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Monday 22 September 2008

U.S. Auto Makers Target Battery Gap With Japan

The lengthening lead Japan's auto makers hold in securing supplies of advanced batteries to power the next generation of automobiles has become a rallying point for the U.S. auto industry in seeking at least $25 billion in government loans.

Over the past decade, Japan's auto giants have been teaming up with its electronics companies, which have dominated global battery manufacturing for laptop computers, mobile phones and other products. Most Japanese battery makers -- even those allied with Japanese auto makers -- say they are willing to supply other car makers.

But securing an adequate supply of batteries over the next few years has become a growing concern for auto makers everywhere. The U.S. industry is leery of depending too heavily on foreign battery makers allied with Japanese auto makers, for fear those suppliers would give priority to filling the orders of their Japanese partners.

Over the past several months, a number of Japan's auto makers and its top battery makers have reached new agreements to work together on vehicle batteries. At least five battery factories are under construction in Japan, including a $115 million facility announced in May by Nissan Motor Co. and electronics giant NEC Corp.

The flurry of deals promises to put U.S. auto makers even further behind their Japanese rivals in manufacturing capacity and technological know-how on the battery front, analysts say.

On Friday, U.S. auto-industry leaders pressed American lawmakers for federal loans to develop homegrown technology for more fuel-efficient vehicles, such as hybrids, plug-in hybrids and electric vehicles.

General Motors Corp. Chairman and Chief Executive Rick Wagoner, appearing on Capitol Hill, called on Congress to support advanced-battery development in the U.S., which he said lags far behind the government-supported development efforts in Japan and South Korea.

The market for advanced automotive batteries is expected to grow to between $30 billion and $40 billion a year by 2020, compared with today's $900 million market for hybrid batteries, according to Deutsche Bank Securities Inc.

Detroit executives say that by helping to narrow the battery-development gap, a federal-loan package would further the goal of U.S. energy security in addition to aiding the country's auto industry. The executives argue that failure to develop a competitive battery industry domestically could create a new energy dependency for the U.S. by making it reliant on foreign-made batteries, even as it seeks to reduce its dependence on imported oil.

"Moving from imported oil to imported batteries" wouldn't address the nation's energy-security concerns, said Mark Fields, head of Ford Motor Co. operations in the Americas, speaking recently in Washington. "Bold and dramatic incentives are needed to accelerate the commercial development of high-energy power batteries right here in the U.S."

Higher oil prices have pushed consumers to hybrids at a much faster pace than almost anyone had imagined, accelerating car makers' need for access to good batteries. Even Toyota Motor Corp., which has the largest supply, encountered a shortage this year of the batteries used to power the electric motor in its popular Prius gasoline-electric hybrid. As a result, it was forced to put some customers on three-month-long waiting lists for the Prius.

For now, some U.S. auto makers are seeking supplies from Japanese battery makers. GM recently announced plans to buy lithium-ion batteries for 100,000 hybrids from Japan's Hitachi Ltd. Sanyo Electric Co. supplies batteries for Ford hybrids.

But Japanese companies continue to invest in their own facilities. Nissan and partner NEC announced in May that they will build a factory that has capacity to make 65,000 lithium-ion batteries a year by 2011, as the car maker aims to become the world's largest producer of electric vehicles.

In July, Toyota opened a battery-research center, which it plans to double in size in the next two years to include 100 scientists and support staff, to develop a supercharged battery more powerful than those now on the market. A slew of smaller companies are ramping up production of cathodes, electrodes and other essential battery-making materials.

Unlike the U.S., Japan has made energy savings a top priority for years. While Detroit has focused on highly profitable large trucks and sport-utility vehicles in recent years, Japanese auto makers have continued to concentrate on smaller, fuel-sipping vehicles, including hybrids

Toyota and Matsushita Electric Industrial Co. formed a joint venture in 1996 called Panasonic EV Energy to produce batteries for Toyota hybrids. With two plants running and a third under construction, the venture aims to produce enough nickel-metal-hydride batteries to power one million hybrid vehicles a year soon after 2010, more than double its plans for this year.

In addition, the company plans to start making lithium-ion batteries, a more-powerful kind of battery that will be used in Toyota's plug-in hybrids scheduled for release late next year.

Panasonic EV Energy runs what is currently Japan's most-advanced battery-making facility. Rising above the rice fields and rows of greenhouses in the farming town of Kosai in central Japan, the factory operates around the clock.

Japan's GS Yuasa, a Kyoto battery maker that has teamed up with Mitsubishi Motors Corp. and Mitsubishi Corp. to make lithium-ion batteries, has been honing its battery-making expertise for two decades, creating batteries for a wide range of uses, including satellites, submarines and power tools.

The company's production facility is a warren of sealed, air-tight rooms. Employees wear face masks, and the floors are lined with sticky mats to collect dust and other particles that could ruin a battery's performance. "Mass production of batteries is very difficult," says Ken Sawai, a manager at GS Yuasa. "There are many secrets."

And there is ample opportunity for developers of better batteries. "Whoever can make a safe, long-life and low-cost battery will be the winner," says Khalil Amine, a battery researcher at the U.S. Department of Energy's Argonne National Laboratory.

Those trying to do that include start-ups like A123 Systems Inc., a small company founded by a group of scientists from the Massachusetts Institute of Technology. A123 is a contender for the battery design that will power GM's planned Chevrolet Volt.

Another battery player in the U.S. is Johnson Controls Inc., which last month was awarded an $8.2 million contract by the U.S. Department of Energy to develop lithium-ion batteries for plug-in hybrid vehicles. The company also will provide lithium-ion batteries for the Mercedes-Benz S-Class hybrid vehicle, scheduled to be on the market in early 2009.

But much more needs to be done, says Mary Ann Wright, vice president and general manager for Johnson Controls' hybrid-battery business. She has been lobbying Washington for a national effort to establish research labs and manufacturing technology to make the U.S. a battery-manufacturing leader.

It would be more of rebirth of an industry than one started from scratch. Key components needed in hybrid and electric vehicles -- including the battery, electric motor and specialized electronics -- were originally developed in the U.S., Ms. Wright says. Now nearly all of them come from Asia.

"It's our punishment for inventing this stuff and allowing manufacturing to go somewhere else," she says.

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