The Wall Street Journal
July 16, 2010

Plant opening stirs industrial policy debate.

HOLLAND, Mich.—President Barack Obama on Thursday opened the nation's ninth advanced battery plant funded with economic stimulus money, leveraging taxpayer dollars to build a new national industry.

He is also re-igniting a debate not heard since the 1990s: What role should government play in fostering private industrial endeavors?

Compact Power Inc., Holland's second advanced battery plant half-funded by $151 million from the stimulus, will manufacture batteries for the Chevrolet Volt, a plug-in hybrid electric car, with a projected 52,000 to be produced each year. It will also supply the power for a new electric Ford Focus.

It is only a part of a $2.4 billion federal commitment to the fledgling industry, financed under the economic stimulus.

"This is about more than building a new factory," the president told a crowd on a muddy field just outside downtown Holland, where the unemployment rate is 11.8%. "It's about building a better future for this city, for this state and for this country."

Even in Michigan, a major beneficiary of stimulus spending, such industrial policy has become the subject of fierce political debate. The government is betting that electric cars will take off after numerous false starts, and it is using money designed to stimulate the economy immediately to build an industry for the future.

"We've created an entire industry ... that would not be here without the stimulus," Michigan Gov. Jennifer Granholm, a Democrat, said in an interview.

Rep. Pete Hoekstra (R, Mich.), who represents Holland and is a leading contender to be the next Michigan governor, said his constituents were "really turned off by this concept of government picking industries."

Not since President Bill Clinton launched his efforts to build an American high-efficiency car and to tax carbon have politicians debated so-called industrial policy. Republicans say the government cannot and should not pick winners and losers in the marketplace.

Democrats such as Ms. Granholm say foreign competitors have long teamed up with their governments on promising businesses, such as electric vehicles. South Korea's LG Chem Ltd. has put up $151.4 million to complete the Compact Power plant here.

"We know other countries are investing in these technologies," she said. "If we don't have partnerships with federal and state governments to bring down upfront technology costs, we won't compete."

Kurt Dykstra, the Republican mayor of Holland, said the two battery plants here, owned by LG Chem and Johnson Controls Inc., will employ between 600 and 2,000 people, depending on demand.

"That piece of property where I and the president will be standing was growing corn a few months ago. Eighteen months from now, that will be shipping batteries all over the world," Mr. Dykstra said.

"These aren't just any jobs," Mr. Obama said. "These are jobs in the industries of the future."

Mr. Hoekstra said the Obama administration had also used its stimulus leverage to prod local yacht makers here to go into windmill manufacturing.

"That's not how they wanted to go into business," he said.

David Slikkers, chairman of one of those companies, Energetx Composites, said there was no pressure to take the $3.5 million stimulus grant.

"Truly, Holland has been blessed," Mr. Slikkers said.

White House economists say the U.S. produced less than 2% of the world's advanced batteries in 2009. By 2012, plants in the U.S. will have the capacity to produce 20% of the world's production. By 2015, that share will be 40%, the White House says.

But capacity is one thing. Demand for electric vehicles is another, and the market has been fickle in the past. Menahem Anderman, chief executive of Total Battery Consulting in California, estimates that the capacity to produce advanced automotive batteries just from the stimulus-funded U.S. plants will be three times greater than global demand by 2014.

"What's driving the construction is the stimulus," he said. "Neither the technology is ready for that, nor is the need."

Xavier Mosquet, who heads Boston Consulting Group's team of global auto analysts, said estimates by some analysts of sales of one million plug-in hybrids a year by 2015 are "probably too optimistic."

"We don't know exactly how the consumer will respond to a driving range of 100 miles," a typical upper limit for purely electric vehicles hitting the market, he said. "And until we know that, it's hard to have projections."

Mr. Obama has a less ambitious goal of simply having one million plug-in hybrids on the road by 2015.

An online survey of more than 1,000 car buyers looking to buy in the next 6 months conducted by Kelley Blue Book this spring found that just 5% of those surveyed would consider an electric vehicle. But 47% said they are considering a hybrid—a percentage several times greater than just a few years ago according to KBB, a well-known vehicle appraiser.

That's a sign that attitudes could quickly change as vehicles such as General Motors' Volt and Nissan's electric Leaf hit the road later this year.

"We're just to that tipping point of getting into battery electric as a real, mainstream thing," said James Bell, an analyst for KBB.

If the bet does not pan out, the shakeout could be wrenching for Michigan, a state buffeted by such supply contractions. General Motors is building a battery plant in Brownstown Township, in Eastern Michigan. A123Systems Inc. of Watertown, Mass., was wooed with Michigan state tax credits to build a lithium ion battery plant in Livonia, Mich. Toda, a Japanese firm, is building a lithium ion battery components plant in Battle Creek.

Altogether, the new industry will create 62,000 jobs over the next decade, Ms. Granholm said.

White House officials downplay the risk. Battery costs will fall, spurring the market, White House economists say. Before the stimulus, there were only 500 electric vehicle charging stations in the country. By 2012, there should be 20,000.

This conservative corner of Michigan isn't necessarily comfortable with all of the federal investment, said Bill Huizenga, a former staffer of Mr. Hoekstra's, who is running for his ex-boss's House seat. But people here aren't rejecting it, either.

"They are kind of two minds on the subject," said the Republican candidate for Congress, who is a close second in the polls and was born and bred in the area. "They're not comfortable. They're not going, 'Yeah, we got ours.' They're kind of uneasy about the whole thing. But they're looking at it and they're going, 'Well, it's out there. We've got to get this.' "

Corrections & Amplifications
Xavier Mosquet said estimates by some analysts of sales of one million plug-in hybrids a year by 2015 are "probably too optimistic." An earlier version of this story had Mr. Mosquet saying that Mr. Obama's pledge to have one million plug-in hybrids on the road by 2015 "is probably too optimistic."

Written by Jonathan Weisman and Alex P. Kellogg