When the U.S. decided to jump-start its battery industry essentially from the ground up in 2009, it was taking on Asia's technology titans: Samsung, Sanyo and Panasonic, among others.
President Barack Obama saw a future filled with electric cars and in total pumped about $5 billion in federal funding into the emerging technology. It was all part of a new economy that promised "green" jobs.
But drivers didn't buy into the electric vehicle craze as Obama anticipated. Two battery companies the U.S. funded to supply those vehicles buckled under, plagued by manufacturing errors and weak demand.
When Ener1, with battery-making operations in Indiana, fell into bankruptcy in January, a Russian oligarch snapped it up.
And when A123 Systems Inc., a Massachusetts company with its manufacturing operations in Michigan, flirted with bankruptcy this month, a private Chinese company with its U.S. headquarters in Elgin, Ill., agreed to invest $465 million for an 80 percent stake.
For U.S. taxpayers, the loss of control over such companies means that instead of nourishing U.S. clean tech companies to compete with Asia, the firms have fallen into their foreign competitors' arms.
"There are no legal or effective means to prevent foreign investment in U.S. companies," said Skip Pruss, former director of the Michigan Department of Energy, Labor and Economic Growth.
"If we fail to support investment with good policies that focus U.S. strengths in innovation and technology and advanced manufacturing, address energy security issues, and capture rapidly evolving global markets, we will not be able to compete with our global competitors who want these technologies," Pruss added.
Funding companies that can't compete, Pruss said, is exactly what the U.S. was trying to avoid.
State and federal leaders still envision that transportation will increasingly run on electricity. The fear is that with battery manufacturing in the U.S. struggling to gain ground, the U.S. could soon find itself importing batteries, once again facing the prospect of being held hostage by foreign countries for its fueling needs.
The government tried to pick the right companies to support. In reviewing A123's and Ener1's applications for funding support, the U.S. Department of Energy said multiple panels of experts evaluated the technical, business and manufacturing aspects of their plans.
"Proposals were selected that would help enable the United States to develop a domestic manufacturing base to capitalize on the growing global market for advanced batteries," a DOE official said in a statement.
The government chose to fund the companies rather than let automakers take the lead because the country was still in the wake of the recession. Two of the three major U.S. auto manufacturers - all based in Michigan - were in bankruptcy.
"Not only did they not have the capacity to develop this technology and manufacture it here, we also had the financial collapse," said Pruss, who was also Michigan's chief energy officer under then-Gov. Jennifer Granholm.
Analysts who followed both companies were astonished by the government's investments, especially since an electric car infrastructure didn't really exist. Only now are companies installing widespread charging stations, also largely with the help of government grants.
"It was a new industry. There were no charging stations out there," said Michael Lew, an analyst who follows the battery industry for Needham & Co. in New York.
A123, which had been a small battery supplier for power tools with the majority of its manufacturing in China, rushed to make good on its promise to invest in Michigan.
In four years, the company doubled its employee base and invested at least $130 million of its own money and another $130 million in matching federal funds in its Livonia, Mich., manufacturing operations. Its long-term debt climbed to $201 million. And by June 30 of this year, it had accumulated losses of $857 million, according to its latest quarterly report.
Lew believes that A123 would have been better off if it had stayed small and grown slowly.
"If they didn't get the funding from DOE, I believe the company would still be standing," Lew said. "They just went through the capital so fast. How much were they burning? Something like $100 million a quarter? Maybe the spending would have been in a more controlled manner."
Not only did electric vehicles fail to sell as quickly as expected, but there were stumbles, including delays in delivery and embarrassing battery failures.
More significantly, natural gas prices sank to historic lows. Suddenly vehicles powered by natural gas became competitive with electric vehicles. By the end of this year, 123,600 natural gas vehicles are expected to be on U.S. roads, compared with 65,500 plug-in vehicles, according to Pike Research's Smart Transportation practice.
Andrew Kaplan, energy partner for Brown Rudnick in Boston, said a country like China would not have allowed investments in companies like A123 or Ener1 to founder.
"Given partisan politics, the DOE doesn't often have an opportunity to provide those companies with enough slack to keep going during an inevitable period of growing pains," he said.
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