Billions on the Line as States Battle for Battery Makers

Michigan Governor Jennifer Granholm has made a big push in recent months to lure battery makers to her state with hundreds of millions of dollars in tax credits and other incentives. Granholm is betting that millions more in stimulus dollars allocated for batteries  — and thousands of green jobs — will flow to the state as a result. But Kentucky, which beat out Texas and six other states recently in what Governor Steve Beshear called “a fierce battle” for a planned $600 million battery center, wants just as badly to be the future hub of U.S. battery manufacturing. According to Beshear, it could transform Kentucky’s economy the way the arrival of Toyota did two decades ago.

As we noted earlier this week, developing an idea in the right location can sometimes be just as critical to success as the merit of the idea itself. Just ask the developers in Iceland who seemed to have all the ingredients to make good on the promise of the Internet, but who were blindsided when two guys in Silicon Valley launched something called Google. For battery startups looking for a home, where’s the best place to go if you want to end up more like a Google when the dust settles and less like the Reykjavic hackers?

At least four battery companies are going with Michigan, which has the obvious benefit of proximity to the Big Three — all of which have lined up battery suppliers for electric vehicles. The state has offered $543 million in tax credits for battery makers Compact Power (a subsidiary of LG Chem), Johnson Controls-Saft, KD Advanced Battery Group (a joint venture from Dow Chemical, Kokam America, and Townsend Ventures) and A123Systems, the lone startup in the group and the one with the biggest hiring plans. In all, the companies’ four projects are expected to create some 6,600 jobs, with 5,000 of those coming from A123. Khosla Ventures-backed battery startup Sakti3, based in Ann Arbor, is also working toward setting up manufacturing in Michigan.

Kentucky, meanwhile, has attracted the NAATBatt consortium — the group of 50 U.S. companies that plan to invest more than $600 million in a battery R&D center — if DOE funds come through. The state also has a second development center in the works set to have an annual budget of $7 million, initially for lithium-ion batteries and eventually for lithium-air and zinc-air batteries for vehicles and grid storage. It’s a partnership between the state government, the University of Kentucky in Lexington, the University of Louisville, Kentucky and the Chicago-based Argonne National Laboratory. Being close to those development centers could expose startups and entrepreneurs to funding opportunities, as San Diego hopes will happen for algae innovators as a result of its new Center for Algae Biotechnology.

What else does Kentucky have going for it? Toyota manufacturing facilities, and the fact that the Japan-based automaker may be in a better financial position to make big battery plays than its Detroit competitors. Toyota is hard at work on batteries itself, however, so we wouldn’t expect a major battery supply contract. Ford, while struggling, is the one Detroit automaker to get by so far without bailout funds, and it has two plants in Kentucky. General Motors also has a factory in the state, but it plans to keep its battery assembly close to home (cells for the battery packs in its planned Chevy Volt will come from LG Chem in South Korea).

As Valence Technology CEO Bob Kanode told us earlier this year when we spoke with him about his company’s plans for a U.S. battery plant, “This isn’t just a Big Three situation. European OEMs are larger than the Big Three, larger than the OEMs of Asia.” Kanode thought Southern states’ weaker protections for labor unions, drier climate and presence of European automakers — BMW in South Carolina, Mercedes in Alabama, Volkswagen in Tennessee) — would also help them lure battery makers.

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