What's the biggest problem facing battery startups?
It might be ambition.
To break into the battery business, startups have focused on designing, manufacturing and selling their own lithium-ion or rechargeable zinc batteries. Unfortunately, it's a high-risk, capital-intensive endeavor that requires scientific creativity and engineering breakthroughs. Most companies fail in the early stages.
And the ones that succeed face even a more daunting task: competing against giants like LG and Toshiba that have extensive R&D teams, worldwide sales channels, strong links with government officials, friends at car companies (they sell chips to automakers already), and factory capacity that could cover several football fields. Plus, they've got the financial resources to allow them to lose billions during temporary downturns.
History proves this out. A123 Systems lost the contract to provide batteries to the GM Volt to a joint venture largely controlled by LG Chem, and its longstanding relationship with Black & Decker is fading away. Revenue from B&D has dropped from 66% in 2007 to 44% in 2008 and 14% in 2009 -- and will drop again this year.
A123 won the deal to sell batteries to Fisker Automotive, but only after it invested $23 million in the company. It also has a contract with Fiat, which so far has been less enthusiastic than other manufacturers about all-electric cars. Eight months after a hotly anticipated IPO, A123's stock trades at under $11, or half of its historical peak.
And that's the rousing success story. Boston-Power has raised $125 million in venture capital, but its highest profile deal still remains a contract with HP. HP puts Boston's batteries in a few high-end notebooks, but the batteries haven't become HP's laptop standard. Imara, which had a novel battery based on research conducted by SRI for an electric car project sponsored by the DOE, raised millions from VCs, but went under in 2009 after it couldn't raise the money to build a demonstration factory. Not surprisingly, a good portion of the DOE stimulus funding for batteries went to established giants like Dow Kokam and Saft.
So what do you do? Envia Systems founder and CTO Sujeet Kumar argues that the answer for battery startups lies in licensing their technology or acting as a component supplier to the big guys.
"It's going to happen," he said.
Envia has created a cathode, which swaps ions with the anode, that can effectively more than double the capacity of lithium-ion batteries, he says. In addition, the cathode doesn't rely on exotic materials.
A few other startups seem to be taking a component approach. PolyPlus in Berkeley, Calif., has come up with a solid electrolyte and other technologies that might make it possible to mass-manufacture lithium air batteries, a futuristic unit that could hold ten times as much power as today's batteries. The company also has a lithium sulfur battery it will license.
Porous Power Technologies has created a way to coat electrodes in batteries with a spray-on separator for lithium-ion batteries. A spray-on separator can increase the capacity of batteries, cut the manufacturing cost and increase the reliability, says CEO Tim Feaver.
Meanwhile, a few startups like Zeptor -- not the evil galactic dictator from the Antares galaxy, but a group of engineers out of the greentech grad school known as Intel -- are experimenting with cathodes made from carbon nanotubes. And then there are companies like Atievo, which make software for controlling and monitoring battery cells stuffed by the hundreds into car battery packs.
It sounds almost like the chip industry, where companies like Tessera Technologies, ARM, Rambus and others have supplied components and technological know-how to name-brand manufacturers like Texas Instruments and Intel.
If only it were so. The battery market is much more difficult for component makers and virtually every venture capitalist I spoke to seemed skeptical of someone making it as a battery component supplier. Large Asian conglomerates -- which already employ extensive engineering teams and sponsor university research -- are much more reluctant to license crucial technology from startups. Some of the companies are also far more reluctant to acquire startups and integrate their technology into their product lines. At many companies, the not-invented-here mindset remains a corporate ethos.
Plus, they fear losing a competitive advantage, according to Steve Jurvetson, managing director of Draper Fisher Jurvetson. Batteries, unlike computers, function more like holistic machines: the components are fine-tuned and finessed to work together. Many say the cathode determines the personality of a lithium-ion battery. Trying to integrate a third-party component could be a step backward, and what happens if other large rivals adopt the same cathode?
Maurice Gunderson at CMEA and Tom Blaisdell at DCM said that manufacturers of separators and other passive components likely stand a better chance of success than companies trying to sell cathodes or anodes. An easier approach, says CMEA's Sumeet Jain, might lay in developing a battery with a chemistry and/or architecture tailored to an application. ReVolt and PowerGenix are following that strategy with their zinc batteries.
"I suspect breakthrough technologies, and I have seen very few, will have the opportunity to be independent battery companies and they may joint venture with auto component suppliers," wrote Vinod Khosla of Khosla Ventures.
History doesn't help, either. A novel cathode was at the heart of Imara's battery. The company eventually hoped to become a cathode supplier, former CEO Jeff Depew told me in better days. But to get that far, Imara would first have to show it could make batteries, which then put the company in a financial bind.
Kumar disagrees. For one thing, startups won't be able to raise the capital to go into mass production. Thus, they may not have a choice.
Second, the Chinese may help. Chinese battery manufacturers have yet to achieve the quality standards of their Korean and Japanese counterparts. "They are ten years behind," he said. Boston-Power manufactures batteries in China, but under the strict supervision of engineers from the home company.
In contrast to many established Japanese and Korean conglomerates, Chinese companies don't have a lot of qualms about asking for help. Legend was a computer distributor back in the 80s when it asked Acer for help on designing PCs. A few years later, Legend became China's largest PC maker. A few years after that, it changed its name to Lenovo and bought IBM's PC unit to go global.
ENN, a sprawling conglomerate that started as a car rental company, has inked a deal to build power plants in the U.S. with Duke Energy Services. Solar thermal technology -- thermal power plants, not solar water heaters -- has largely been absent in China. Last year, Penglai Electric struck a deal to collaborate with eSolar, which could lead to 2 gigawatts of solar thermal power by 2021 in China.
Envia's task is not enviable. But it beats certain death.