NCPA - National Center for Policy Analysis

Car Battery Start-Ups Fizzle

June 6, 2012

Since 2009, the Obama administration has awarded more than $1 billion to American companies to make advanced batteries for electric vehicles.  The money funded nine plants across the eastern United States with the promise of creating more than 6,400 jobs.  To date, the companies have spent about two-thirds of the total and have hired about 2,000 workers, says the Wall Street Journal.

Furthermore, the artificial stimulation the administration provided to the industry has created a glut of suppliers, eager to stock a market demand that hasn't caught up.  This leaves these new startup companies in dire straits.

  • A123 Systems Inc., which received $249 million in matching grants from the Department of Energy, is scrambling to stanch losses and raise new money to stabilize its finances.
  • Johnson Controls Inc. used government grants to build a battery plant in Holland, Mich., but that facility is nearly idled now after its main customer went bankrupt.
  • Korea's LG Chem built a plant in Michigan to supply General Motors, but that plant, which employs 220 people, hasn't yet begun production.
  • Most significantly, Ener1 Inc., a battery maker that built a plant in Indianapolis with $54.9 million of a $118 million government grant, sought bankruptcy protection earlier this year.

John Gartner, an analyst who follows the electric vehicle market for Boulder, Colo.-based Pike Research, blames administration stipulations for the grants for the current downturn in the market.  They required companies to ramp up production quickly and staffing efforts with no concern for demand, thereby creating a mismatch between suppliers and consumers.

Moreover, the lack of demand stems from a lackadaisical performance by the electric vehicle market this year when several popular models failed to fulfill sales expectations.

  • Nissan has sold a little more than 2,100 Leaf electric cars through the first four months of this year, though it expects to sell 20,000 by year-end.
  • GM once hoped to sell 45,000 Chevrolet Volts this year, but it sold only 5,700 units in the first four months of this year.

Meanwhile, administration grants continue to set companies up for failure, as they demand incredible battery production schedules with no regard for the number of customers willing to buy them.

Source: Mike Ramsey, "Car Battery Start-Ups Fizzle," Wall Street Journal, May 31, 2012.

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