A123Systems Vies for Biz in Japan With Its Lithium-ion Batteries

A123-automotive-cellA123Systems (s AONE), the Watertown, Mass.-based battery maker that marked a break in the cleantech IPO drought last month with its initial public offering, shortly after raking in $249 million in federal grants, is now heading to Japan. The company announced a deal this morning with IHI Corp. for the Japan-based heavy equipment manufacturer to sell A123’s lithium-ion batteries and battery systems in Japan to automakers and for use in ships, as well as in its power supply systems, starting next year.

IHI counts among its customers hybrid vehicle heavyweights and ambitious players in the race to develop plug-in vehicles for the mass market, including Toyota, Honda, Nissan (s NSANY) and Mitsubishi. But those automakers have already made their own investments in battery technology for plug-in and hybrid cars, forming joint ventures with consumer electronics battery giants like GS Yuasa and NEC.

So while the Japanese government has cultivated a hybrid boom in recent months with a set of incentives and policies that both lower the upfront cost of fuel-efficient vehicles and keep the fuel costs for gas-guzzlers high, A123’s deal with IHI doesn’t guarantee ready customers in Japan, at least in automotive applications.

Part of how IHI hopes to gain an edge with the Massachusetts company’s batteries is by cutting costs. Reuters reports this morning that IHI said the batteries from A123 — which does most of its manufacturing in Korea and Changzhou, China — beat out rivals’ offerings because they don’t rely on a group of metals known as rare earth elements, or REE, as a raw material. That’s more of a statement about lithium-ion batteries in general, compared with the nickel-metal hydride batteries (which contain REE) used in hybrids like the Toyota Prius and Honda Insight, than about A123 in particular.

As Lux Research analyst Jacob Grose explained to us recently, “Even though…hybrids use only a fraction of the worldwide output of these metals, if there is a shortage and prices rise, it will definitely lead to cost increases in today’s hybrids.”

Still, if A123 is going to get a piece of the Japanese market at an early stage of the government-backed boom, it won’t hurt to have a giant like IHI working to help build that business.