How battery startups are trying to survive in tough times

UPDATED: The collapse of U.S. battery maker A123 Systems (s AONE) has come to symbolize the overly optimistic outlook for the demand for powerful but expensive lithium-ion batteries for electric vehicles, and it also serves as a warning to battery startups that it’ll probably be harder to raise money and take longer to make sales. “So many investors got burned, and it cast a cloud over the industry,” said Rick Wilmer, CEO of lithium-ion battery startup Leyden Energy, when I caught up with him at AlwaysOn’s GoingGreen conference in San Francisco earlier this week.

It’s not just those who gunned for the electric car, or even the emerging power grid market, that have experienced disappointment and shifted their focus. Wilmer tells us that Leyden has tweaked its plans over the past year, and is now focusing on the tablet market as well as providing batteries for gasoline cars with start-stop technology. Previously the startup was looking to sell batteries for laptops, and electric bicycles, and then wanted to move into newer and tougher ones like electric cars.

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Leyden had a deal with distributor Dr. Battery to sell cylindrical cell batteries, like the AA batteries in a flashlight, which it announced last year. But the company is no longer selling to Dr. Battery, said Wilmer, who became Leyden’s CEO earlier this year. The laptop market isn’t showing enough growth because consumers prefer thinner notebooks or tablets, and cylindrical cells also aren’t in demand for e-bikes, said Wilmer. UPDATE: Dr. Battery’s CFO,  Fan Chun, told me that his company’s relationship with Leyden hasn’t ended. In fact, Leyden is still shipping cylindrical cells to a contract manufacturer hired by Dr. Battery to assemble the cells into battery packs.

But the company has been working on developing flat and rectangular pouch cells that fit into slimmer consumer electronics. Leyden more recently has announced an effort with chipmaker NVIDIA to design tablets, which they hope will catch the eyes of tablet makers. Leyden also is courting makers of chargers for smart phones and devices for personal Wi-Fi hot spots. The company is shipping its battery cells to customers, who have put those cells in consumer electronics, but Wilmer declined to disclose the brands or types of gadgets.

Leyden also is hoping to see its batteries in gasoline cars outfitted with stop-start technology, which use a battery pack to keep the air conditioning, radio and other electronics running while a car stops momentarily, say, at an intersection when the light turns red. The battery also kick-starts the engine after the light turns green. This technology could lead to 5-10 percent better fuel economy and lower tailpipe emissions and is starting to show up in Europe.

batteries1With the slow roll out of electric vehicles, going after more mature and reliable markets certainly makes a lot of sense. But competition in those segments already is intense. A123 also targeted the stop-start market and designed a battery pack for it. And there are non-lithium ion battery developers who are pushing their way into this still niche opportunity.

Then there is the question of how startups can compete with battery giants such as Panasonic and LG Chem who have long established their presence in the consumer electronics business and are no less interested in putting their products in cars. Incidentally, Sony apparently is looking to sell its lithium-ion battery business because it’s having trouble competing with other large battery makers, particularly those in Korea, Reuters reported. Panasonic also isn’t doing so well with its lithium-ion battery business.

The prospect will probably not get too much rosier for battery startups in the near future. Boston-Power, for example, has transformed itself into essentially a Chinese company, to take advantage of low cost financing and Chinese domestic markets. So the question is how many more battery developers will follow A123 into the bankruptcy court or get scooped up, perhaps cheaply, before reaching that point?