Planners from Johnson Controls map out a new battery facility in Holland Michigan. Government grants, like the $299 million supplied to Johnson Controls by the Department of Energy, could mean 20,000 new jobs and a future glut of lithium ion automotive batteries.

In advance of this fall’s launch of plug-in hybrid and electric vehicles, lithium ion battery manufacturers are breaking ground on manufacturing plants
nearly every month. About $2 billion in federal stimulus funding has spurred the
building of facilities in Michigan and Indiana that will start churning out battery
packs by the end of the year. But the escalation in production has the potential to outstrip the demand for the batteries by as early as 2012.

As I said on NPR’s “All Things Considered” earlier this week, the battery companies have understandable motivations to quickly ramp up production. For battery companies to receive the full amount of stimulus grants and loans, they must meet specified goals for production capacity. What happens if these production goals exceed the high consumer demand for electrified vehicles anticipated by automakers?

During 2010 and 2011, consumers and fleet operators who are eager to own EVs will scoop up the first units that off the line without much concern for economics. For these early adopters, the first electric cars and plug-in hybrids are “must haves.” But that is likely to be a niche market, numbering in the thousands to 10s of thousands. Remember that only about 1,000 Tesla Roadsters have been sold so far. The market appeal of EVs will have to be broadened beginning in 2012-13 to attract a more cost-conscious consumer, and that adjustment period could impact battery manufacturers who are likely to then be in full production.

Battery Glut: Bad for Battery Makers, Good for Consumers

If gasoline stays under $4 per gallon for the next few years, the EV audience is unlikely to take off as quickly as the auto industry hopes. Other confounding factors for the battery market include possible delays in new vehicles, and a slower than expected rebound by the global economy. A slower than expected increase in the size of the EV market could hurt start-up battery companies more than their larger diversified competitors because they will feel pressure to lower the prices of the batteries—to make the vehicles more appealing to consumers—and to run plants at lower volumes will further reduce revenues.

On the other hand, lower prices for batteries could mean lower prices for electric cars, considering that batteries are the most expensive component. Battery costs are forecast to drop by as much as 15 percent year in the next two to three years. A lithium ion battery glut could push prices even lower. The effect on start-up battery companies could be deadly, but a glut could speed up the transition from petroleum to battery-powered vehicles.

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Ford Motor Company has developed an intelligent charging system that previews how its production vehicles will interact with the grid. The unnamed system enables all-electric and plug-in hybrid vehicle owners to restrict charging to when electricity prices fall below a certain threshold, or even “when the grid is using only renewable energy such as wind or solar power,” according to Ford.

Being able to drive “emissions free” could be a huge selling point for the upscale and eco-minded early adopters who will be buying electric vehicles and plug-in hybrids during the next few years. There’s a natural synergy for customers to put solar on their homes and buy plug-in cars, so they can drive free of fossil fuel.

In its ongoing testing of Ford Escapes converted into plug-in hybrids, the company is leveraging communications systems it designed including SYNC, SmartGauge, and Ford Work Solutions. The vehicles are communicating with the grid through smart meters over a wireless network using the Zigbee protocol, but Ford hasn’t committed to a network platform for its production vehicles.

Ford said its final communications system will be designed to work with a variety of smart meters. The first generation of electric vehicles is likely to use a mix of proprietary and “open” standards that are still in development. Each company will likely offer some part of their charge management technology to others in hopes that it would become industry standard.

The batteries in the 21 test vehicles are from Johnson Controls-Saft, which will also be supplying the batteries for its production plug-in hybrid. Ford will spend $14 billion over 7 years to retool to manufacture advanced vehicles.

Ford has lined up some impressive utilities to help with the tests, including Southern California Edison, American Electric Power, Progress Energy, and 10 others, which will each receive some of the test fleet. The agreement is to continue testing for three years, which is interesting because the company plans to have a commercial plug-in hybrid for sale in 2012—you might think that testing of grid interaction would be moot at that point. Ford received $30 million in DOE grant money to pay for part of the testing.

Ford is rigorously testing plug-in hybrids now, but the all-electric Ford Focus (due out a year earlier) is not being tested in a similar broad fashion.

Reprinted with permission from Matter Network

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