Why A123Systems Lost the Volt Battery Deal

cpi-lipolymerBattery startup A123Systems was on a roll in 2008: It went into the year with a fresh round of capital (funds totaled $132 million in October 2007) and by May seemed to be headed for an IPO. But less than two weeks into 2009, the Massachusetts-based company has been defeated in a battle for what could be (if the automaker stays afloat) one of the biggest electric-vehicle battery supply deals in the country: GM’s (s GM) Chevy Volt.

Granted, GM has said it will continue working with A123 (and other battery makers) “to support several [battery] companies and technologies.” But why did A123 lose out to LG Chem’s Compact Power for the major deal? According to GM vice chairman Bob Lutz, the automaker wanted flat, lithium-ion. The risks involved with working with a startup also played a factor.

The Michigan Business Review reports this explanation from Lutz:

A123 is still sort of a startup, they’re still ramping up, and A123 has been specializing mostly in…cylindrical cells, which are good with power tools and stuff. What we need here is prismatic, which is flat cells. And LG Chem is just farther along.

phev_cell_a1231The question of flat vs. cylindrical lithium cells came up last week when Apple (s aapl) unveiled its new 17-inch MacBook Pro at the annual Macworld Expo in San Francisco. Apple’s move to the flat side stems from the company’s design interests (the computer is less than an inch thick, so the lower the battery’s profile, the better). GM has similar reasons: Prismatic designs allow for higher density of cells in lower-volume battery packs (read: more trunk space).

As for the decision to go with the more established company, it represents a safe (and in this economy, smart) move for GM. The little Volt carried much of the weight of GM’s pitch to Congress for bailout funds, and it would be a risky bet to rely on a startup that itself needs government aid to build out manufacturing facilities.

Lutz added a jab at U.S. policymakers for failing to support energy storage technology R&D at the level of counterparts in South Korea (where LG Chem has it’s headquarters) and Japan (the world’s EV and laptop battery heavyweight). Again, as reported by the Michigan Business Review:

This is one of the things why we say, if we’re serious about the electrification of the automobile, as part of the national energy policy we do need government support for advanced battery development, which of course Japan has. LG Chem has massive support from the Korean government in terms of a whole research campus was paid for by the Korean government because Korea recognizes that advanced battery technology is a key component of the country’s competitiveness.”