Despite some bad news, Holland leaders optimistic about battery manufacturing

Feb 19, 2013

Community leaders in Holland, Michigan are trying to stay upbeat about the future of the battery industry they’ve worked so hard to attract.

But the past week has been rough for advanced battery maker LG Chem. A U.S. Department of Energy audit reported the company likely wasted more than a million dollars in grant money.

The federal government paid for half of the roughly $300 million price tag to build the plant. But so far, it hasn’t made any batteries. Instead, the audit found the company paid workers to clean the plant, and volunteer at non-profits like Habitat for Humanity. It says sometimes workers watched movies or played cards.

In a written statement, LG Chem agreed with the findings and paid $842,000 back to the government that it used to pay workers.  The report says LG Chem failed to move production to Michigan from South Korea. But it doesn’t appear that the government can force LG Chem to do that anyway.

LG Chem won’t do any interviews.

So I met up with Holland Mayor Kurt Dykstra at his office in City Hall. Above a large family portrait, I spot a picture of him at what I thought was the inside of the LG Chem plant. It’s actually a photo of from October 2010, when Dysktra and The Lakeshore Advantage President Randy Thelan were invited by the president of LG Chem and the chairman of LG to visit Seoul, South Korea.

Holland made a pretty big effort to attract the plant. It actually expanded the city limits to fit the sprawling plant in its borders.  The city helped pay for road, sewer and utility upgrades to the plant. Although Dykstra says the state paid for some of those upgrades, and LG Chem pays an assessment.

Still, Dykstra and others in Holland aren’t giving up on this industry.

“We continue to take that long-term view and we recognize that along the way there will be significant bumps and this certainly is one of them,” Dykstra said.

“As a community, once the sort of politics and the bureaucratic drama subsides, we’ve got to get back to work,” Thelan said. Thelan's economic development group created a new brand to help attract the industry, called Michigan's SmartCoast.

Just a mile or so down the road, Johnson Controls is making these batteries. Between that factory and other suppliers in the industry, Thelan says there are about 400 jobs in the Holland area. There used to be zero.

“It’s early. Do we have a hiccup this week? Certainly. Are we going to press on? Absolutely,” Thelan said.

Sam Jaffe, an energy storage analyst with Pike Research, says the long view is a good one to take in this instance.

Like LG Chem, Jaffe says there’s a number of advanced battery plants in Japan, South Korea and China that are running under capacity or not at all.

“These factories will be producing batteries, eventually,” Jaffe said.

In most cases, Jaffe says these plants were subsidized by governments with the expectation that the demand for electric cars would surge. That hasn’t happened. Jaffe says the big problem is cost.

“It’s hard for an individual consumer to buy a Chevy Volt for $40,000 when they can get a Chevy Cruze for $25,000,” Jaffe said.

Jaffe estimates it costs GM more than $12,000 just for the battery in the Chevy Volt. The LG Chem plant in Holland was supposed to supply batteries for the Volt.

Jaffe says the problem is sort of a Catch-22. Batteries can’t be made super cheap because the demand isn’t high, and the demand isn’t high because the cars aren’t very affordable.

He says the cost of batteries is already declining, and he sees a tipping point on the horizon… a point where the cost comes down enough that demand for cars or other uses for these batteries surges.

He says Holland’s two anchor battery manufacturers, LG Chem and Johnson Controls, are both very healthy companies that have plenty of capitol.

“LG Chem will not sell that factory because they desperately need that cash. They might choose to exit the business, I don’t know. But they’re not going to do it because they’re about to go out of business and they’re desperate for cash,” Jaffe said.

Jaffe imagines that when the market does pick up, even if it is five years from now, Holland will be in good shape to take advantage of the upswing.