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Car battery starups fizzle after heavy U.S. funding

Since 2009, the Obama administration has awarded more than $1 billion to American companies to make advanced batteries for electric vehicles. Halfway to a six-year goal of producing one million electric and plug-in hybrid vehicles, automakers are barely at 50,000 cars.

The money funded nine battery plants -- scattered across the US from Michigan to Pennsylvania and Florida -- that have few customers, operate well below capacity and, so far, have created less than a third of the jobs promised by 2015. Customers including start-up Fisker Automotive Inc. and auto makers like General Motors that urged the funding have struggled to produce and sell battery-powered cars, though they insist a market is coming.

President Barack Obama heralded the "birth of an entire new industry" during the ceremonial opening of A123 Systems Inc.'s production plant in 2010. The president's 2013 budget proposal asks for an increase in tax credits to car buyers to amp sales.

Getting to that electric-car nirvana is proving more difficult. A123 is scrambling to stanch losses and raise new money to stabilize its finances. Rival Johnson Controls Inc. used government grants to build a battery plant in Holland, Mich., but that facility is nearly idled now after its main customer went bankrupt. Korea's LG Chem built a plant in Michigan to supply General Motors, but that plant, which employs 220 people, hasn't yet begun production, a company spokesman confirmed.

What happened? The US provided grants that tied the battery makers to aggressive timetables, requiring each to achieve production and staffing targets that would supply tens of thousands of vehicles a year. But those production timetables weren't linked to market demand, leading to a shakeout among suppliers.

The mismatch between production and market demand has resulted in one casualty. Ener1 Inc., a battery maker that built a plant in Indianapolis with $54.9 million of a $118 million government grant, sought bankruptcy protection earlier this year. It has since exited Chapter 11 and its plant is operating, a spokesman said, albeit with 250 workers, well short of the 1,700 originally envisioned in 2009.

The Department of Energy, which oversees the administration's advanced battery grants, says it is too early to judge the effort, and believes it will bear fruit when electric cars become a regular sight on American highways.