Cobasys CEO Defends His Battery Company

Published August 10, 2008

For the auto industry to make a transition from gas-guzzlers to super-efficient cars, it will need a steady and stable supply of advanced automotive batteries. That should be great news for Cobasys, a company that took an early lead in the development and production of nickel metal hydride hybrid batteries. Unfortunately, recent news has been almost all bad for Cobasys. The media has repeatedly reported that the company lacks adequate financing, that its products caused General Motors to recall 9,000 hybrids and crimped domestic production of hybrids, and—just last week—that Daimler is suing Cobasys for failing to deliver on a $6 million development contract.

In an exclusive interview, HybridCars.com spoke with Cobasys President and CEO Tom Neslage about the reports—which Neslage refers to as “foolishness.” Cobasys is a joint venture between Ovonic Battery Company and oil giant Chevron. (This interview was edited for clarity.)

Tom Neslage: The allegation that Cobasys is cash-starved, and that we can’t make payroll, and we can’t fulfill contracts, is absolutely not true. Cobasys has been continuously funded since our inception and has not been cash-starved as alleged. For example, it’s public knowledge that Chevron has put in over $350 million. I would like to spend a lot more money, but that’s a lot of money.

HybridCars.com: Has the flow or frequency or amount of the funding changed at anytime in 2008?

We are being funded on a monthly basis, with the cash we require.

What exactly does Cobasys do? Do you manufacture battery cells, integrate them into packs, or both?

Yes and yes. We build the cells, put them into modules, and put the modules into the battery packs with the controllers. When we deliver the product, it’s plug and play.

Has Cobasys had any problems with delivering on battery contracts?

Let’s put it this way. We’ve been looking at strategic alternatives for the company for about one year. We have kept, to the extent possible, Daimler abreast of our Strategic Alternative Review. For example, in their allegations, they said there was something going on to keep them from knowing what was really happening within the company. That’s just not correct. [Editor’s note: Strategic Alternative Review could be interpreted as Cobasys’s consideration of being sold to, or merging with, another company.]

What is the reason for a strategic alternative review?

We’re looking at the best way to help the company grow going forward.

Has that been a problem in the past?

No. Cobasys has been continually funded since our inception in 2001. We have not been, nor are we now, cash-starved as alleged. We are delivering batteries on a daily basis to our customers, for example, to General Motors.

Do you have any comments about the recall of 9,000 hybrid vehicles from General Motors?

It’s basically completed.

Was the problem a battery leak with Cobasys batteries?

There was a malfunction in the application. That’s really all I can say. It was done for customer satisfaction reasons. We don’t want to put out a product that doesn’t perform for the next 10 years.

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Does Cobasys own the intellectual property for hybrid nickel metal hydride batteries?

The correct technical term is that it’s exclusively licensed to Cobasys.

Do you think there’s a long future for nickel metal hydride batteries?

Yeah, I do. Look at the money that Toyota is investing right now to build another nickel metal hydride plant. They’re expanding their capacity in nickel metal hydride. From my perspective, there’s no silver bullet. There are technologies, and there are trade-offs. Some have better energy density. Some have better recharge abilities. There is no perfect material out there. In some situations, nickel metal hydride is a preferred solution over lithium. And vice versa.

Where does that place Cobasys as a player in the growth of the hybrid car market?

I think we’re in pretty darn good shape. We’re doing the Saturn Vue. We’re doing the Malibu. And we’re doing the Aura. And we’ll be announcing programs in the future as OEMs announce their programs.

Did you see reports that GM was considering an acquisition of Cobasys?

I can’t comment on that.

There has been a string of bad news for Cobasys. But you’re saying that you’re not cash-starved. That any kind of recall was strictly for customer satisfaction. That you’re in full control of all your company. And that production continues unabated.

We’re expanding capacity.

How will the expansion occur?

We never stopped expanding. We are buying equipment to increase capacity at least double from last year. We’re investing tens of millions of dollars to expand our capacity.

Why do you think there’s been a string of negative stories, in sources like Automotive News?

The fiction and innuendoes are so far afield that I’ve told my owners that I have to come out and set some of these facts straight. A lot of this is foolishness.

If you had to grade the health of the company and its production capacities, you’d give it an A+?

I would rate it very strong. We’re growing our capacity on a daily basis. It’s public knowledge. Chevron’s put in almost $350 million. And we’ve already invested a great deal of money in increased capacity this year.

How active is…

We’re not a division of Chevron, as has been reported. We’re a joint venture company.

How active is Chevron in your day-to-day business?

They’re not. They’re investors. We have board members comprised of Energy Conversion Devices and Chevron. And I report to the board. They do not get involved with the day-to-day operations. They’re investors.

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Yet, an Ovonics 10Q document from May 2008 said that members of Cobasys have not approved a 2008 business plan and budget, and questioned if Cobasys should continue as a going concern if it cannot be sold.

We’re still here and we’re still being funded.

Do you have a 2008 budget?

Yes.

What are the key things that keep you up at night, and that you think the company needs to work on?

Let me answer your question this way. Do you know of anyone else, excluding Toyota and [its battery supplier] PEVE (Panasonic EV Energy Co.), that’s put thousands of [hybrid] cars on the road this year?

Besides Honda and Ford. Well, you guys are the only domestic producers right now.

Right.

That’s why it’s such a loaded issue. I think people are rooting for you, and for battery production in the United States, all the way up to the presidential candidates expressing desire to fund hybrid batteries more vigorously. That’s why there’s so much disappointment. GM’s hybrid program has been anemic. They’ve put so much publicity into it, while compared to the competition, there are barely any vehicles on the road. GM said the big hang-up is battery production, and you guys are the name of the game right now in the US. The public is frustrated that more hybrids aren’t coming to the road.

I can only build so many. I’m limited by how much we can grow in capacity. It takes a lot of time and money to ramp up. We’ve put many thousands of vehicles on the road this year.

What are the biggest obstacles to ramping up production?

The equipment required in the factory is special purpose-built equipment. We had to invent it, design it, and create it. We can’t order our equipment out of a Sears catalog. I have to build it, debug it, and that just takes time. On some equipment, there’s lead-time of two to three years. Being first isn’t easy.

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