Massachusetts Battery Firms A123Systems and Boston-Power Taking Different Roads to Auto Market

The automotive segment of the battery market is expected to skyrocket in the coming years, as eco-friendly vehicles that rely heavily on battery power hit the road in greater numbers than ever before. And Massachusetts advanced battery developers A123Systems and Boston-Power are among many firms eying this lucrative market. But the two companies are at very different stages in their efforts to enter it, analysts tell Xconomy.

Watertown, MA-based A123 is already making millions of dollars from its lithium iron phosphate (or what the company calls nanophosphate) battery systems in automotive applications, and it has secured agreements with Auburn Hills, MI-based Chrysler and others to supply batteries for more than a dozen vehicle models at various stages of commercial readiness, according to the company and industry sources.

Though arriving to the auto segment later than A123, Westborough, MA-based Boston-Power expects to provide its lithium cobalt-manganese batteries for an unspecified number of vehicles in China and Taiwan in the near future, CEO Christina Lampe-Onnerud tells Xconomy. Yet the company has not yet announced a deal with a major automaker like A123 has.

Lithium ion batteries—the kind that both A123 and Boston-Power produce—are attractive for use in hybrid and plug-in electric vehicles in part because they have greater power density than traditional lead-acid auto batteries, meaning they can produce more kilowatt-hours of electricity per kilogram. They do cost more than lead-acid batteries, but A123 says its batteries are worth it since they deliver higher voltage than standard lithium-ions. Boston-Power’s lithium vehicle battery, called the Swing, is priced competitively with other lithium-ion batteries, Lampe-Onnerud says. Its Swing battery is also manufactured using the same environmentally friendly techniques that have earned the company Nordic Ecolabel accreditation for its laptop batteries.

But one of the Bay State companies appears to be taking the lead over the other. A123 earlier this month scored a huge windfall from Uncle Sam in the form of a $249 million Department of Energy grant to build manufacturing facilities to produce its next-generation lithium-ion batteries in Michigan (where state officials announced in April that they would give A123 $100 million in tax breaks to expand there). The federal grant was part of $1.5 billion in stimulus money that the energy department awarded this month to companies to produce battery systems and components for hybrid and electric vehicles in the U.S. None of that money will go to Boston-Power, which had requested a $100 million grant for a project to retrofit a facility in Auburn, MA, to manufacture its own lithium-ion batteries for autos. (Boston-Power is waiting to hear about its application for a separate $100 million grant from the Department of Defense.)

“That was a fairly big blow for Boston-Power, and I think it’s going to be very hard for them to catch up on the automotive side, having already been so far behind in the game and faced with not just the A123s and the startups but also the large multinational firms,” said Jacob Grose, an analyst who follows the energy-storage industry for Lux Research, a technology research firm with offices in Boston, New York, and Amsterdam.

In a new analysis of battery companies competing in the automotive market, Lux estimated that A123—which is a private company in registration for an initial public offering—received about 20 percent of its $100 million in 2008 revenue from customers in the auto industry. (A123 has declined to speak with the press while awaiting its IPO.) The company, founded in 2001, is also making money from the use of its batteries in portable power tools, electric grids, and government-owned equipment.

Overall, A123 received a “positive” rating from Lux in the automotive category due to factors such as its existing business in the segment and partnerships with Chrysler and others. Lux gave Boston-Power a “wait and see” rating, since the company has yet to advance as far as some competitors in the auto market.

The Lux study did not name any other New England battery makers in the auto field, but other companies that ranked highly in the report included larger companies such as Korea-based LG Chem (which beat A123 early this year as General Motor’s choice to supply lithium-ion batteries for the plug-in electric Chevy Volt sedan), Japan’s Panasonic (NYSE:PC), and Milwaukee, WI-based Johnson Controls (NYSE:JCI). According to Lux, the hybrid and plug-in electric vehicle segment of the battery market will skyrocket from an estimated $551 million in 2008 to a whopping $3.1 billion in 2013.

Grose said that one of his concerns about Boston-Power’s prospects in the auto sector is that few automakers are looking for lithium battery suppliers right now, having already struck agreements to get such batteries from firms such as A123, LG Chem, and Johnson Controls. Johnson says it’s providing lithium cells for Ford’s planned plug-in hybrids.

However, Boston-Power’s Lampe-Onnerud countered that sentiment, noting that while major U.S. and Japanese automakers already have lithium battery suppliers, there are still companies in other parts of Asia and in Europe that haven’t. As Bob reported earlier this month, Boston-Power already has manufacturing operations in Taiwan and is building a larger production facility in China. The future of the company’s U.S. auto battery manufacturing plans may hinge on the DOD grant; Lampe-Onnerud said her firm is unlikely to move forward with the manufacturing project in Massachusetts without grant support. For now, the company, founded in 2005, is seeing revenue growth from sales of its Sonata batteries in the portable electronics market, Lampe-Onnerud says, noting that the firm has an ongoing supply agreement with Hewlett-Packard to provide HP with eco-friendly laptop replacement batteries.

Boston-Power hasn’t applied for further grant support from the DOE, which received about $2 billion in stimulus funds this year to invest in next-generation batteries for automobiles. A123 revealed earlier this month that the firm is seeking an unspecified amount of additional grant money from the energy department’s advanced technology vehicles manufacturing program.

Despite her firm’s current position in the vehicle market, Lampe-Onnerud says she doesn’t think her company is out of the race. “This opportunity is so large that I think we would be foolish to think that it has formed already,” she said. “It’s in formation and it’s very early-stage.”

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