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Last year’s stimulus package committed the government to spending billions for factories designed to produce advanced batteries for electric cars. One goal is to rejuvenate cities in Michigan that have been devastated by the collapse of the auto industry. Unfortunately, it’s not yet clear if electric cars will sell fast enough to justify all this battery production. Generating the demand for these vehicles could be a long-term project-which could mean even more government investment over the next few years.

Construction began last week on the last of nine battery factories supported by grants under the Recovery Act, which was part of the stimulus package. The factories are part of a $2.4 billion program to help fund 30 factories for electric vehicles and their components in the United States. (The manufacturers must match these federal funds with other money, such as state incentives and private investment.) The U.S. Department of Energy released an analysis this week that claims this program, and others in the Recovery Act that support electric vehicles, will lower the cost of batteries by 70 percent, support the production of 500,000 electric vehicles a year, and create tens of thousands of jobs.

But some experts, including people at companies supported by the grants, worry that the new manufacturing capacity will exceed the demand for electric vehicles and plug-in hybrids, which have larger batteries than conventional hybrids and can be recharged by plugging them in. Later this year, Chevrolet will start selling its plug-in hybrid, the Volt, and Nissan will offer the electric Leaf, to be followed by other automakers in the next two years.

How many people will buy these cars? Menahem Anderman, founder of Total Battery Consulting, which analyzes the market, expects low demand for the vehicles–fewer than 100,000 per year in the U.S. by the time the new factories are all in full swing by 2014. That’s far less than the DOE figure of 500,000. He cites several factors for his low prediction, including the limited range of the Leaf, which Nissan says will be able to go 100 miles between recharging. Also, electric cars and plug-in hybrids are expected to cost $10,000 to $20,000 more than a comparably sized conventional hybrid such as the Prius.

If demand is low, many of these new factories may need to shut down–or rely on the government to keep running. The federal government has already approved tax credits of $7,500 to encourage consumers to buy the vehicles. The government will likely go a step further and expand the market directly by buying large numbers of electric cars for its own use.

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Credit: Johnson Controls

Tagged: Business, Energy, A123 Systems, battery, Volt, A123, stimulus package, Nissan Leaf, President Obama, recovery act

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