International Battery Bags $35M, Big Year Ahead


International Battery, a 5-year-old lithium-ion battery startup, is taking the Field of Dreams approach that so many battery startups are eying these days: If you raise funds and build a factory, the customers will come. The Allentown, Penn.-based startup announced Thursday it has raised $35 million in a third round of financing led by return investor Digital Power Capital.

What’s different about IB is it already has a manufacturing facility set up, although it has yet to win any commercial customers. IB says its plant in Allentown was the country’s first facility for manufacturing large format rechargeable lithium-ion cells and batteries when it opened in 2008.

Rather than targeting the nascent electric vehicle market, IB aims first to carve out business in grid storage and smart grid applications. (By contrast, A123Systems (s AONE) started out with batteries for power tools, has secured some deals with electric car makers and is looking to grow its grid storage business.)

IB Chairman Mark Mills, a founding partner at Digital Power Capital, declined to disclose the company’s manufacturing capacity (he said it’s housed in a 98,000 square foot building). But he told us today that IB is focusing primarily on energy storage for the smart grid at this point on the bet that this market will be bigger than the market for advanced car batteries in the 2012-2014 time frame.

The electric vehicle market, he said, “will mature slower than other people think.” If that prediction pans out in the next several years, said Mills, “then we’ve bet properly.” Analyst John Gartner of Pike Research (which pegs the global lithium-ion battery market for transportation applications at $7.9 billion and 16.9 gigawatt-hours in 2015) has forecast that we could start to see excess production capacity and possibly a supply glut for large format lithium-ion batteries starting in 2012.

IB hopes to gain an edge based partly on two cost-cutting factors: supersized cells and a water-based manufacturing process. “Our individual cells are ten to fifty times larger than those commonly labeled ‘large format’ today,” CEO Ake Almgren has explained. “Employing fewer cells to store the same quantity of energy lowers the cost of integrated battery systems and improves reliability and performance.” At the same time, the water-based process for coating electrodes eliminates the costs associated with disposal of the organic solvents often used in the coating process.

Today’s announcement, according to Mills, marks the company’s emergence from a year of “quasi stealth mode,” after a major shakeup that included the exit of IB co-founder John Kaufman, formerly CEO and Chairman of the startup. The $35 million in new funds will be used to help expand IB’s customer base for low-volume “design win” orders, ramp up marking efforts, continue developing the technology and win some of its first commercial orders from customers that are now at the “tail end” of testing low-volume orders. Mills said 2009 was about getting the factory and IB’s cells certified and qualified. Now 2010 will be about business development and sales, he said.

This amounts to a significantly reined-in plan from the one Kaufman laid out a couple years ago. Back in May 2008, the then-CEO said at a conference that the company was looking to raise a massive $100 million in early 2009 to fuel an aggressive expansion. But Mills told us today that IB’s board of directors never shared that vision, and described the ambitious targets as somewhat wishful thinking on the part of an overly enthusiastic entrepreneur. Regulatory filings from 2009 indicate that International raised just under $4 million in a planned $10 million Series B round during the year.

Meanwhile, competitors like A123Systems raked in tens and hundreds of millions of dollars under the Department of Energy’s battery grant program in 2009, and many private investors held off on battery plays to see how Uncle Sam would dole out funding. IB applied for a grant, but did not make the cut in a program whose cost-sharing requirements and emphasis on job creation generally tilted the scales away from younger ventures.

But IB, which produces both lithium iron phosphate and nickel cobalt manganese batteries (and according to Mills is now “qualifying a third chemistry”) does have a few projects in the works. The startup’s devices are slated for deployment in a wind project on the island of Maui and in American Electric Power’s smart grid demo project in Ohio, which won $75 million in federal stimulus funds.

Last fall International Battery also scored a $2.1 million contract to develop prototype batteries for military vehicles. Around the same time the company announced that it was also developing a prototype to be tested for space shuttle applications with funding from NASA.

The company has said its technology “was originally based on an exclusive license from an established leading-edge Chinese battery manufacturing company.” And according to the New York Times, IB initially bought machines from China to make battery components, “and has been tweaking them to make them run faster, use fewer materials and produce a better product.”

Image credit International Battery

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That’s interesting, a US technology manufacturer using Chinese technology.

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