Ener1 Outlines Lithium-ion Battery Plan, Eyes Defense Contracts

Military applications for clean technology have caught our eye in the past — from mobile fuel-cell systems designed for the battlefield to the massive solar installation at Nevada’s Nellis Air Force Base. Yesterday, in a call with shareholders, energy storage company Ener1 (s HEV) said it, too, has its sights on the possibility of selling to the U.S. Department of Defense.

Cyrus Ashtiani, CTO of subsidiary EnerDel, which makes lithium-ion batteries for hybrid, plug-in hybrid, and electric vehicles, said the military has “huge untapped potential” for lithium-ion battery technology. Hybrid vehicle technology can compete on cost in military applications, even more than in cars for the mass market, Ashtiani said, citing gasoline prices in the battlefield several hundred times higher than those seen in cities.

“The personal transportation sector, as everybody knows, is financially stressed,” said Ashtiani in yesterday’s call. Sure, alternative-fuel vehicles could take the auto industry by storm and one day dominate vehicle sales, but right now few automakers are ready to sign up for big battery supply contracts. So it’s no wonder the company is weighing other options. In addition to military contracts, the company is also looking at opportunities to deploy the battery technology it developed for Think’s electric City car to commercial fleets (buses, trucks and delivery vans, for example), and renewable energy storage for utilities and homes.

When it comes to tapping the federal government’s budget in the near-term, Ener1 is looking not to military contracts but to loan and grant programs. The company has applied for $480 million through the Department of Energy’s Advanced Technology Vehicles Manufacturing loan program to double its production capacity for hybrid vehicle battery packs, and expects to win a slice of the $2 billion allocated for battery technology in the stimulus package.

With the stimulus package, Ener1 is all but banking on a hefty grant. Ener1 Chairman and CEO Charles Gassenheimer said in yesterday’s call that based on how the Big Three automakers’ U.S. Advanced Battery Consortium and the Department of Energy divvied up funds last year, he thought it would be reasonable (and likely) for half of the $2 billion to be split among EnerDel and battery makers A123 Systems and Johnson Controls-Saft.

For the ATVM loans, Ener1 says it has progressed to the second stage — financial and technical viability — of a four-step evaluation process. (As of last month, electric sports car maker Tesla Motors was also in this stage.) The next step will involve an assessment of the actual project, and how it would further the aims of the program. If the $480 million loan comes through (in three phases), Ener1 expects to begin producing 60,000 electric vehicle battery packs per year within two to three years of beginning construction on two manufacturing facilities.

So even if all goes well for Ener1 with the loan program, a big ramp up of its production capacity remains several years away. If the funds come through, Ener1 said it expects to complete the entire project around 2015. As for 2009, the company anticipates something of a shakeout for battery makers. “You may see some big surprises here in 2009 from companies who thought they have the right answer and don’t,” Gassenheimer said, predicting that companies working with round battery cell formats will have “a very, very hard time competing at the highest levels.” It seems just a little too soon to write off competitors, however, since Ener1 could be in for its own set of surprises with those government funds.