LG Chem (finally) plans to start mass producing batteries in the U.S.

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Nearly four years after winning a $151.4 million federal grant to build a lithium-ion battery cell factory, LC Chem is finally getting ready to open that production center in Michigan, though not at the same scale as it had planned.

The Korean company, a supplier of GM’s Chevy Volt, plans to began mass production of the battery cells in July. The company initially wanted to build five production lines. It’s built three lines so far and will add two more lines by 2015 if there is demand. The project is the first U.S. battery factory for LG Chem, which has been making cells in Korea.

The company’s reputation took a hit earlier this year when it was ordered to reimburse the federal government $842,000 for misusing the grant.

LG Chem’s scaled-back plan should come as no surprise. The markets for advanced batteries, from electric vehicles to energy grid storage, haven’t taken off as quickly as expected by many in those industries. A123 Systems counted on the success of Fisker Automotive, but instead it found itself filing for bankruptcy last fall and getting scooped up by China’s Wanxiang Group. A123 incurred a heavy cost for replacing faulty battery cells in some of Fisker’s inaugural cars. And Fisker, as GigaOM’s Katie Fehrenbacher noted recently, is the latest example of a heavily funded startup that “crashed and burned.”

Meanwhile, other U.S. battery and electric car component makers have headed to China. Boston-Power moved most of its operation there from Massachusetts and put in a Chinese leadership team because China seemed far more aggressive in building a market for electric vehicles and energy storage for the grid. Still, China has run into problems rolling out a program to promote electric car adoption.

All these setbacks could make a pessimist out of anyone. But we have to step back and take a broader view of what we are trying to accomplish here. Transforming a fossil fuel-dependent transportation business will take decades. Consumers are only slowly getting to know electric cars, whether they are hybrids or all-electric. Many models are new and expensive without government rebates. When the U.S. Department of Energy began awarding billions of dollars in grants and loans to car and component makers in 2008, it was a much needed infusion of money and hope to get what is really a new industry off the ground. Whether it will soar will depend far more than just government funding and optimism.

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