The Big Battery Race is On: Can the U.S. Compete?

The race is on, and battery makers are in the driver's seat. Can American companies capture a share of what could be a $150 billion business by 2030? They'll certainly try.

As automakers turn to electrifying the vehicle fleet, their biggest challenge is lining up a steady supply of high-quality, reliable lithium-ion (li-ion) batteries. The largest li-ion players are not American: They're Japanese and Korean, and their batteries have gone into laptops and other electronic applications.

The Energy Department is looking to change that with $2.4 billion in stimulus money for companies that, while not necessarily American, will build battery manufacturing plants here. The agency had received 165 applications by last week's deadline, according to the Wall Street Journal, and recipients will likely be announced in July.

The U.S. players include Johnson Controls, which has partnered with French battery maker Saft LLC to build batteries in Michigan; Massachusetts-based A123, which also wants to build Michigan plants and has an alliance with Chrysler; and Ener1, which is the supplier for Fisker Automotive's high-tech (and fast) hybrids and wants to expand in Indiana. Dow Chemical and General Motors are also asking to be funded.

The much bigger Advanced Technology Vehicle Manufacturing Loan Program (ATVM) is also Energy Department-administered and was part of the federal energy bill, has $25 billion, and will reportedly start doling out loan money in the next five or six weeks.

In some cases, companies have joined forces to jointly apply for funding. The National Alliance for Advanced Transportation Batteries, for instance, unites 51 small companies. "There are a lot of mating dances going on," says Jon Coifman, who represents Ener1 and other clean-tech companies. "Every week a new relationship is announced. It's not yet clear if these are real marriages."

As USA Today reports, the U.S. military is also investing major sums in battery makers. Q-Tel, a CIA-funded investment firm, has committed funds (an average of $3 million each) to 18 companies, including battery and solar providers. The Army has put $60 million into its own OnPoint Technologies, which invests in energy-related technology that have military uses. Long-lasting batteries are particularly important for operations in electricity-challenged Afghanistan.

Meanwhile, Volkswagen has also chosen a battery supplier for its future hybrid and plug-in vehicles, and it's China's BYD. The Shenzen-based company made a splash when financier Warren Buffett took out a 10 percent stake for $230 million, and it made a second impression when it rolled out a plug-in hybrid car, the F3DM, before anyone else. Not only that, but it has a 62-mile all-electric range (more than the Chevrolet Volt) and retails for $22,000 in China. No wonder the DOE bought an F3DM to take apart. Although many skeptics point out that BYD's build quality is hardly on a Toyota or Honda scale, it's good enough to make the rest of the world's automakers (and their governments) nervous.