DETROIT — Just as the auto industry was ripe for change in 1903 when Henry Ford set up Ford Motor Company in Detroit, carmakers again seem on the cusp of revolution.
Hybrid and pure electric vehicles threaten to overthrow the dynasty of the old internal-combustion engine even as proposed greenhouse-gas legislation would undermine its supremacy. China, Japan, and South Korea are hard at work creating batteries for the green cars of the future. And so is Michigan.
Having spent more than $700 million in tax incentives since 2006 to attract, retain, and grow battery companies, the state is aiming to become the “advanced battery capital of the world.” There’s wide agreement here on the consequences.
“We’re faced with either finding new markets for those companies or losing them,” says Greg Main of the Michigan Economic Development Corp. “We can’t be a one-horse town any longer,” said Michael Robinet of auto forecaster CSM Worldwide in Northville, Mich.
But Detroit’s transition to greener automaking is by no means assured. US battery firms are late to the race. Even if their technology wins, there’s no guarantee that Detroit would beat out California or other states vying for supremacy.
Michigan does retain one advantage: a skilled workforce that knows a thing or two about mass-producing cars and car parts. “Those folks are some of the best workers the world has ever seen, and they deserve to have jobs,” says Keith Cooley, CEO of NextEnergy, a Detroit-based nonprofit research facility and business incubator for alternative-energy companies.
A six-minute drive from Ford Motor’s original plant sits NextEnergy’s 45,000-square-foot headquarters and research labs. The nonprofit is a key player in Michigan’s efforts to reinvent the auto industry and, by extension, itself.
NextEnergy is working with nearby Wayne State University as well as Macomb Community College to train workers for advanced electric-drive work via a $5 million Department of Energy grant awarded in August. The organization has also helped state officials vet alternative-energy companies that want to do business in Michigan, such as A123 Systems Inc., which won $249 million in stimulus money to make battery packs for hybrid and electric vehicles at two Michigan locations. In September, the Watertown, Mass., company went public and saw its stock soar 50 percent on its first trading day.
A global technology race
It’s too early to tell whether Michigan-backed firms will be the front-runners in electric-vehicle work, says David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.
Despite getting $1.4 billion in federal stimulus grants in August for advanced battery and electric-vehicle work, the state is locked in a global technology race. Electric-vehicle work for the Department of Energy will be performed in nearly 30 states, with Indiana and Missouri receiving some of the most money after Michigan. Southeast Asian companies also have been developing lithium-ion battery technology for years, such as LG Chem and Korea-based Kokam Company, which is partnering with Dow Chemical Company in Midland, Mich., to do federal electric-vehicle work.
So far, Michigan has assembled a number of promising companies, including auto supplier Magna International of America. The Troy, Mich., firm won $40 million from the Department of Energy to expand two electric-drive-system manufacturing sites in Muncie, Ind., and Holly, Mich. That’s in addition to $3.4 million in state tax credits approved in March to expand another facility that makes electric and hybrid vehicle components. Magna is also working with Ford on the BEV, an all-electric sedan set to appear in 2011, and is producing lithium-ion battery systems for Volvo Group. “As people are spending money in R&D and the volumes go up, you’ll start seeing the costs come down, especially with the incentives we’re seeing from the various governments,” said Don Walker, joint CEO, in an August conference call with analysts. “So it’s going to be a fairly material part of our business when you look out five, 10 years down the road.”
Foreign players are here, too
Not all of Michigan’s green-car companies are American. Compact Power Inc. (CPI), a subsidiary of Korean lithium-ion batterymaker LG Chem, won $151.4 million to produce lithium-ion polymer battery cells for General Motors’ upcoming electric car, the Chevy Volt.
With help from a $3.8 million state tax credit, CPI moved to Troy, Mich., from Colorado in 2005 to be closer to the Big Three automakers and related customers in the state. In April, the state approved $125.2 million in state tax incentives to allow CPI to expand its advanced battery manufacturing capabilities. The incentives were approved based on CPI’s plans to invest $200 million in such projects and create 300 new jobs in the state.
The incentives — and the opportunity to hire from Michigan’s automotive workforce — encouraged the company to expand its battery work in Michigan, says Damian Gardley, sales director for CPI. Three of CPI’s four top executives, including Mr. Gardley, previously worked for Detroit automakers or top-tier auto suppliers. Many of Magna’s 100 employees also have automotive experience. “That’s one of our advantages over our competitors,” he said. “We have a really in-depth knowledge of the auto industry.”
Manufacturing savvy is key
It’s this manufacturing capability — infrastructure plus know-how — that could prove crucial to Michigan’s efforts. Since this will be the first time that most auto companies will be using lithium-ion batteries in vehicles, success will depend on whether electric-vehicle companies can create reliable first-generation technologies, Mr. Cole says. That in turn will hinge on companies being able to produce high volumes of batteries at low enough costs to make affordable cars. And that’s the area where Cole believes Michigan has a clear advantage.
“It’s not the battery labs that will determine the winners and losers,” he says. “This is ultimately going to be determined in the manufacturing of these systems, and you never want to bet against those who know how to manufacture.”
This isn’t the first time a Detroit automaker has tried to go green. General Motors Corp. spent more than $1 billion from 1996 to 1999 to develop an electric car called the EV1. The program, developed in collaboration with AeroVironment in Monrovia, Calif., was killed in part because it wasn’t a commercial success.
Taking another crack at electrics
Will this time be different? Wally Rippel, who worked as one of AeroVironment’s lead engineers on the EV1 project and is now principal power electronic engineer at AC Propulsion in San Dimas, Calif., thinks so. Advanced battery technology is “still more art than science,” he says. So companies working on advanced batteries have a chance to improve the technology and use it to diversify their business to other industries that need alternative energy.
“It’s a good time to invest,” Mr. Rippel says. The technology “will likely show huge improvements in the next decade, if we put the effort in.”
Of course, market forces beyond the state’s control, such as oil prices, may well determine the outcome of its experiment, says Mr. Cooley of NextEnergy. But with the recent influx of stimulus money and projected growth for Michigan’s current green-auto companies, Cooley is optimistic: “I wouldn’t be here doing what I’m doing now if I didn’t think we had a chance of making this successful.”