Batteries are seen as key to electric market power
The car world is stepping on the accelerator as it shifts away from the piston and toward the electron.
This week at Detroit’s auto show, nearly every major automaker, including General Motors Corp., Ford Motor Co. and Toyota Motor Corp., announced plans to develop more electric vehicles.
But amid all the chatter about charging times, range and 0-to-60 acceleration, an essential business question is emerging. Many industry experts say it could utterly change the complexion of the auto business: Who makes the battery?
“The battery is critical,” said Larry Burns, head of research and development and strategic planning at GM.
Burns contends that because the battery is the most expensive and high-tech component in an electric car, the companies that make batteries well -- rather than those that can most efficiently weld together steel frames -- could emerge as the most powerful players in the industry.
The auto industry, Burns said, is not unlike the computer business, which was once led by hardware makers but now is dominated by software and services.
“If you look at the major industries that have been transformed,” he said, “not many of the incumbents come out of that transformation strong.”
Such predictions put a rather big target on the back of companies such as GM, Toyota and Ford. Might the next automotive behemoth be BYD Co.?
That Chinese company controls nearly a third of the world’s cellphone battery market, but it recently decided to try its hand at making cars and now is pushing hard into electric transportation.
On Monday, BYD unveiled a battery-powered vehicle it claims can go 250 miles on a single charge. It will go on sale in China this year.
“Our leading position in rechargeable battery technology . . . has given BYD a unique advantage,” said Wang Chuan-fu, chairman of the Shenzhen, China, company, which hopes to bring its electric car stateside in 2011 and to build plants in the U.S. soon thereafter.
The idea that expertise in the petroleum-fired engine may no longer dictate the industry’s direction has many old-line companies on high alert.
“This is an absolute game-changer,” said David Cole, chairman of the Center for Automotive Research. He says batteries will become so crucial that assuring they are produced in the U.S. will become a matter of national security.
On Monday, GM announced that it would build a special plant in the U.S. just to assemble the battery for the Chevy Volt extended-range electric vehicle, due out late next year.
In addition, GM will open its own 30,000-square-foot battery research center and enter a research partnership with the University of Michigan.
“The supply, design and construction of batteries must be a core competency of GM,” Chairman and Chief Executive Rick Wagoner said as he announced the plans.
For the time being, GM will use a South Korean supplier, LG Chem Ltd., to make the lithium ion cells at the heart of the Volt battery, but the automaker plans to develop its own technology in the future. “GM is getting back in the battery business,” Wagoner said.
The news prompted Sen. Carl Levin (D-Mich.) to call for federal grants and government programs to help speed battery development on these shores.
“We must be in the position to produce the essential components in the U.S. and not rely on advanced technology and critical building blocks produced elsewhere,” Levin said.
Toyota is ahead of the game. The automaker is betting heavily on its hybrid system, which runs partially on batteries, and has plans to incorporate the technology across its lineup in the near future.
Like several other Asian carmakers, Toyota has a stake in a battery plant. It owns 60% of Panasonic EV Energy Co., a joint venture that makes batteries for cars such as the Prius and is developing advanced batteries for plug-in hybrids and a line of tiny city cars with a limited range that Toyota announced this week.
Masatami Takimoto, executive vice president in charge of R&D; at Toyota, said the company was aware of the threat of losing control of the industry to battery makers, as well as companies that make the technology used to integrate the battery with the car’s drive system -- essentially software.
“I think that possibility exists,” Takimoto said. “Preventing that is the way for automakers to survive.”
To do that, he contends, car companies must build up battery expertise even as they continue to hold the lead in the technology of brakes, dashboards and, yes, internal combustion engines, which he says aren’t dead yet.
Not all companies agree with the carmaker-as-battery-maker strategy, however. Ford on Sunday said it was developing a mid-size battery-powered vehicle for sale in the U.S. in 2011, as well as a plug-in hybrid for 2012. But unlike GM or Toyota, Ford has no plans to develop the battery itself. Instead, it’s handing those duties over to Magna International Inc., a supplier in Aurora, Canada.
“In an environment where there are limited resources, our argument is why don’t we work with people that already have the technology in hand?” said Mark Fields, Ford’s president of the Americas. He said the company would not develop its own batteries.
Alexander Edwards, head of auto analysis for consulting firm Strategic Vision Inc., believes that such a plan carries less risk. By shifting attention to batteries, he said, “GM and others might be locking themselves too much into one solution rather than keeping open to various solutions,” he said.
Battery makers appear to see things in a different light. Peter Bahn-suk Kim, chief executive of LG Chem, GM’s partner in battery development, cracked a big smile when discussing the future of the automotive battery industry.
“This is a very good opportunity for profit growth,” he said. “In the future, we may make these batteries in the United States.”
--
