enriching its founders was immaterial. We should understand that a very high percentage of the reward money Jenny spent similarly went straight to the pockets of her friends. If we, as a country, are going to fund this kind of research, we need tighter controls and it should be done at the federal level. I agree it's a matter of vital importance that we develop these technologies.
ChelseaBob
Thu, Sep 15, 2011 : 7:25 p.m.
Government can't pick winners and shouldn't try. That's why Snyder tried to offer tax relief to ALL Michigan businesses. The market will pick the winners.
st.julian
Thu, Sep 15, 2011 : 7:21 p.m.
I believe it depends on the nature of the investment. Investing in technology devleopment is not a new conceptt int his country. Two good examples are the intercontinnental railroad and the internet, both government funded projects. But, any investment has risks. An issue with the with the solar company deals with the focus on a minor technology and gaining efficiency. rather than driving the price down to remain competitive. So investment in battery technology may be great if the current objectives are meant to be competative in a price driven market combined with the regulatory control induced market.
DonBee
Fri, Sep 16, 2011 : 8:41 p.m.
st.julian - The intercontinental railroad had land grant support from the US Government, but not a whole lot of actual cash. The Government was in the middle of a war and pretty broke. As to the Internet, the initial research and the private government links (ARPANET) were covered by US Government money. As businesses joined the network, they paid for their links. The vast majority of the investment has been private capital. Neither is an actual Government supported project, the interstate highway system is closer to a government funded effort, but the reality is the money came from fuel and road use taxes.
Tom Joad
Thu, Sep 15, 2011 : 6:53 p.m.
Heard on NPR that the Chinese government invested 30 billion in solar research. The US manufacturers spend more time and money trying to make the cell more efficient. China is making solar cells to sell and use today. They produce them cheaper; that's who people will buy from. Simple as that. California is prohibitively expensive to do business in. Again if you can't compete you go under.
Michisbest
Thu, Sep 15, 2011 : 6:36 p.m.
Of course it is hasty next year is an election year and Stabenow is a big target she needs to grease some palms as did Obama. Michigan already did this once look up the case of Uni Solar. Granholm and all her wisdom gave then a bunch of state money showed up at the ribbon cutting made a bunch of idiotic startements about jobs that were going to be created etc. They lasted less than a year the scam there was they just worked as a front bought a bunch of equipment and moved it to Mexico.
Mike K
Thu, Sep 15, 2011 : 7:46 p.m.
Not to mention that their stock once traded at $45 and now is about $0.70 (ENER). It's at $0.65 right now. Check out their balance sheet.