By Rick Haglund
Michigan has moved aggressively in recent years to become the national leader in producing the advanced batteries needed to power electric vehicles.
But the recent wholesale revision of business tax credit programs in Michigan and uncertainty about the growth of electrified vehicles raise questions about whether the nearly 64,000 direct and spin-off jobs promised by the industry will materialize. Will the battery industry become a significant source of economic wealth for the state?
Former Gov. Jennifer Granholm thought so. She viewed batteries as the 21st century equivalent of the development of the internal combustion engine in the early 20th century.
“In this century, advanced battery technology will be every bit as crucial to developing a new green auto industry and preserving the middle-class way of life that we enjoy in Michigan,” Granholm said in a 2009 radio address.
“Up to this point, the federal and state efforts have been instrumental in developing this industry. It was a concerted effort,” said U.S. Sen. Debbie Stabenow, D-Lansing. “I’m concerned about whether we will still see the focus there needs to be on advanced batteries.”
Michigan’s existing tax credit deals with battery firms will be honored, assures the Michigan Economic Development Corp., even in light of Gov. Rick Snyder’s success in convincing the Legislature to drop most tax credit programs going forward. “(A)s demand for (electric) vehicles grows, so will Michigan’s advanced battery industry. Suppliers will choose to locate and grow in Michigan because they will want to be in close proximity to automotive manufacturers,” MEDC says on its website.
A new forecast by the Boston Consulting Group predicts that sales of electrified vehicles — hybrids, plug-in hybrids and pure electric vehicles —will range from 9 percent to 12 percent of the U.S. vehicle market by 2020, up from 3 percent last year.
Electrified autos will remain a small segment of the vehicle market for some years because of relatively plentiful oil supplies and competition from increasingly fuel efficient internal combustion engines, according to the consulting firm.
“But governments may want to continue to provide incentives for the purchase of electric vehicles as a counterweight to OPEC,” said Xavier Mosquet, the head of Boston Consulting Group’s automotive practice.
Snyder’s economic development strategy ends Granholm’s practice of targeting new industries in favor of lowering costs for all businesses and providing technical assistance for small companies that want to grow, a process known as “economic gardening.”
Before this shift, Michigan, by nearly unanimous votes in the Legislature, adopted a series of lucrative battery tax credits in 2008 that helped attract 17 battery and component operations promising 63,585 direct and spin-off jobs.
The state’s $2.1 billion in tax credits were supplemented in 2009 by $1 billion in federal stimulus grants to accelerate the development and production of batteries here.
That represented nearly half the $2.4 billion in federal stimulus money awarded to companies and academic institutions nationwide. (Indiana, North Carolina and South Carolina were among the other major recipients of the federal battery grants.)
General Motors, Ford, Johnson Controls-Saft and A123 Systems have begun battery production in Michigan. They and several other companies that will start production next year are in the process of hiring several thousand workers, mostly for hourly positions paying around $14 an hour — roughly $29,000 per year.
Brett Smith, an advanced powertrain expert at the Center for Automotive Research in Ann Arbor, said Michigan has entered a treacherous “valley” between the time the investments in battery plants were announced and the start of significant production. He added that battery companies might not survive the dip.
“We knew realistically this wasn’t going to happen in one or two years,” said Smith. “The challenge for that sector is how we get through the valley.”
The end of targeted state assistance “creates a big problem for the battery industry,” Smith explained, as it awaits wider acceptance of hybrids and pure electric vehicles. Battery companies will need to supply customers outside of the auto industry to survive, he said.
“The way you should judge the business case isn’t automotive, but what they’re doing beyond automotive,” Smith said.
Michigan will continue to support the battery industry, even though it has ended the battery tax credit program, said MEDC spokesman Michael Shore.
“We still have staff members who are focused on business attraction and we’ll still be pursuing the world’s best-practices companies,” Shore said. “Our focus going forward will be filling in gaps in the supply chain for the battery industry.”
That effort will entail developing talent for companies and linking potential suppliers with battery manufacturers.
The MEDC has $100 million available for economic gardening and business attraction efforts. Another state program, the Michigan New Jobs Training Program, allows a company’s payroll withholding taxes to go to community colleges for job training.
Dow Kokam, a lithium-ion battery plant under construction in Midland, is using that program to train 750 workers at Delta College in Saginaw. Delta will receive $6.2 million over 10 years in diverted Dow Kokam payroll taxes.
In West Michigan, two battery manufacturing plants are under construction — Johnson Controls-Saft and LG Chem in Holland — and a third, fortu PowerCell Inc., is proposed for Muskegon. The region is marketing itself as “Michigan’s Smart Coast” in an attempt to land additional advanced battery investment.
Randy Thelen, president of local economic development agency Lakeshore Advantage in Holland, said the MEDC has not pulled back in working with his agency to support battery companies.
“The MEDC is developing a new economic toolbox that may not be as flashy as what we had before, but I think it will be effective,” he said. “My optimistic view is that we had a lousy business climate and our new tax structure will make us more competitive.”
Advanced batteries could be a $100 billion market over the next 20 years, according to some estimates. But the size of the market will depend on the acceptance of electrified vehicles by consumers.
There have been just 122,531 hybrids, plug-ins and pure electric vehicles sold so far this year, compared to total U.S. vehicle sales of 5.26 million, according to HybridCars.com
But through April, U.S. sales of electrified vehicles grew 25.6 percent from the same period a year ago, nearly twice the 14 percent growth rate for the industry as a whole, according to Baum & Associates, a West Bloomfield-based automotive forecasting service.
May sales were depressed because of the Japanese tsunami, which has created shortages of parts and electrified vehicles.
President Barack Obama has set a goal of having 1 million hybrids and pure electrics on the road by 2015, a number Baum & Associates says is likely to be met because of all the new models automakers are introducing.
The company said it expects automakers to offer 102 hybrid and electric vehicles by 2015, compared to 27 today.
“While GM and Nissan have tried to grab a leadership position with their respective products, none of the automakers want to be left behind,” said Alan Baum, president of Baum & Associates.
Baum was speaking of GM’s Chevrolet Volt and Nissan’s pure electric Leaf car.
Automakers recently announced plans to boost production of their hybrid and electric vehicles in the midst of high gasoline prices and pressure from the Obama administration to boost fuel economy.
Ford Motor Co., for instance, announced last week it would triple the production of its electrified vehicles from about 35,000 to 100,000 cars and trucks in North America by 2013. Those include the Fusion and Escape hybrids and a new C-Max minivan that will be sold only as a hybrid or plug-in hybrid.
Ford also announced in a June 9 press release that it was adding more than 220 green technology jobs, including 50 engineers, in Michigan “as the state becomes its center of excellence for vehicle electrification.”
GM said last week it was expanding sales of its extended-range electric Volt (others call it a plug-in hybrid) from seven to all 50 states for the 2012 model year. The Volt is built at GM’s Detroit-Hamtramck assembly plant.
GM also is lowering the Volt’s price by $1,000 to $39,995. And many customers are eligible for a $7,500 federal tax credit.
Experts say the keys to the success of electrified vehicles will be in lowering the price of the batteries and extending the range vehicles can travel under electric power. The Volt, for instance, can travel only about 40 miles on a charge before its gasoline engine takes over. The pure electric Nissan Leaf has a range of about 100 miles.
“Many of us feel that the markets will be very large, but only if battery technology improves and costs also drop,” said Ann Marie Sastry, president of Ann Arbor-based battery developer Sakti3.
The Boston Consulting Group forecasts that battery costs will fall 64 percent by 2020. But the purchase price of a pure electric vehicle will still be about $6,000 above a gasoline-powered car.
Sakti3, which is still in the development stage, is working on a battery that is smaller, lighter and more efficient than any now available. Its battery recently was identified by Technology Review, a publication of the Massachusetts Institute of Technology, as one of this year’s top 10 emerging technologies.
Sastry also is a University of Michigan engineering professor. Her company has been awarded $10.4 million in state battery tax credits. And GM Ventures, the venture capital arm of General Motors, has invested $3.2 million in Sakti3.
As for where all these new vehicles will “fill up,” Senate legislation co-sponsored by Stabenow would give communities grants of up to $250 million each to build electric vehicle charging stations and update zoning codes to allow for their construction.
The legislation, which has not been voted on, would award as much as $10 million to battery makers that develop batteries with a range of 500 miles.
“There is an opportunity for the national and international center of the battery industry to be in Michigan. This is very important for us,” Stabenow said. “We have to keep an aggressive push and focus on this industry.”
5 Comments
The email message I received on this topic said “Michigan has made a $2 billion bet on the automotive battery industry” I don’t see a $2 Billion bet? Tax credits are not an investment they are only allowed when the factories are set up, jobs created, etc. Right now there is a huge global battery industry and it is not just for pure EV’s, plug in Hybrids also need much larger batteries than ICE powered vehicles and even if the forecasts are low, there will be a need for greater than a million batteries a year for EV’s and Hybrids in North America alone, a substantial production
Please don’t perpetuate the myth that many believe about tax credits
What I am trying to figure out is why should we think the politician are such great pickers of technology and companies. If the were really so good at making these picks they would be making billions on Wall Street rather than spending billions in Lansing.
The smartest thing the politicians can do for creating jobs is making the business enviornment the most conducive to working and hiring here. It surely isn’t trying to pick winner and discouraging the rest.
Let the market place pick the winners and losers, let government spend their time working on making the roads and rules better and not barriers to business. How dumb is to want to build a new bridge when the major highway across the state is still two lanes each just as it was 50 years ago.
Maybe it’s just the U.S. and state governments that can’t pick winners. Japan, China, Germany, and many other governments seem to have successes in picking winners a losers. Check it out! U.S. with it’s mantra of “governments no good picking winners and losers” is first off hypocritical and those singing this mantra evidently haven’t bothered to check out the success stories from other countries.
Why no discussion of Shai Agassi’s company, A Better Place, in Palo Alto, CA. You buy an electric car for less than the cost of a gasoline engine car, because you don’t buy the high tech battery. You rent it by the mile, I think for less than the current cost of gasoline. When you charge at home and/or at work the company pays the cost of the electricity thru smart metering. If you travel more than the range of the car – approximately 100 miles currently – you stop at an automated service center and swap out your battery pack for a fully charged one in less time then it would take to fill up with gas. Your battery pack is then recharged and available for another vehicle. One such station with 12 to 15 battery packs will support about 2500 cars as most charging will occur at home or work. They are completing 220 such stations covering the state of Israel and expect well over half the new vehicles sold in Israel to be electric only within 5 years – due to the lower initial cost. Denmark, Hawaii and some cities in Japan are also proceeding. Renault is building the electric cars – 7 or 8 different models – but all use the same standardized battery packs. Appears to be a very smart concept. No $7,500 tax credits required. Chevy Volt is neat but makes no economic sense at $39,000 – with two operating systems – gas and electric. Ford, GM and Chrysler should be looking at this concept – their finance companies could lease batteries if they became licensees and standardized their battery packs. Could put a lot of construction workers back to work building these charging stations across the country – I think they cost about $500,000 each. Most charging could occur at night with smart metering – when most utilities have lots of excess capacity – making them more profitable and minimizing the need to build more power plants. Could largely phase out new internal combustion engines for cars over 10 years, and cut oil imports in half. If you converted larger trucks to natural gas – the Pickens plan – you could eliminate the other half of oil imports. Think about the positive economics of keeping 100’s of billions of dollars on shore every year and the political impacts – wars, international competitiveness, etc. It appears there is a Moore’s Law at work in battery design as well as in computers. Battery capacity will double every 18 to 24 months or the cost will by cut in half. That means the electric cost per mile traveled will also be falling and range improving. When this system does not appear to even be part of the discussion in Michigan – I worry that Ford, GM, Chrysler and the State incentives are missing the target.
Batteries are one solution to a vexing issue with shifting to an economy with significant solar and wind power generation. Both stop producing when conditions are not right. Large batteries with significant energy storage would be charged during good conditions, to provide power when conditions not good.
The focus on small vehicle sized batteries is very important and a good financially justifiable goal. But keeping society with continuous power is crucial. The Great Lakes region has huge potential for (interruptable) power generation, as does the US Southwest. Almost everywhere, actually.
These are great markets for massive power storage systems. Is anyone in Michigan working on them? — LastTechAge