The Washington Post
July 16, 2010

Obama pours energy into electric-car batteries, but will it jump-start industry?

HOLLAND, MICH. -- President Obama, struggling to connect with voters on the economy, cast an unlikely hero as the star of his narrative of redemption and recovery on Thursday: the battery.

Standing at a podium in a muddy construction site, Obama celebrated the groundbreaking of an advanced car battery factory that the White House predicts will produce 300 permanent jobs. It was his fourth battery-related trip as president, and it came as the White House makes an aggressive push to tell what one senior official called "the battery story" -- the tale of a small piece of technology that could affect daily life and spur employment if properly nurtured.

But the administration's $2.4 billion investment in the development of batteries and other electric-car technology in the United States is an enormous bet on a product that has yet to gain broad commercial success. Major manufacturers have yet to sell electric cars in the United States. Hybrids, though they have been around for a decade, represent less than 1 percent of the nation's roughly 250 million-vehicle fleet.

"The battery story is highly questionable," said Menahem Anderman, the founder and chief executive of Total Battery Consulting. "Basically, there's really no proven market, neither electric vehicle nor plug-in hybrid electric vehicle -- and there's really no battery company in the United States that has a verified product."

Although U.S. battery makers could export their products, the global market is glutted, according to analysts. Anderman said global capacity to build car batteries in 2014 will be three times greater than demand that year.

Even some of the U.S. companies that have received the federal grants express concerns that their capacity to build parts for electric cars is far outstripping consumers' demand.

The largest single recipient is Johnson Controls, which won $299 million to build U.S. plants and help develop the industry. By company estimates that were presented to Congress earlier this year, in 2015, the domestic capacity to build batteries will be more than twice the demand.

"The ramifications will be, in our view, very clear," said Mary Ann Wright, a vice president at the company. "Not everybody is going to survive."

Without the federal incentives, the company probably would have built its factory in Europe or Asia, she said, and she lauded the effort to incubate an electric-car industry inside the country. But to ramp up the lagging demand, the company is pushing the federal government to buy more electric and hybrid vehicles for its fleets.

"This is not unlike President Kennedy saying, 'We're going to go to the moon,' even though we didn't know how to get there," Wright said. "It unleashes the industry and the national labs to go out there and start innovating."

During the 2008 presidential campaign, Obama pledged to put 1 million plug-in vehicles on the road by 2015. Now, even aside from the $2.4 billion in grants, the federal government is making a huge investment in electric cars. The administration has provided nearly $2.6 billion in advanced technology loans to Nissan, Tesla Motors and Fisker to establish electric-vehicle manufacturing facilities. To stimulate demand for electric cars, which are more expensive than their conventional or hybrid counterparts, the government is offering consumers a $7,500 tax incentive.

Even advocates of federal support for the industry express grave doubts about expanding battery production capacity so far ahead of the demand, at the expense of other investments. Estimating that by 2015 the U.S. share of the world market will be no more than 10 percent, Anderman suggested that the United States delay efforts to broaden capacity and use the money for pilot projects and research instead.

The plant in Michigan that Obama visited Thursday is controlled by a subsidiary of LG Chem, whose South Korean executives were on hand for the event. The ceremony had a Korean flair: LG Chem passed out hand fans in the colors of their flag, and scores of South Korean reporters flew in to cover the appearance, interviewing members of the company in Korean."For years, we've heard about manufacturing jobs disappearing overseas. You are leading the way in showing how manufacturing jobs are coming right back here to the United States of America," Obama told employees and executives.

In a diplomatic flourish, Obama dropped a line from his speech, included in the prepared remarks, about jobs being created in Michigan "instead of South Korea."

When completed, the factory is expected to be able to produce 15 million battery cells per year. So far, it’s only announced customer is the Chevrolet Volt from General Motors. The automaker is predicting that in 2012 it will produce about 30,000 Volts; if each requires 288 battery cells, as reported, GM could account for less than 60 percent of the plant's production.

Staff writer Steven Mufson contributed to this report.

Written by Anne E. Kornblut and Peter Whoriskey