While he thinks Anderman’s estimates are too pessimistic, Michael Andrew, director of government affairs at Johnson Controls, which received the largest of the battery-factory grants–$299 million–agrees that the government will likely play a key role in stimulating the demand. Johnson Controls, which is based in Milwaukee and has a contract to produce batteries for an electric delivery van and plug-in hybrids for Ford, is “working closely” with the agency that handles the government’s purchases of a million cars a year, Andrew says.
“One of the challenges for the industry right now is not overbuilding capacity,” he acknowledges. A wave of purchases from early adopters will help, but to sustain demand, he says, Johnson Controls is working to educate the public about electric vehicles and hybrids.
Andy Chu, vice president of marketing at another grant recipient, A123 Systems, based in Watertown, MA, says his company already has enough orders to justify the capacity of its new factory in Livonia, MI. But he says the calculation would have to be rethought if demand for electric and plug-in hybrid vehicles is lower than his customers expect.
If there is overcapacity, companies such as A123 and Johnson Controls would face tougher competition from suppliers in Asia, where there are several established makers of lithium-ion batteries, and where manufacturing equipment often costs less, Anderman says. U.S. manufacturers will need to ship equipment and materials from Asia, which drives up their costs compared to Asian manufacturers. Indeed, Chu says that without the federal grants and support from the state of Michigan, “We would likely have built a factory in Asia, not in Michigan.”