The lithium-ion battery cell has emerged as a clear favorite with the plethora of car manufacturers who are announcing their electric ambitions. And as this demand rises, suppliers of battery technology are in a race of their own to provide high-quality, low-cost lithium-ion solutions. Several Asian firms have established dominant footholds in the industry, winning contracts with major auto companies, and they offer a formidable challenge to newer entrants:

South Korea’s LG Chem was the supplier chosen by GM to manufacturer batteries for the upcoming Volt plug-in. The newly formed CODA Automotive (based in California) has a deal in place with China’s Lishen Battery Co., and the popular (in China) BYD line of electric automobiles runs on batteries that are produced by their parent company, BYD Company Limited. Other notable Asian players include Panasonic, NEC and Sanyo Electric, all based in Japan. These companies have established reputations for reliability and their technology is tried and tested.

The Challengers

On the other side of the globe, there is a relentless drive to catch up and surpass. Helping the effort is the $2.4 billion U.S. stimulus program, a large portion of which is slotted for battery development. Ener1, a start-up from Indiana, has recently applied for a $480 million government loan in order to expand their facilities and leverage their proprietary battery technology. The company is already supplying Think Automotive, a Norwegian manufacturer, and they are in preliminary stages of agreements with the Californian carmaker Fisker. What separates their product from competitors includes the chemical coating that they apply to the lithium strips, allowing them to customize the battery performance for various needs, as well as the stacked-design of their battery cells, which their CEO refers to as a “breakthrough”.

Another large American technology company aiming to dominate the market is A123 Systems. They have an edge in that they already have battery plants in Asia and relationships amongst the supply-chain. Now, there are talks of adding new facilities to the U.S. in order to take advantage of tax incentives and geographic benefits. Batteries, which are notoriously heavy, can be expensive to ship, so moving their production close to one’s customers can help lower costs.

The Prize

Numerous smaller firms and research arms across the globe are also in the race. The allure of securing just one contract with a major electric car maker is enough for investors and engineers to pour in vast sums of money, time, and experience.

Market dynamics and product technology make for a complicated and unpredictable future. In order to sell, batteries must deliver on multiple fronts that include price, reliability, range, weight, customization, and overall life. Large auto companies also want a supplier that can deliver on large orders with few defects.

While a true battery breakthrough has not yet occurred, falling prices is an important enough factor to keep demand flowing. Whosoever captures a significant chunk of that demand will earn riches, as well as prestige.

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At the 2009 Auto Show in Shanghai (the heart of China’s automobile industry), executives from most of the world’s top auto companies appeared to showcase their newest products and keep an eye on the competition.   Especially notable at this year’s event was that almost every major manufacturer, as well as several smaller companies, had a pure electric vehicle on display.   The number of electric vehicles by Chinese companies?  Eight.  And perhaps the most notable of those companies is BYD (Build Your Dreams).

BYD Auto started out as a rechargeable-battery manufacturer.  In the past couple of years it has tried to make a significant push into the electric vehicle market, even attracting attention from Warren Buffet who invested $230 million in the firm for a 9.8% stake.   The company is in a unique position, being headquartered in one of the only countries whose car sales are still growing at impessive rates.  So far in 2009, China has been the world’s largest automobile market with an annualized rate of 11 million units sold, surpassing the United States rate of 10 million units.   To keep up with the trend, and make further inroads into the industry, BYD has employed 11,000 technicians and engineers to work on its battery technology.   While the Big 3 in Detroit are cutting costs  and looking for further bailouts, auto shows such as these probably serve as a reminder that “green” technology is one area that should not be trimmed.

Another force contributing to Chinese growth is the Chinese government.  Large companies are eligible for $8,800 in subsidies for each electric vehicle they purchase.   Additionally, Beijing has announced $1.5 billion in grants in order to stimulate research into plug-in and hybrid research.  It is clear Beijing officials want to become leaders in this technology, and they have another lever at their disposal:  gas prices.  The price of gasoline is partially controlled by the Chinese government, and if they want to stimulate purchases of electric vehicles they may choose to raise these prices as one way to accomplish their goal.

While most industry watchers believe that, for the moment, Chinese battery technology is not as advanced as its global competitors, conditions might be ripe for a change.  With several vehicle options already out on the road, combined with significant government incentives, and the stop-and-go traffic that makes battery engines most economical, the world’s largest automobile market might be the first to make the switch.

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