Fourteen US companies have ganged up on the taxpayer to demand $1 billion so they can get back into the battery game. Today’s Wall Street Journal tells the story of this “latest pitch from corporate America to inject federal dollars into a project”. Alliance participants point to the 1987 creation of Sematech as an example of a successful government-industry partnership. There are, however, some big differences between the US Semiconductor industry of 1987 and the almost non-existent US advanced battery industry of today. The US’ semiconductor industry was a world leader in 1987 and was shocked into further efforts by the rise of Japanese competitors who made higher quality, lower priced memory chips. The US battery industry, on the other hand, was largely abandoned by indigenous firms as they chased ever higher return-on-investment businesses in order to boost short term stock prices. The story of failing to keep a hand in significant games due to the lure of better profits elsewhere has been told over and over again in America’s MBA infested halls of shame.
GM, for example, crowed loudly in 2000 about moving out of cars and into trucks in search of ever high profit margins. Similarly, Circuit City ditched appliance sales to chase more profitable electronics sales, only to find itself mowed down by the competition. Attentive students of micro-economics know that over time above-par profit margins are always eroded through a combination of competitive forces and demand changes. Don’t MBAs have to study micro-economics? The game of chasing the highest margin business segments while getting out of profitable, but lower margin, segments always leads to a bad end over time. There are only so many businesses you can get out of until there is nothing left. Meanwhile, “more than four dozen advanced battery factories are being built in China but none, currently, in the U.S.” I can’t think of a single instance where the US abandoned an industry and then successfully came back to be a significant player once again. There is little reason to believe batteries will be any different. BTW, semiconductor manufacturing has largely moved to Asia, Sematech notwithstanding. Speaking of which, Sematech’s current membership include Asian companies NEC, Samsung, TSMC, Panasonic, Toshiba and UMC. I guess we really showed them!
Attentive students of micro-economics know that over time above-par profit margins are always eroded through a combination of competitive forces and demand changes. Don’t MBAs have to study micro-economics? The game of chasing the highest margin business segments while getting out of profitable, but lower margin, segments always leads to a bad end over time.
But that’s still no economic argument for staying in a market with even lower profit margins, or where you’re making a loss. While higher profit margins are competed away, microeconomics also tells us that we want new entrants in higher profit margins and fewer entrants in lower profit margin industries. Obviously when some firms leave the lower profit margin industry, that will raise margins in that industry and allow the remaining firms to survive. But that doesn’t meant that the firms that left shouldn’t have done so. It just means that entering a high margin industry is no panacea for underlying management, labor, and production issues; over time, you’ll still have to perform well.
Sears probably did better on appliances because Circuit City left that market, but it hasn’t been all roses for them.
GM would not have been better served by avoiding the truck and SUV market. When you have the most expensive labor, you have to manufacture luxury goods. It’s just that trucks and SUVs were no panacea because Toyota and Honda and others obviously could move into those segments as well.
I can’t think of a single instance where the US abandoned an industry and then successfully came back to be a significant player once again.
Tanks, and armored fighting vehicles. Although the US wasn’t a major player the first time the industry was abandoned, interwar.
“He’s white, white, baby…”
Save for ‘Eternal Sunshine’, Jim Carrey’s best work…
IIRC, one of the most potentially viable battery companies in the US has been bought and sold more than a few times. I think ExMob had them for a while. And, shockingly, did not further the R&D.
But that was a while ago, I’ll have to look into it.
Meanwhile, “more than four dozen advanced battery factories are being built in China but none, currently, in the U.S.”
And can you imagine the hue & cry, followed by a blizzard of lawsuits from the treehuggers & Nimbys, when someone does want to build a dirty smelly toxic industrial battery plant? And that’s after having the EPA crawl up your ass with a microscope. That’s the reason I see that such an “investment” is bound to fail. If they want help from the gov’t, how about federal limits on endless lawsuits whenever someone wants to make an industrial investment?
porschespeed: I think you are thinking of Cobasys which was majority owned by Texaco, which in turn was merged into Chevron. Many feel Chevron did everything in their power to keep NiMH battery technology from being applied to large form factor batteries suitable for automotive battery packs. The relationships between ECD Ovonics, Cobasys, GM and Chevron are a twisted tale.
http://en.wikipedia.org/wiki/Cobasys
John,
Thanks. Couldn’t remember the names.
You’re right. Like most tales big business, once you know the story behind the PR fluff, you wonder about getting fitted for a foil-hat.
Yeah. The Cobasys story is yet another reason to think twice about bailing out GM. As near as I can piece it together, back when they were messing with the EV-1 GM did a joint venture with the inventors of Nickel Metal Hydrite batteries, Energy Conversion Devices (which holds key patents that make it almost impossible to build an NIMH battery without a license from them) to produce NIMH batteries for electric cars.
When GM got out of that business they sold their share in the venture to Texaco, which merged with Chevron. With a little restructuring, the joint venture became Cobays, owned by Chevron and ECD, but with Chevron as senior partner. Cobasys apparently has an exclusive license for NIMH batteries for transportation uses, though as part of the settlement of a lawsuit Panasonic can build NIMH batteries up to a certain number of amp hours.
Cobasys then proceeded to (oddly enough) not produce or sell NIMH batteries except for very large orders, which were not forthcoming, for several years. Chevron kept them operating by giving them $75-80 million per year. Cobasys did finally produce some batteries for one of GM’s mild hybrids, but there were problems with those batteries. At the beginning of 2008, Chevron apparently got tired of handing out $80 million a year for nothing, and was trying to sell Cobasys. Rumor has it that back in June 2008 GM was planning to buy Cobasys back so they would have a source of batteries for their mild hybrids, and was actually paying Cobasys’s operating expenses for 2008 to keep them in business.
What a fiasco. A technology invented here, with a little over twice the energy density per pound of lead acid batteries (though a little less than lithium ion) and nobody producing more than penny packets of them. The key patents run through 2014, though there are hints that the settlement with Panasonic allows some production of larger NIMH batteries by them starting between now and 2010. At least one company is building NIMH batteries that they claim don’t infringe the patents. We’ll have to see on that.
And of course GM was a key and rather stupid player in all of this.
I don’t know how out of it America really is in the battery-technology game. The actual technologies in these batteries are almost all invented in the American university system or in an American start-up.
Might be building a zillion battery factories in China. I bet its not only cheaper to do labor-wise, but when you compare potential liability and regulatory problems for facilities in the USA (or Europe at this point) handling the usually-toxic sh*t that modern batteries are composed of, it gets cheaper still.
But you aren’t inventing them in China, and its primarily American and Japanese companies that procure these technologies from China or they wouldn’t be in the battery business at all.